Why Insurers and Their Attorneys Need to Pay Close Attention to Their Discovery Burden in Washington

As previously reported in this blog, Washington case law generally affords insureds a broad right to the discovery of claim file materials, including information that should be protected from disclosure by attorney/client privilege or the work product doctrine. Cedell v. Farmers Ins. Co. of Washington, 176 Wn.2d 686, 295 P. 3d 239 (2013). The discovery pitfalls created by Cedell were on full display in a recent Western District of Washington decision that granted an insured’s motion to compel production of work product and attorney/client communications from an insurer’s claims file. Westridge Townhomes Owners Ass’n v. Great American Assur. Co., 2018 U.S. Dist. LEXIS 27960 (W.D. Wash. February 21, 2018)

The background facts are somewhat unclear, but it appears that the insured in this case made a claim for coverage under two insurance policies and there was an allegedly inadequate response from the insurers. The insured sued its insurers for coverage in 2016 before the insurers issued a declination of coverage letter. The two insurers retained the same attorney to represent them, and that attorney subsequently wrote a declination letter on behalf of the insurers, which was sent to the insured on April 12, 2017. The insured ultimately sought production of the entire claim file, which had not been split between the claim investigation and the coverage litigation. The insurers argued, among other things, that the insured was not entitled to anything after the litigation commenced in 2016 on work product grounds, and certainly was not entitled to communications with their attorney.

In ruling on the insured’s motion to compel, the Court concluded that the insurers failed to satisfy their burden of showing that communications with their attorney up to the date of the declination letter were protected, even though the parties were in litigation, because the Court was convinced that their attorney acted as an investigator and evaluator of the claim while the litigation was proceeding. The Court stated that “nothing in Cedell limits the discoverability presumption to pre-litigation evidence…” Furthermore, the insurers failed to show that their communications with their attorney took place because of litigation as opposed to being created in the normal scope of their insurance business. The Court ordered production of all attorney/client communication and work product up to the date the declination letter was sent, ruling that “documents containing [the insurers’ attorney’s] mental impressions regarding the insurers’ quasi-fiduciary duties to the insured, including his liability assessments and coverage advice, are subject to production.”

The Court did not do an in camera review of the documents at issue, as requested by the insurers and authorized by Cedell, writing that the insurers had failed to meet their threshold burden to justify such a review. In this regard, the Court was critical of the insurers’ privilege logs and conclusory explanations in the briefing of why the documents should be protected. “The Court finds that it is insufficient for the parties to rely on a request for in camera review to avoid their responsibility to explain why such documents should be withheld.”

Additionally, one of the insurers moved that if it had to produce such information, the plaintiff should be compelled to produce the same. The Court denied that motion, noting that an insured does not owe a quasi-fiduciary duty to its insurer and that Cedell is not a two-way street.

This ruling should serve as an important reminder to insurers and their counsel about the dangers of discovery in Washington following Cedell. For insurers to chip away at the scope of Cedell, they must take their discovery obligations seriously and lodge specific, well-supported objections in order to protect certain categories of privileged information. Insurers must not only be aware of Cedell, but also be aware that they will often have the burden of convincing the Court that an attorney/client communication or work product document should be protected from discovery. Specifically, insurers should be prepared to argue that the privileged information was not related to the evaluation of the claim, but rather for the specific purpose of rendering legal advice.

What is certainly clear is that an insurer cannot make a blanket assertion that documents are protected and expect the Court to review the documents in camera, which appears to have happened in this case. An insurer should instead be prepared to address each document individually and explain why it is not related to the evaluation of the insured’s claim. Finally, when a claim has been pending and litigation is commenced, the file should always be split so that a new litigation file is created and claim evaluation materials are kept separate from litigation materials.