In Buckley Towers Condominium, Inc. v. QBE Ins. Co., No. 07-22988-CIV, 2008 WL 2645680 (S.D. Fla., Jun. 26, 2008), a Florida federal court found that financial or contractual documents between an insurer and its adjusting agent are not discoverable in a coverage action, but the agent may be deposed as to his knowledge of financial incentives, and such testimony may be admissible for impeachment purposes.
In Buckley, the insured sought coverage for property damage allegedly due to Hurricane Wilma. The insured moved to compel documents and testimony related to “loss ratio bonuses” that the insurer paid to its managing adjusting agent. The insured maintained that these bonuses provided the adjusting agent with a financial incentive to minimize the amount of damages attributable to covered losses. While evidence of bad faith is generally inadmissible in a coverage action, the insured argued that the evidence was relevant for impeachment purposes. The insurer countered that any evidence regarding financial incentives would not be relevant or admissible in a first-party coverage case.
The court began its analysis by noting that in the context of first-party insurance coverage disputes, evidence geared solely to support a bad faith claim is premature and not discoverable until the coverage dispute is resolved. On the other hand, documents that may be relevant to both bad faith and coverage may be discoverable at the outset. Specifically, documents or testimony that relate to the “investigation, processing and analysis” of an insured's claim are discoverable in a first-party coverage case, even though they may also be relevant to a later bad faith claim. However, the court found that financial or contractual documents between an insurer and its adjusting agent do not fall under the “processing and analysis” category that is generally discoverable.
The court recognized that inadmissible or irrelevant documents may nevertheless be discoverable for impeachment purposes. Accordingly, the court balanced the insured’s need for impeachment documents against the competing need to guard against an “unnecessary and distracting blurring of the lines between pure coverage cases and bad faith disputes.” The court found that the documents requested were collateral, cumulative, and unnecessary, especially where other available and less intrusive avenues of discovery might yield similar results.
The court found that the deposition of the adjusting agent was a less intrusive means of obtaining impeachment material. Accordingly, the court permitted the insured to inquire into the agent’s knowledge of the loss ratio bonuses and their effect on his credibility and bias.
In its decision, the court relied on a recent holding in Milinazzo v. State Farm Ins. Co., 247 F.R.D. 691 (S.D. Fla. Dec. 11, 2007). In that case, the court held that in a federal diversity action, federal law applies to whether the work product doctrine protects an insurer's documents from discovery, even though Florida law governs application of the attorney-client privilege.