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Spargo v. State Farm Fire and Casualty Co.

United States District Court, D. Nevada

June 22, 2017



          GEORGE FOLEY, JR. United States Magistrate Judge

         This matter is before the Court on Plaintiffs Motion to Compel (ECF No. 15), filed on May 10, 2017. Defendant filed its Response (ECF No. 25) on May 24, 2017. Plaintiff filed a Supplement to the Motion to Compel (ECF No. 24) on May 24, 2017, and filed her Reply (ECF No. 34) on May 31, 2017. Also before the Court is Defendant's Motion for Protective Order (ECF No. 28), filed on May 25, 2017. Plaintiff filed her Response (ECF No. 33) on May 31, 2017. The Court conducted a hearing on these motions on June 5, 2017.


         Plaintiff Kirsten Spargo alleges that she suffered bodily injuries in a May 26, 2009 accident when another motorist ran a stop sign and collided with her vehicle. She made a claim against the other driver's liability insurance policy and subsequently settled for the $15, 000 limits of that policy. On May 13, 2011, Ms. Spargo made a claim to State Farm for underinsured motorist benefits. On February 27, 2012, she filed a lawsuit against State Farm for breach of the underinsured motorist coverage contract. On April 4, 2012, State Farm sent a letter to Plaintiffs attorney stating that the medical records showed that Ms. Spargo had seen a doctor for four (4) to five (5) years for neck symptoms and headaches. State Farm stated that to move forward it would need all medical records from Dr. Mayor and Dr. Simoncelli.

         On July 5, 2012, Plaintiff provided State Farm with signed authorizations for (1) medical records, (2) employment records, (3) insurance claims records, (4) worker's compensation records, and (5) tax returns. On July 9, 2013, State Farm requested that Ms. Spargo undergo a medical examination with Dr. Schiffini, a doctor hired by State Farm. On October 30, 2014, Plaintiff s attorneys advised State Farm that she was still treating with Dr. Hogan and Dr. Burkhead. Plaintiff alleges that during the lawsuit State Farm unreasonably undervalued her claim and forced her to engage in prolonged litigation to recover the policy limits. State Farm paid the policy limit of $250, 000.00 on August 26, 2015. Plaintiff alleges that "State Farm's attorney in the breach of contract action recommended to State Farm that it pay the policy limits two years earlier in the litigation and State Farm chose instead to delay the litigation and force Kirsten into prolonged litigation." Amended Complaint (ECF No. 1), ¶¶ 11-19.

         Planitiff's counsel Sean Claggett submitted a declaration in which he states that Defendant's counsel in the breach of contract action, Gina Winspear, "told Samuel Harding-an attorney at my firm-and me that she had advised State Farm to pay the policy limits years earlier than when State Farm finally paid the policy limits." Motion to Compel (ECF No. 15), pg. 3, ¶ 12. In response, State Farm filed a declaration by Ms. Winspear in which she states that "[d]uring my handling of the defense of the state court case, I never told Plaintiffs counsel, Sean A. Claggett, Esq. or Samuel A. Harding, Esq., that I recommended that Defendant pay Plaintiffs $250, 000 UIM policy limits because her UIM claim had a value of $250, 000." Response (ECF No. 25), Exhibit B, ¶ 8. In reply, Mr. Claggett submitted another declaration stating that "I distinctly remember Mr. Harding and I talking to Ms. Winspear about the breach of contract action at the Clark County Regional Justice Center following a hearing. During that conversation, Ms. Winspear seemed frustrated at the case and told us that she had been telling State Farm to settle the case for policy limits for years. I recall this conversation because I believed at that time that it likely meant that State Farm acted in bad faith." Reply (ECF No. 34), Exhibit 7, ¶¶ 4-5.

         State Farm has produced portions of its claims file relating to Plaintiffs UIM claim. It has, however, withheld letter/reports provided to it by Ms. Winspear in the underlying breach of contract action.[1] State Farm also withheld claim log entries regarding communications with its counsel in the underlying action. State Farm asserts that these letter/reports and claim log entries are protected from disclosure pursuant to the attorney-client privilege and the work product doctrine. Plaintiff argues that she is entitled to obtain these letter/reports and related claim log entries because they are directly relevant to her claim that State Farm unreasonably undervalued and delayed the payment of her claim. Plaintiff argues that neither the attorney-client privilege or the work product doctrine protects the letter/reports or log entries from disclosure in this action.


         An insurer fails to act in good faith when it refuses without proper cause to compensate the insured for a loss covered by the policy. Such conduct gives rise to a breach of the covenant of good faith and fair dealing and constitutes "bad faith." Pemberton v. Farmers Ins. Exch., 109 Nev. 789, 858 P.2d 380, 382 (Nev. 1993). An insurance company may be found liable in tort for the "bad faith" refusal or failure to pay uninsured or underinsured motorist coverage benefits. Id. at 383. See also Allstate Prop. & Cas. Co. v. Mirkia, 2013 WL 944778, at *7 (D.Nev. March 7, 2013); Chacon v. State Farm Mut. Auto. Ins. Co., 2017 WL 1179945, at *2 (D.Nev. March 29, 2017). "Bad faith is established where the insurer acts unreasonably and with knowledge that there is no reasonable basis for its conduct." Guaranty National Ins. Co. v. Potter, 112 Nev. 199, 912 P.2d 267, 272 (Nev. 1996). An insurer maybe liable for punitive damages if it is shown by clear and convincing evidence that the insurer has been guilty of oppression, fraud or malice. Id. at 273. See also Hackler v. State Farm Mut. Auto. Ins. Co., 210 F.Supp.3d 1250, 1258 (D.Nev. 2016).

