In December 2015, Paige Barnard (“Barnard”) was involved in an automobile accident. At the time of the accident, she was insured by Liberty Mutual Insurance Corporation (“Liberty”) under her parents’ auto insurance policy. After receiving first party medical and income loss benefits for some time, Liberty ceased providing the benefits, as it determined, through a peer review organization, that Barnard’s treatment was no longer appropriate, necessary or reasonable.   Consequently, Barnard brought claims for, inter alia, statutory bad faith against Liberty.

After initial discovery was exchanged, Barnard served interrogatories and request for production of documents on Liberty.  After receiving Liberty’s responses, Barnard objected to, inter alia, Liberty’s redactions and privilege log, asserting she was entitled to the entirety of the documents’ contents. Liberty objected to the production of the documents, arguing the information and documents requested were privileged, not relevant to the instant matter, covered by attorney-client and work-product privileges, prepared in anticipation of litigation, and/or outside the scope of Federal Rule of Civil Procedure 26.  Accordingly, in Barnard v Liberty Mutual Insurance Corp., the U.S. District Court for the Middle District of Pennsylvania was tasked with determining whether Barnard was entitled to the requested documents and answers to her interrogatories.   Before making its determination, the Court directed Liberty to produce its documents alleged to contain privileged information to the Court for in camera inspection.

In pertinent part, the Court focused on whether Liberty was required to produce a copy of the peer review section of Liberty’s policy manual, copies of the policies and procedures that govern the way Liberty’s employees handle inquiries, and the entirety of its claim files, including logs and notes.

First, the Court held that Liberty was required to produce the peer review portion of its policy manual and the employee policy or procedures for handling inquiries.  In doing so, the Court explained that Liberty’s methods for handling its peer review process and policy and procedures governing the way Liberty’s employees evaluate inquiries about insurance policies were relevant to Barnard’s bad faith claim, as a departure from established procedure “is probative evidence” for Barnard to demonstrate Liberty acted in bad faith.  Nevertheless, the Court accepted Liberty’s contention that the foregoing documents contained confidential information, such as trade secrets and propriety information – accordingly, the Court ordered Barnard to keep the documents confidential.

Second, in regard to the question of whether Liberty was required to produce the entirety of its claim files, including logs and notes, the Court relied on Federal Rule of Civil Procedure 26(b)(3)(A), which shields from discovery “documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party’s attorney, consultant, surety, indemnitor, insurer, or agent”.   In addition, the Court noted that it is generally accepted in the Third Circuit that insurers cannot reasonably argue that claim files are accumulated in anticipation of litigation, particularly where insurers have a duty to investigate and make decisions with respect to claims by their insureds.  With this foundation, the Court held: (1) Liberty could have reasonably anticipated litigation once it received notice of Barnard’s dissatisfaction with the peer review process; (2) Liberty improperly redacted the claim status reports, as they were not mental impressions, conclusions, opinions, or trial strategies; and (3) Liberty’s claim notes made after Liberty learned of Barnard’s dissatisfaction were properly redacted as work product, but entries made before such notification were improperly redacted since they related to Barnard’s underinsured motorist claim and first-party benefits.

Finally, the Court held that Liberty was permitted to redact its mental impressions, conclusions, reserves, and opinions relating to the value or merit of the claim or defense in its financial documents.  In doing so, the Court reasoned that because Barnard’s bad faith claim focused on the denial of coverage (i.e., Liberty’s review process was biased and unfair) – as opposed to the value of the claim or Barnard’s estimate of liability – Liberty was not required to produce unredacted versions of its financial documents, such as information related to its reserves.

In sum, this discovery ruling illuminates the distinction between discoverable and non-discoverable information in the context of statutory bad faith claims against insurers.

Thanks to Lauren Berenbaum for her contribution to this post. Please email Vito A. Pinto with any questions.