LYNN v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY (2024)

ORDER

Before the Court is a dispute concerning post-litigation claim review materials. The Court asked the parties to submit their arguments in writing. (See Doc. No. 24.) Plaintiff filed her brief on August 2, 2024. (Doc. No. 25.) Defendant filed its brief on August 9, 2024. (Doc. No. 30.) Having reviewed all arguments and applicable law, the Court construes Plaintiff's arguments as a motion to compel post-litigation claim materials, (“Motion”). The Motion is hereby GRANTED in part and DENIED in part.

BACKGROUND

As set forth in the Scheduling Order, (Doc. No. 17), this matter arises out of a September 3, 2021, motor vehicle accident between Plaintiff and non-party Beth Merriman. Plaintiff already received the $100,000 bodily injury liability limits from Ms. Merriman's liability insurance carrier. Plaintiff has now made a claim under her own State Farm insurance policy (“Policy”) for underinsured motorist (“UIM”) benefits. Plaintiff asserts that Defendant has breached its contract with Plaintiff, intentionally delayed and/or denied benefits owed under the Policy, and engaged in bad-faith. (Id.) A major point of contention between the Parties is the nature and extent of Plaintiff's damages, with meaningful disagreement as to how long Plaintiff was out of work as a result of the accident. (Id.; see also Doc. No. 30 at 2-3.) However, there is no dispute as to fault because the Parties agree that Ms. Merriman was at fault. (See Doc. No. 17 at 3.)

DISCOVERY DISPUTE

Plaintiff seeks an order requiring the production of Defendant's post-litigation claim review materials. (Doc. No. 25 at 4-5.) She notes that “[s]ince the filing of this lawsuit, State Farm requested and received over 40+ medical and employment Authorizations and issued subpoenas for those records directly to [Plaintiff's] employers and medical providers.” (Id. at 2.) She infers from this, that Defendant must have received those materials to evaluate Plaintiff's medical and loss of earning capacity claims. (Id.) Plaintiff adds that additional information—such as Plaintiff's deposition testimony, impairment rating, economic evaluations, and tax records—also impact the evaluation of Plaintiff's claims. (Id. at 2-3.) Plaintiff contends that any such post-litigation claim evaluation materials are discoverable because Defendant's “duty of good faith and fair dealing continues unabated during the life of the insurer-insured relationship, including through a lawsuit,” and the post-litigation claim evaluation materials are therefore relevant to “Plaintiff's claim that State Farm has not conducted a reasonable investigation,” and “has unreasonably delayed and denied benefits.” (Id. at 2-3) (quoting Sanderson v. American Family Mut. Ins. Co., 251 P.3d 1213, 1217 (Colo. App. 2010).)

Defendant concedes that, “the duty of good faith and fair dealing continues throughout the insured-insurer relationship[.]” (Doc. No. 30 at 3.) However, relying on Johnston v. Standard Fire, 2022 WL 1225311 (D. Colo. Apr. 25, 2022), as well as cases citing Johnston favorably, Defendant argues that litigation suspends an insurer's duty to negotiate, and therefore post-litigation evaluations are “generally not discoverable.”¹ (Doc. No. 30 at 3-4.) Defendant also argues that post-litigation claim review materials are protectable work product. (Doc. No. 30 at 3-5.) However, as far as the Court can tell, Defendant's work product argument is general in nature, and not supported by a privilege log. (Id.)

ANALYSIS

As the Honorable Christine M. Arguello noted in Johnston, there has been “considerable confusion regarding an insurer's duty to continue to evaluate and negotiate a settlement after the insured files suit.” Johnston, 2022 WL 1225311, at *3 (citing Sanderson v. Am. Fam. Mut. Ins. Co., 251 P.3d 1213, 1217 (Colo. App. 2010)). Relatedly, there appears to be confusion regarding the production of post-litigation claim review materials. Thus, while the Court typically prefers to resolve discovery disputes from the bench (for efficiency and to avoid delay), this dispute warrants a more fulsome analysis.

“Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Fed. R. Civ. P. 26(b)(1). Relevance under Rule 26 is broadly construed. See Stanton v. Encompass Indem. Co., No. 12-cv-00801-PAB-KLM, 2013 WL 2423094, at *2 (D. Colo. June 4, 2013) (quoting Cardenas v. Dorel Juvenile Grp., Inc., 232 F.R.D. 377, 382 (D. Kan. 2005)); Brackett v. Walmart Inc., No. 20-cv-01304-KLM, 2021 WL 1749975, at *3 (D. Colo. May 4, 2021) (“[R]elevance is not so narrowly construed as to limit a story to its final chapter, and neither party is entitled to make it impossible for all meaningful parts of the story to be told.”). However, in considering proportionality, courts “weigh[ ] the importance of the discovery to the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Carlson v. Colo. Ctr. for Reprod. Med., LLC, 341 F.R.D. 266, 274 (D. Colo. 2022) (citing Fed. R. Civ. P. 26(b)(1)).

“[D]iscovery rulings are within the broad discretion of the trial court, and [the Tenth Circuit] will not disturb them absent a definite and firm conviction that the lower court made a clear error of judgment or exceeded the bounds of permissible choice in the circumstances.” Kenno v. Colo. Governor's Off. of Info. Tech., Nos. 21-1353 & 21-1434, 2023 WL 2967692, at *7 (10th Cir. Apr. 17, 2023) (internal quotation marks omitted) (quoting Cole v. Ruidoso Mun. Sch., 43 F.3d 1373, 1386 (10th Cir. 1994)); see also S.E.C. v. Merrill Scott & Assocs., Ltd., 600 F.3d 1262, 1271 (10th Cir. 2010) (discovery rulings are reviewed for abuse of discretion). Rule 26(b)(2)(C) allows a court to limit discovery on motion or on its own if it determines: (1) the discovery sought is unreasonably cumulative or duplicative, or may be obtained from some other source that is more convenient, less burdensome, or less expensive; (2) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or (3) the proposed discovery is outside the scope permitted by Rule 26(b)(1). Fed. R. Civ. P. 26(b)(2)(C).

Against this backdrop of a liberal discovery standard tempered by the guardrails of proportionality, the Court moves on to consider how the type of claim at issue informs the scope of discovery.

This dispute arises in the context of a first-party UIM claim where the insured's conduct is directly at issue. In Silva v. Basin Western, Inc., 47 P.3d 1184 (Colo. 2002), the court drew a distinction between first-party and third-party claims, holding that in first-party claims the insurance company owes a duty of good faith to its insured, and thus reserves and settlement authority information may be discoverable, while in third-party claims, no such duty exists and such information is less subject to discovery. Later, in Sunahara v. State Farm Mut. Auto Ins. Co., 280 P.3d 649 (Colo. 2012), the court held that even though a UIM claim is a first-party claim, the insurance company in that case was in a unique role because it was not defending its own actions, but rather the tortfeasor's actions. Thus, in Sunahara, the court found the scope of discovery more akin to the limited scope available in third-party claims. Sunahara, 280 P.3d at 657. And while the Silva and Sunahara decisions concern the discoverability of reserves and settlement authority, they also concern the related liability assessments that underlie reserves and settlement authority. Thus, both cases inform this Court's analysis.

This is a UIM case. But unlike the claim in Sunahara, this dispute is more akin to ordinary first-party claims (where discovery into the insurer's evaluations is broader) than third-party claims (where discovery into the insurer's evaluations is more limited). This is because in this case, the insurer's conduct—not the tortfeasor's conduct—is at the center of litigation. Indeed, the tortfeasor's conduct is a non-issue altogether in this case, because the Parties have already agreed that the tortfeasor's negligence caused the accident. (See Doc. No. 17 at 3 (listing in the “Undisputed Facts” section that, “Plaintiff was involved in a motor vehicle collision on September 3, 2021, caused by the negligence of Beth Merriman.” (emphasis added)).) Said another way, because this dispute arises in the context of a first-party UIM claim where only the insurer's conduct is at issue, the scope of discovery into the insurer's conduct is necessarily broader than it might be in a third-party claim or a first-party UIM claim where the tortfeasor's conduct is at issue.²

