February 26, 2019
Discovery is a critical part of most cases. Some law firms have entire sections dedicated solely to discovery. Some attorneys enjoy the quest for more information while others find discovery to be the bane of their existence. Whatever your position, it is helpful to receive guidance from the court, which the United States District Court for South Carolina provided in Adelman v. Coastal Select Insurance Company, 2019 WL 465600 (February 2, 2019).
The Adelmans were insured by Coastal Select Insurance Company (“Coastal”) when they suffered water damage to their home. Believing the damage resulted from aging or corroding pipes, not covered by the policy, Coastal denied coverage. Thereafter, the Adelmans filed suit against Coastal alleging breach of contract, bad faith refusal to provide coverage and promissory estoppel based upon representations made by Coastal’s agents that the damage would be covered. The matter came before the court on Adelmans’ motion to compel.
During the deposition of Coastal’s desk adjuster, he relied upon a claims journal to refresh his memory. Other Coastal employees communicated with the desk adjustor through the journal, identifying themselves by their initials. The journal had not been previously produced, even though it was responsive to one of Adelmans’ discovery requests. It was, however, attached to the deposition as an exhibit. Following the deposition, the journal was produced to the Adelmans’ counsel. Subsequently the Adelmans requested the identification of the employees whose initials appeared in the journal, as well as their respective roles in processing the claim in letters, all of which were dated subsequent to the filing of this action. Later, Coastal made its initial assertion that the journal was protected by the attorney-client privilege and work-product doctrine and requested the journal be clawed back. The matter came before the court upon the Adelmans’ motion to compel the information related to the journal. Engaging in a multi-step analysis, the court granted the Adelmans’ motion.
Coastal seemed to concede early journal entries made within a limited period following the subject loss were relevant, but argued entries after denial of the Adelmans’ claim were irrelevant. The court disagreed.
Noting, as an initial matter, the journal had already been produced, the court went on to address the overarching broad and liberal construction of discovery rules. Recognizing that evidence arising after the denial of a claim may not be admissible in the trial of a bad faith matter, the court went on to remind that admissibility is not the standard applicable to discovery. Because evidence can be relevant during discovery despite its admissibility at trial, the court rejected Coastal’s argument founded on relevancy, determining the information in the journal relevant to a determination of whether Coastal’s denial was in bad faith.
The court next examined Coastal’s claim that journal entries created after Coastal sent the journal to its counsel were subject to attorney-client privilege. A party claiming this privilege has the burden of establishing the attorney-client relationship and that communications were of a confidential nature. Here, Coastal attached unredacted portions of the journal to its response to the Adelmans’ motion to compel, making them publicly available. Further, because the journal was thus available, the court reviewed the entries made after the journal was provided to Coastal’s counsel and found the only references to ligation were those documenting that files were sent to Coastal’s law firm. Such transmittals are not privileged.
Coastal also argued journal entries beyond a specific date were subject to work-product protection, as they were prepared in anticipation of litigation. Because this matter was before the court on diversity jurisdiction, the court applied federal law governing the work product doctrine. While an attorney-client relationship is not essential to a claim of work-product protection by an insurer, a document must be prepared when the preparer is subject to an actual or potential claim following an event that could reasonably lead to litigation. It is undisputed that here the denial of coverage could reasonably have been thought to lead to litigation, and, in fact, resulted in litigation. However, the court found it unnecessary to extend its analysis to this point. Because Coastal produced the journal during discovery and filed it with the court, making it publicly available, it waived any work-product protection.
The court next turned to Coastal’s argument that its production of the journal was inadvertent, and thus did not constitute a waiver of any privilege or protection. An inadvertent disclosure is not a waiver if the holder of the privilege took reasonable steps to prevent disclosure and promptly took reasonable steps to correct an erroneous disclosure. Acknowledging a shortage of guidance on the definition of “inadvertent disclosure” in the Fourth Circuit, courts have turned to Black’s Law Dictionary that defines inadvertence as “an accidental oversight; a result of carelessness.” Coastal failed to establish inadvertence. Coastal’s counsel failed to take reasonable steps to prevent disclosure of the journal by acquiescing to its attachment to the desk adjuster’s deposition as an exhibit, by willingly providing it to Adelmans’ counsel, and moreover, by failing to designate it as privileged. Additionally, while different counsel took over representation of Coastal and promptly requested claw back after becoming aware of the disclosure, such was inefficient to obviate the earlier releases. Further, it appears subsequent counsel participated in the unprotected filing of the journal, thereby clearly waiving any privilege.
Lastly, Coastal argued that even if the privilege as to the journal was waived, such waiver should be limited to the journal, while disallowing use of the information within it to undertake additional discovery. This argument was likewise rejected. Because the disclosure of the journal was not inadvertent, the court allowed the Adelmans to conduct additional discovery based upon the content thereof.
Discovery is a routine part of practice; in some cases it may be limited to basic issues while in others it may be extraordinarily extensive. Either way, a practitioner should pay close attention to the Adelman opinion that clearly demonstrates the importance of avoiding complacency and remaining vigilant. So, be careful out there.
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Cheryl D. Shoun is a trial attorney and certified mediator whose experience includes construction law, insurance defense, personal injury defense, employment litigation and medical malpractice. As a frequent writer, she serves as editor for Nexsen Pruet's TIPS: Torts, Insurance and Products Blog.