When Does a Subrogating Carrier's File Become Privileged?

A defective truck, manufactured by Daimler, and containing an power distribution module manufactured by Tyco, alleged failed and caused a fire.  Travelers paid under its policy and brought a subrogation action against Daimler and Tyco.

A discovery dispute arose during the course of this litigation.  The Court issued an Order determining three questions:  (a) how much of a subrogating carrier’s file must be produced and when does the “work product” privilege attach to the carrier’s file?; (b) must the carrier produce a witness to testify on behalf of the carrier or does it suffice if the insureds testify?; and (c) must the carrier produce its underwriting file? [1] 

I’ll break this up into three columns.  This month, I discuss the court’s ruling with regard to production of a carrier’s file in a subrogation action.

How much of the subrogating carrier’s file must be produced in discovery?   I run into this question all the time.  Under the Federal Rules of Civil Procedure, there is a “work product” privilege which provides that documents and things “prepared in anticipation of litigation or for trial” are protected and do not have to be turned over in the course of litigation.  [2]    Generally, claims file information pertaining to adjusting the loss, what was paid, etc., are discoverable and must be produced.  The courts recognize that in subrogation situations, at some point the carrier’s handling of the claim “crosses the line” from being an investigation performed in the ordinary course of business to work performed “in anticipation of litigation.”  Generally, documents generated prior to a “determination of coverage” is made are presumed discoverable and must be produced – even if an attorney was involved in the making of the coverage determination.  [3]  This presumption may be overcome if the carrier can show that, at the time a document was generated, the carrier possessed a “resolve to litigate.” [4]  Document created “during an investigation into the causes and effects” of a loss, undertaken soon after the loss, usually must be turned over to defense counsel. 

As you can imagine, there is a lot of gray area as to when a carrier’s file becomes privileged and what must be turned over to defense counsel.   Once the carrier has a “resolve to litigate,” then the privilege attaches.  However, many carriers have “claims” departments that are separate from “subrogation” departments.   In my opinion, “claims” file material generated by the in-house or independent adjuster are almost always not privileged since these documents relate to how much damage was suffered and how much the carrier ends up paying.  A subrogating attorney wants to turn over “claims file” information to establish what the damages are, which the attorney will need to do at trial.  Plus, many cases settle, so setting forth your proof of damages may facilitate settlement (either with or without a mediator) by laying out in detail what was paid broken out by the usual three categories (building, contents, ALE).  What is trickier to decide is how much, if any, of your carrier’s subrogation file – and how much of your fire or loss analysis expert’s file – must be turned over.   The courts are fairly clear that the initial investigation into the happening of the fire or other loss is not privileged.  Thus, even if a file is referred early to a carrier’s subrogation department, the subrogation department’s early email, claims file notes, letters, etc. are likely discoverable and must be turned over.  Initial communications between the carrier and its fire and loss analysis experts prior to the experts determining the cause of the loss are usually not privileged.   Once the fire and/or loss analysis experts have reached a determination as to the cause of the loss and the carrier has decided to sue someone (i.e., has a “resolve to litigate”), then the subrogation department’s communications and documents become privileged.

Many times, an independent adjuster includes a “subrogation” section of his/her report to the carrier, which states whether subrogation appears viable.  This section is not written by an attorney and just provides a general sense as to whether or not the carrier’s subrogation department should be involved.  In my experience, this section is not privileged and must be produced because it was not prepared exclusively for litigation purposes.   Independent adjusters should be aware of this and should use phrasing such as “A preliminary investigation indicates that subrogation may exist against X and the matter should be referred for further investigation” or something similar to make it clear this is just a preliminary assessment.

Bottom Line: For my carrier friends reading this:  Assume that everything you write in your file notes prior to turning the matter over to an attorney to litigate is not protected and will be produced to the defendants in litigation.  Be careful to use phrasing such “the preliminary oral report from our fire investigator indicates the fire started at the defective coffeemaker. A joint invasive examination of the coffeemaker is needed and interested parties should be put on notice.”   Try not to make it sound like you’ve definitely made up your mind (i.e., a “rush to judgment”) what the cause was as it is always good to say that investigation is ongoing.   When you do refer the file to an attorney, make it clear that you have a “resolve to litigate” and that the matter will be put into suit.  Say something like:  “At this point, it appears there is subrogation so this matter is being referred to XYZ law firm for litigation.”   I general advise carriers not to have their origin and cause experts prepare written report, at least not initially.   A written report sent directly to an attorney will almost always be considered privileged.  A written report sent to a carrier may be considered to be a “multipurpose” report prepared for a variety of reasons (i.e., elimination of arson as a cause) and may end up being turned over to the defense.

Bottom Line: For my fire investigation and loss analysis friends reading this:   As indicated, I generally discourage investigators from producing a report to the carrier prior to the attorney being involved.  Loss reports sent to attorneys should almost always indicate that the report is “Privileged,” that the conclusions are “preliminary” and that the expert will keep the file open and will re-evaluate if future facts are presented.  The notes you take at a fire scene may have to be produced, since at the moment you enter the fire scene, you have not yet determined whether or not subrogation will occur, so the privilege arguably has not yet attached.  So, please be careful as to what you say in these fire scene notes.

[1]  Travelers v. Daimler Trucks et al, 2015 U.S. Dist. LEXIS 48760,  SDNY Civil Action No.: 14-CV-1889 (April 14, 2015)
[2]  FRCP Rule 26(b)(3)
[3]  Travelers v. Daimler, 2015 U.S. Dist. LEXIS at 8, citing Tudor Ins. Co. v. Stay Secure Const. Corp., 290 FRD 37, 40 (SDNY 2013).
[4]  Id.

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