Insurers really don’t want you to know what’s in their files.2020-04-23T00:34:40+00:00
04.24.2015 // THE POLICYHOLDER REPORT
Insurers really don’t want you to know what’s in their files.

With the sanctity of any time-honored tradition, insurers resist discovery of their claim file with the ritualistic incantation that it is protected from discovery because it was prepared in anticipation of litigation, and therefore qualifies as work product.  To support this argument, oftentimes insurers outsource the adjustment of the claim (a normal business activity) to outside attorneys, and then refuse to provide the attorney’s file, or communications with the insurer and the attorney, on the basis that those documents are protected by the attorney-client privilege. Courts across the county have been increasingly dismissive of these arguments, holding that an insurer cannot cloak its claim file with privilege simply by paying a lawyer to do what is otherwise an everyday claim handling activity for the insurer.  Oregon finally has a chance to weigh in on this issue and level the playing field for insureds.

In Liberty Surplus Insurance v. Seabold Construction, the Supreme Court of Oregon has the opportunity to decide whether an insurer can conceal its claim handling by outsourcing it to lawyers. The case results from an underlying construction defect action. Seabold was sued for faulty workmanship, and was defended by Liberty.  Following an $8.4 million arbitration award against Seabold, Liberty filed a lawsuit against Seabold arguing that it didn’t owe coverage for the arbitration award. During discovery, Seabold apparently learned that Liberty retained multiple attorneys to look after its interest—one lawyer to defend Seabold and reduce Liberty’s liability exposure; another who advised Liberty on means to resist coverage for the arbitration award. (This is not unusual; in fact, it would be unusual for an insurer to not have different lawyers fighting a two-front war for it.)  Seabold expressly requested the entire claim file and all documents passing through the coverage attorney. Liberty resisted Seabold’s requests on the basis that they were protected by the work-product doctrine and the attorney-client privilege.

Seabold was forced to file a motion to compel to obtain the documents. The trial court largely rejected Liberty’s arguments and ordered (see trial court order) it to produce any documents (without redaction) in Liberty’s custody or control, or those possessed by its lawyers, relating to the construction defect lawsuit prior to the date that Liberty filed the lawsuit against Seabold. Rather than produce those documents, Liberty filed a petition for writ of mandamus to the Oregon Supreme Court challenging the trial court’s order. The Oregon Supreme Court granted the Writ. The issue before the Oregon Supreme Court is whether Liberty can shield its claim file by outsourcing routine claim handling activities to an attorney.

Although Oregon courts have not yet had the opportunity to address these issues head-on, federal courts (anticipating how Oregon state courts would rule) have held that insurers cannot resist discovery of its claim file concerning everyday claim handling tasks:

The work product privilege is not intended to protect from general discovery materials prepared in the ordinary course of business. In the insurance context it is the insurer’s ordinary business to investigate claims. As a result, an insurer must demonstrate by specific evidentiary proof of objective facts, that a reasonable anticipation of litigation existed when the document was produced, and that the document was prepared and used solely to prepare for that litigation, and not arrive at a (or buttress a tentative) claim decision. Here, there is no specific, objective evidence that Houston General was doing anything other than investigating the demand for coverage. As such, Houston General has not met its burden of showing that the documents qualify as work product. CH2M Hill, Inc. v. Houston General Ins. Co.

Moreover, other courts in the Pacific Northwest have expressly rejected attempts by insurers to cloak their claim file from discovery by outsourcing claim handling activities to an attorney.  In Cedell v. Farmers, the Supreme Court of Washington unambiguously held that an insurer cannot shield its claim file and coverage determination simply by retaining outside counsel.  We expect this trend to continue, and for Oregon courts to provide policyholders the opportunity to finally “look behind the curtain” in order to prove that the insurer handled its claim in bad faith—an almost insurmountable task without access to the insurer’s documents.

ABOUT BALL JANIK LLP

Ball Janik LLP was founded in 1982 with six lawyers and a four-person support staff in Portland, Oregon. Since our firm’s inception, we have expanded our capabilities, our professionals, and geographic footprint. What started as a firm focused in real property and land use (known then as Ball Janik & Novack), has grown to include the insights of a team of 30-plus attorneys, with a combined six centuries of experience, and capabilities including Real Estate and Land Use, Construction Defect, Commercial Litigation, Insurance Recovery, Construction and Design, Employment, Finance and Corporate, Public Agencies and Schools, and Community Associations. With offices in Florida and Oregon, our regional growth has earned us a national reputation for upholding the rights of our clients.

Ball Janik LLP has been recognized by Chambers USA, U.S. News & World Report and Best Lawyers®, The Best Lawyers in America©, and Corporate International. Ball Janik LLP’s success and integrity have repeatedly made it one of “Oregon’s Most Admired Professional Firms,” according to the Portland Business Journal’s survey results of CEOs throughout the region.

Heather J. Oden
Oregon , Portland