         The duty of good faith continues during any litigation that is brought to recover policy benefits. Knotts v. Zurich Ins. Co., 197 S.W.3d 512, 517-18 (Ky. 2006) (citing White v. Western Title Ins. Co., 710 P.2d 309, 316-17 (Cal. 1985), Haddick v. Valor Ins., 735 N.E.2d 132, 133 ( Ill. App. 2000), Harris v. Fontenot, 606 So.2d 72, 74 (La.Ct.App. 1992), Palmer v. Farmers Ins. Exchange, 861 P.2d 895, 913 (Mont. 1993), O'Donnell ex rel. Mitro v. Allstate Ins. Co., 734 A.2d 901, 906 (Pa.Super.Ct. 1999) and Barefield v. DPIC Companies, 600 S.E.2d 256, 267 (W.Va. 2004)). See also Sinclair v. Zurich American Ins. Co., 129 F.Supp.3d 1252, 1257 (D.N.M. 2015). Here, Plaintiff alleges that State Farm acted in bad faith during the course of the underlying breach of contract action.

         1. Work Product Doctrine

         The work production doctrine protects from discovery by the opposing party materials prepared in anticipation of litigation. Fed.R.Civ.Pro. 26(b)(3). Application of the doctrine is governed by federal law. Kandel v. Brother Intern. Corp., 683 F.Supp.2d 1076, 1083 (C.D.Cal. 2009); Moe v. System Transport, Inc., 270 F.R.D. 613, 622 (D.Mont. 2010); and Abueg v. State Farm Mu. Auto. Ins. Co., 2014 WL 550311, at *3 (D.Nev. Oct. 30, 2014). The party claiming work product immunity has the burden of proving the applicability of the doctrine. Kandel, 683 F.Supp.2d at 1083-84 (citing A Farber & Partners, Inc. v. Garber, 234 F.R.D. 186, 192 (CD. Cal. 2006)). Rule 26(b)(3) distinguishes between ordinary work product and opinion work product. Ordinary work product is discoverable if the requesting party shows a "substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means." Moe, 270 F.R.D. at 626-27 (quoting Rule 26(b)(3)(A)(ii)). "In contrast, the Court is obligated to 'protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of a party's attorney or other representatives concerning the litigation. Thus, opinion work product is afforded greatest protection, and a party seeking such materials must show that the 'mental impressions are directly at issue in a case and the need for the materials is compelling.'" Id. at 627 (quoting Dion v. Nationwide Mut. Ins. Co., 185 F.R.D. 288, 282 (D.Mont. 1998)). See also Phillips v. CR. Bard, Inc., 290 F.R.D. 615, 634 (D.Nev. 2013).

         In Holmgren v. State Farm Mut. Auto. Ins. Co., 976 F.2d 573 (9th Cir. 1992), the court stated that in a bad faith insurance claim settlement case, the "strategy, mental impressions, and opinions of [the insurer's] agents concerning the handling of the claim are directly at issue." Id. at 577 (citing Reavis v. Metropolitan Property & Liability Ins. Co., Ill. F.R.D. 160, 164 (S.D.Cal. 1987)). "Unless the information is available elsewhere, a plaintiff may be able to establish a compelling need for evidence in the insurer's claim file regarding the insurer's opinion of the viability and value of the claim. We review the question on a case-by-case basis." The court further noted that "in bad faith settlement cases, insurers may call their adjusters to testify to their opinions as to the lack of viability of the underlying claim. When an insurer chooses to remain moot on the subject, the plaintiff is not foreclosed from developing the same evidence." Id. at 578.

         The insured's right to discover the opinions and mental impressions of the insurer's claims adjusters does not mean, however, that she is entitled to obtain the confidential opinions, mental impressions or legal theories of the insurer's attorney. In Siddall v. Allstate Ins. Co., 15 Fed.Appx. 522 (9th Cir. Aug. 1, 2001) (unpublished memorandum), the plaintiff argued that he had "a substantial need" for the mental impressions, conclusions, and opinions of the insurer's attorney. The court stated that "[i]n analyzing this contention, it is important to discern the difference between the attorney-client privilege and the work product doctrine. Even if we agreed that Siddall had a substantial need for the requested documents, a substantial need does not, as a matter of law, provide a legal basis for piercing the attorney-client privilege. It can, however, provide a basis for obtaining material withheld under the work product doctrine." Id. at 522. Likewise, in Dion v. Nationwide Mut. Ins. Co., 185 F.R.D. 288, 294 (D.Mont. 1998), the court stated that a compelling need to obtain the insurance adjuster's mental impressions and opinions does not, in and of itself, support production of the mental impressions and opinions of the insurer's attorney. In Yurick ex rel. Yurick v. Liberty Mut. Ins. Co., 201 F.R.D. 465, 473 n. 13 (D.Ariz. 2001), the court relied on Holmgren and Brown v. Superior Court, 137 Ariz. 327, 670 P.2d 725, 735 (Ariz. 1983) in stating the mental impressions and opinions of the insurer's claims personnel were discoverable in a bad faith action, "but not the attorney-client communications" between the insurer and its counsel which were protected by the attorney-client privilege. Therefore, although the work product doctrine may not protect the attorney's mental impressions and opinions from being discovered in a bad faith action, they may still be protected under the attorney-client privilege.

         2. Attorney-C ...

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