Most companies are not in the business of anticipating and preparing for litigation. Insurance companies are, and as a result, courts treat them differently than ordinary businesses in determining when they can assert the protection from discovery normally afforded to attorney-client communications and to documents and information prepared in anticipation of litigation (so called “work product”). Policyholders and their counsel who find themselves in litigation with insurance companies need to understand these special rules.

Courts have established a system of “practical presumptions” that govern application of the work product doctrine for insurance companies. As one court explained: ”It is presumed that a document or thing prepared before a final decision was reached on an insured’s claim, and which constitutes part of the factual inquiry into or evaluation of that claim, was prepared in the ordinary and routine course of the insurer’s business of claim determination and is not work product. Likewise, anticipation of litigation is presumed unreasonable under the Rule before a final decision is reached on the claim.” Harper v. Auto-Owners Ins. Co., 138 F.R.D. 655, 663-64 (S.D. Ind. 1991).

These presumptions are not an outside limit on discovery. A post-denial document still is not the proper subject of a work product objection if the primary purpose for its creation was as an ordinary claim handling activity. Id. Thus, the presumption is merely a starting point for the analysis. See also In re Professionals Direct Ins. Co., 578 F.3d 432, 439 (6th Cir. 2009); Country Life Ins. Co. v. St. Paul Surplus Lines Ins. Co., 2005 WL 3690565 (C.D. Ill. Jan. 31, 2005).

Similarly, an insurance company may not shield its communications with its attorney from discovery on the basis of the attorney-client privilege when the attorney is involved in an ordinary insurance business function, such as claims adjustment or coverage analysis. As the Harper court explained, “to the extent that [an] attorney acted as a claims adjuster, claims process supervisor, or claim investigation monitor, and not as a legal adviser, the attorney client privilege would not apply.” Harper, 138 F.R.D. at 671. See also 1550 Brickell Assoc. v. QBE Ins. Co., 597 F. Supp. 2d 1334, 1337 (S.D. Fla. 2009); Evanston Ins. Co. v. OEA, Inc., 2006 WL 1192737 (S.D.N.Y. May 4, 2006); Mission Nat’l Ins. v. Lilly, 112 F.R.D. 160, 164 (D. Minn. 1986).

Likewise, in bad faith litigation, an insurance company may not shield its attorney’s documents that are relevant to whether the insurance company acted in bad faith. See Boone v. Vanliner Ins. Co., 744 N.E.2d 154 (Ohio 2001). An outright denial of a claim is not required to invoke this rule. In re Professionals Direct, 578 F.3d at 442 n. 8. The rule is broad, encompassing any documents containing attorney-client communications and work product that may cast light on whether the insurance company’s actions at issue were in bad faith. Id.; Boone, 744 N.E.2d at 156.

These rules, when applied correctly, can provide a powerful tool for policyholders in insurance coverage litigation.