(Article from Insurance Law Alert, October 2023)
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Holding
An Ohio appellate court ruled that a trial court erred in granting a motion to compel the disclosure of an insurer’s claim files, including material relating to the insurer’s valuation of the claim. The appellate court noted that while such materials may be relevant to the bad faith claim against the insurer, the trial court’s order requiring production prior to adjudication of the breach of contract claim was erroneous. Ryan v. State Farm Mut. Auto. Ins. Co., 2023 Ohio App. LEXIS 3612 (Ohio. Ct. App. Oct. 13, 2023).
Background
After sustaining injuries in an automobile accident with an uninsured motorist, Ryan filed a claim for uninsured motorist (“UM”) benefits to State Farm, his automobile insurer. State Farm offered Ryan approximately $15,000 to settle his UM claim, but he rejected the offer, asserting that it did not cover his medical expenses. Thereafter, Ryan sued State Farm alleging breach of contract based on “State Farm’s failure to pay the $25,000 UM policy limit and bad faith in its [valuation of the claim].”
During discovery, Ryan sought production of State Farm’s entire claim file. State Farm produced some materials, but held back others based on attorney-client privilege or protected work product. State Farm also argued that it was entitled to withhold certain non-privileged materials relating to the valuation of the claim while litigation of the coverage issue was pending on the basis that the production of such material would be prejudicial to State Farm in connection with the breach of contract claim. After conducting an in camera inspection, the trial court issued two rulings. First, it amended a prior decision and ordered bifurcation of the breach of contract and bad faith claims into two separate stages. Second, it allowed State Farm to withhold materials protected by attorney-client privilege, but ordered State Farm to immediately produce any non-privileged materials and certain work-product material. The trial court acknowledged that requiring production of these materials might provide “insight into State Farm’s defense of the value dispute in the breach of contract claim,” but held that “any minimal prejudice that might occur to State Farm as a result of immediate disclosure is substantially outweighed by the interest of judicial economy served by not delaying discovery.”
Decision
The Ohio appellate court ruled that the trial court erred in ordering State Farm to produce work product material and confidential information, including its valuation of Ryan’s claim, in advance of a trial in which the value of the claim was the primary issue to be litigated. The court agreed with State Farm’s argument that “regardless of whether those documents constituted information protected as work product or by the attorney-client privilege, the materials should have been deemed protected from discovery so long as determination of the value of the underlying UM claim remained pending.”
The court acknowledged the relevance of claim file material to the bad faith claim, and the potential right of a policyholder to discover such information in the context of a bad faith claim under Ohio law, but held that such discovery should be stayed pending the outcome of the coverage claim. As the court noted, requiring State Farm to divulge information pertaining to its evaluation and opinion of Ryan’s claim prior to resolution of the breach of contract claim would “undoubtedly” affect State Farm’s ability to defend the claim and render the bifurcation order “toothless.”
Comments
Parties frequently dispute the discoverability of claim file materials in coverage actions. Ryan illustrates that rulings in this context depend not only on whether material is privileged (a determination that turns on whether the material was created in anticipation of litigation as opposed to in the ordinary course of business), but also on the timing of such production. As the court noted, while much of the claim file materials were likely relevant and discoverable with respect to the bad faith claim, a discovery stay was warranted in order to avoid prejudice to the insurer while the breach of contract claim was still pending.