Next, the Court considers the applicability of two important legal principles in insurance cases: First, the principle that an insurer has a continued duty of good faith and fair dealing, even through litigation. Rabin v. Fid. Nat. Prop. & Cas. Ins. Co., 863 F. Supp. 2d 1107, 1112-14 (D. Colo. 2012); Johnston, 2022 WL 1225311, at *3–4. Second, the principle that “an insurer's derivative duty to negotiate, settle, or pay an insured's claim is suspended when two elements are present: (1) an adversarial proceeding is filed, and (2) a genuine disagreement as to the amount of compensable damages exists.” Rabin, 863 F. Supp. 2d at 1113. Together, these principles reflect that litigation suspends some, but not all, of the insurer's duties to its insured.

In Johnston, the court applied the second principle (that litigation suspends the duty to negotiate, settle, and pay) to find that “evidence of [the insured's] post-litigation activity related to evaluating [plaintiff's] claim is not relevant[.]” Johnston, 2022 WL 1225311, at *3-4. But even if post-litigation activity has no relevance to an insurer's suspended duties, it is still relevant to an insurer's ongoing duty of good faith and fair dealing. See Bise v. Am. Fam. Ins. Co., No. 22-CV-03270-REB-KAS, 2024 WL 3023549, at *9 (D. Colo. May 7, 2024) (noting that even when the duty to negotiate a claim is suspended, evidence of the insured's post-litigation handling of the claim may be relevant to the plaintiff's breach of contract, unreasonable delay, or common law bad faith claims). In other words, to the extent Johnston stands for the proposition that upon suspension of an insurer's duty to negotiate, settle, and pay, all post-litigation claim activity automatically becomes irrelevant, the Court respectfully disagrees with that conclusion. See generally Camreta v. Greene, 563 U.S. 692, 714 n.7, 131 S.Ct. 2020, 179 L.Ed.2d 1118 (2011) (“A decision of a federal district court judge is not binding precedent in either a different judicial district, the same judicial district, or even upon the same judge in a different case.”). Post-litigation claim activity is still relevant to the separate and unabated duty of good faith and fair dealing.³

In this case, Defendant admits that “[i]n discovery, [Defendant] has obtained additional information about Plaintiff's claimed injuries and employment,” and that it “continues to review information obtained post-suit[.]” (Doc. No. 30 at 2-3, 5.) Plaintiff is entitled to know whether that review has been conducted in good faith and whether Defendant is adhering to its duty of good faith and fair dealing.

The Court pauses to acknowledge the concern that when post-litigation claim review materials are subject to disclosure, discovery becomes a moving target. An insurer who continues to evaluate a claim is necessarily creating new discoverable documentation while the case is pending. However, unless and until Colorado law changes to relieve an insurer of its post-litigation duty of good faith, that duty must be tested through discovery. The difficulties this presents for courts should not give insurers a free pass on that discovery. Additionally, courts have many tools at their disposal to manage discovery, curtail it where necessary, and stave off discovery abuses. See, e.g., Stanisavljevic, 2024 WL 2830949 at *3. Thus, the concern over process will not deter this Court from ordering relevant and proportional discovery that will facilitate adjudication on the merits. See generally Gomes v. Williams, 420 F.2d 1364, 1366 (10th Cir. 1970) (“The preferred disposition of any case is upon its merits.”) (citing Meeker v. Rizley, 324 F.2d 269 (10th Cir. 1963)). Insureds are entitled to know whether their insurers continue to operate in good faith, and post-litigation claim review materials are relevant to that determination.

