The New Jersey Appellate Division recently reversed a lower court and held that there is no presumptive rule that materials prepared or collected for an insurance coverage investigation are not privileged work-product prepared in “anticipation of litigation.” See Paladino v. Auletto Enter., Inc., 2019 WL 2375475 (N.J. Super. Ct. App. Div. June 6, 2019). This is a significant decision for insurance underwriters as well as claims handlers.

In Paladino, Plaintiff was a guest at Defendant’s catering facility, and fell while walking down a staircase. Defendant prepared an accident report and gave notice to its insurer, which then retained an investigator. The investigator photographed and made a diagram of the accident scene, and obtained recorded oral statements from three of Defendant’s employees. Defendant’s claims examiner later certified that her purpose in retaining the investigator was to “prepare a defense for [Defendant] in the event that [Plaintiff] filed a lawsuit.” Plaintiff’s counsel later visited Defendant’s facility to photograph the accident scene, and also received video surveillance and an incident report from the insurance carrier.

Plaintiff and her husband then filed suit, alleging her injuries from the fall were suffered due to Defendant’s negligence. They also alleged a breach of express and implied warranties, and a failure to properly maintain the property. In their answer, Defendant disclosed that its investigator had taken photographs of the staircase, prepared a diagram, and obtained statements from employees. It did not produce this evidence, however, asserting that the documents were privileged work product.

Plaintiff filed a motion to compel the production of the photographs and recorded statements, which was granted by the trial court. The trial court relied on Pfender v. Torres, 336 N.J. Super 379 (App. Div. 2001), as supporting a bright-line rule that materials prepared as part of a coverage investigation prior to the commencement of litigation are presumptively not protected by the work-product doctrine, because the insurer “may have” had interests apart from defending its insured in litigation. Pfender, in turn, relied on a lineage of case law such as State v. Pavin, 202 N.J. Super. 255, which held that investigatory materials prepared by an insurer before any legal claim was presented or not specifically directed by an attorney were not privileged.

On appeal, the Appellate Division reversed, holding that materials prepared in the scope of a coverage investigation may be protected work product if the materials pass “the appropriate fact-specific analysis” required by the work-product doctrine and Rule 4:10-2(c). In its opinion, the Court reconciled Pfender v. Torres, 336 N.J. Super 379 (App. Div. 2001) with the Appellate Division’s decision in Medford v. Duggan, 323 N.J. Super. 127 (App. Div. 1999). The Court reasoned that these two cases, taken together, establish that materials prepared for a coverage investigation are protected work-product when a two part test is met. First, the materials must have been “prepared or collected in anticipation of litigation by another party or that party’s representative,” which includes an insurer or an agent of that party. If the materials were prepared or collected in anticipation of litigation, the party seeking the materials must satisfy a two part standard. The party “must (1) show a substantial need for the discovery; and (2) demonstrate that he or she is unable, without undue hardship, to obtain the substantial equivalent of the materials.” Even if these materials are compelled, the mental impressions, conclusions, opinions, or legal theories of an attorney contained therein are protected. On the other hand, facts, statements made in the normal course of business, and statements that will be used to impeach a testifying witness are never protected.

This method of analysis, the Court held, is more consistent with the tenets of the work-product doctrine than a rule which presumptively excludes investigatory materials. Under the work-product doctrine, certain “privileged” information, such as attorney work-product, is exempt from the general rule that all parties to litigation have the right to discovery of relevant information. This doctrine is memorialized in Rule 4:10-2(c), which states that “(a) party may obtain discovery. . . prepared in anticipation of litigation or trial by or for another party or by or for that other party’s representative. . . only upon a showing that the party seeking discovery has substantial need of the materials. . . and is unable without undue hardship to obtain (their) substantial equivalent.”

This case is significant because materials prepared or collected for a coverage investigation will no longer be presumptively excluded from the work-product doctrine in the event of litigation. Rather, if it can be shown that the materials were “prepared or collected in anticipation of litigation,” and the opposing party cannot show substantial need and undue hardship, the materials may qualify as privileged work product.