I once had a coverage case that involved a claim for environmental contamination at a chicken farm. (Yes. A chicken farm. In New Jersey.) When we were able to pry the claim file loose in discovery, we noticed that the carrier had spent a grand total of $24 to investigate the complex pollution claim, which involved millions of dollars in cleanup costs. Using that evidence, we were able to get a well-respected judge to hold that the carrier had engaged in bad faith by failing to evaluate fairly the merits of our client’s claim. The win was particularly satisfying because the senior lawyer I worked for at the time (this was a long time ago) had dismissively told me that my argument was, and this is a direct quote, “a lead pipe cinch loser.” Take that, smart guy.
Insurance companies hate to give up their claim files, but claim files are essential to coverage litigation. As one Court (in Omni Health Solutions v. Zurich, discussed below) put it: “Bad faith actions against an insurer, like actions by client against attorney, or patient against doctor, can only be proved by showing exactly how the company processed the claim, how thoroughly it was considered and why the company took the action it did. The claims file is a unique, contemporaneously prepared history of the company’s handling of the claim; and in [a coverage action] the need for the information in the file is not only substantial, but overwhelming.” And claim files are useful not only in proving the carrier’s lack of good faith; they sometimes contain useful admissions that can be used to prove coverage, or other comments by the claim handler that you can parade in front of a judge or jury. (I recently had a case in which the claim handler described my client as an “agitator” for refusing to accept a denial of coverage. Wonderful stuff.)
Let’s look at a couple of recent cases involving claims files.
Omni Health Solutions v. Zurich, from a federal court in Georgia, involved the question of insurance coverage for hail damage at a business location. (As an aside, insurance companies hate hail damage claims. They have a stable of experts who will find that any roof damage following a storm was the policyholder’s fault due to poor maintenance. I actually had to try one of these cases to verdict a couple of years ago.)
The Zurich adjuster (Ferunden) visited the property a month after the storm, and told the policyholder that there was no hail damage to the roof. The policyholder, not taking no for an answer (take note, policyholders!), hired an engineer, who provided a professional opinion that the roof had been damaged by hail. Ferunden later agreed. But the battle then morphed into how much Zurich was obligated to pay, and the policyholder demanded an appraisal under the policy. Coverage litigation resulted when Zurich refused to pay the full amount of the appraisal. The policyholder then demanded production of Zurich’s claim file, which Zurich tried to withhold based upon the “work product” doctrine, which protects information prepared in anticipation of litigation. Zurich basically argued that it had anticipated litigation for a very long time.
The Court disagreed with Zurich, ruling that all claim documents prepared up to the point when the policyholder actually demanded an appraisal were fair game. In other words, the “subjective” feelings by the carrier as to when litigation was first anticipated were irrelevant. The Court also held that documents prepared after the demand for appraisal could be relevant to a bad faith claim against the carrier, and might need to be produced if and when the policyholder proved that Zurich had breached the policy.
Pro tip: if the carrier argues that the claim file (or certain documents in the claim file) would only be relevant to a bad faith claim, and need not be produced until the policyholder proves breach of contract, think of other ways to make those documents relevant. If, for example, the insurance company has denied coverage or reserved its rights on the ground of late notice, the documents in the claim file could be relevant to showing that the insurance company would’ve done nothing differently even if earlier notice had been received, and therefore was not prejudiced. Another good argument, of course, is that the claim file may contain nonprivileged admissions as to the existence of coverage.
You can read the Omni Health Solutions decision here.
Another recent decision, Rickard v. Central Mutual (this one out of New York), involved an auto claim. The carrier denied supplementary uninsured motorist benefits. The plaintiff asked for the claim file, and the carrier responded by providing the plaintiff with the contents of the file up until the date the coverage lawsuit had been commenced. That made the plaintiff unhappy, because he wanted the entire file, including the parts generated after the lawsuit had been filed. The trial court agreed, and ordered that all claims documents be produced. The appeals court said that the claim file was fair game, but that, with respect to documents generated after the coverage lawsuit had been commenced, the insurance company should’ve been permitted to prepare a privilege log, followed by an in-camera review by the judge of any documents as to which the carrier claimed privilege.
You can read the Rickard decision here.
The bottom line is that carriers do not like producing their claim files, because their claim files may contain useful admissions or other information that the policyholder can use to prove coverage. And that’s why you, as a policyholder, need to do whatever you can to get the claim file in your case.