Of course, the analysis cannot end there. By definition, Defendant's post-litigation materials were created after litigation was filed. Thus, it is possible—and indeed probable—that much of what Plaintiff seeks will be subject to important privilege and work product protections.⁴ But those protections are not absolute. Underlying facts are not privileged, ordinary business communications are not privileged, and work product protections are limited. As Judge Blackburn noted, “attorney client privilege and work protections are not that simple.” Bise, 2024 WL 3023549, at *5. To determine whether any such protections apply, one would have to consider the context—and in some cases the content—of the information. Thus, like in Bise, the Court orders that to the extent Defendant claims work product or privilege protections over post-litigation claim review materials, those objections be reflected in a privilege log. Additionally, the Parties shall confer on a reasonable and finite production of any post-litigation claim review materials that Defendant does not intend to include in its privilege log.

CONCLUSION

For these reasons it is

ORDERED that Plaintiff's Motion (Doc. No. 24) is GRANTED to the extent Defendant does not log the communication/document on a privilege log. It is DENIED without prejudice to the extent Defendant logs it on a privilege log within 10 days of this order.

FOOTNOTES

1.   Defendant appears to acknowledge that post-litigation claim review materials may be relevant under certain circumstances, but argues the burden is on Plaintiff to articulate relevance. (Doc. No. 30 at 3.) Certainly a plaintiff seeking discovery has the burden of articulating relevance when the relevance is not obvious. See generally Bonanno v. Quizno's Franchise Co., LLC, 255 F.R.D. 550, 553 (D. Colo. 2009). However, Plaintiff has already met that relatively light burden here. (See generally Doc. No. 25 at 2-3.) Once that burden is satisfied, the party resisting discovery cannot stand on general objections—it must satisfy its own burden of demonstrating the discovery is not relevant. See Stanisavljevic v. Standard Fire Ins. Co., 2024 WL 2830949, at *2 (D. Colo. June 4, 2024); Simpson v. Univ. of Colo., 220 F.R.D. 354, 359 (D. Colo. 2004); St. Paul Reinsurance Company, Ltd. v. Commercial Financial Corp., 198 F.R.D. 508, 513 (N.D. Iowa 2000).

2.   The Court acknowledges the decision in Johnston, where the court appears to take the view that discovery in UIM cases is, generally-speaking, more limited than in typical first party claim cases. See Johnston, 2022 WL 1225311, at *3. But as the Honorable Robert E. Blackburn's recent decision reflects, not all UIM cases are the same. See Bise v. Am. Fam. Ins. Co., No. 22-CV-03270-REB-KAS, 2024 WL 3023549, at *4 (D. Colo. May 7, 2024) (finding that in that UIM case, the insured's position was not adversarial to plaintiff on the question of fault, and therefore, Sunahara's rationale for more limited discovery, did not apply.)

3.   In addition to relying on Johnston, for its relevance arguments, Defendant relies on Stanley v. State Farm Mut. Auto. Ins. Co., 2023 WL 2479953 (D. Colo. Mar. 13, 2023). However, in Stanley, the Honorable Nina Y. Wang was analyzing—on two dispositive motions—whether plaintiff had raised a genuine dispute of material fact regarding post-litigation conduct. She quoted Johnston to note that another court rejected an argument similar to the one plaintiff was making, but she did not conduct her own relevance analysis. See id. at *13. Defendant also relies on Stanisavljevic, where the Honorable Susan B. Prose found post-litigation claim review materials were not discoverable. 2024 WL 2830949, at *3. But Judge Prose did not deem the materials irrelevant. Instead, she found—based on specific information about the materials—that defendant had met its burden of demonstrating the materials were work product. Id. Additionally, Stanisavljevic involved unique considerations, including plaintiff's problematic approach to discovery. See generally id. at *15.

4.   Indeed, Plaintiff's own arguments illustrate this point. (See Doc. No. 25 at 4-5 (where Plaintiff suggests that much of the information Defendant has obtained post-litigation, is information obtained as a result of the litigation, and for use in the litigation).) Thus, Plaintiff should guide herself accordingly and confer with Defendant in good faith. Any challenge to Defendant's privilege log must reflect a genuine and reasonable dispute over the application of privilege and/or a work product doctrines.

Maritza Dominguez Braswell, United States Magistrate Judge