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High Country Paving, Inc. v. United Fire & Casualty Co.

United States District Court, D. Montana, Missoula Division

November 4, 2019



          Donald W. Molloy, District Judge

         This is a bad faith action arising out of a fatal accident involving a vehicle owned by Plaintiff High Country Paving and insured by Defendant United Fire and Casualty Company. United Fire ultimately settled with the third-party victims of the accident for policy limits of $3 million without securing a release for High Country. High Country subsequently settled with the third parties for an additional $1, 275 million. High Country sued United Fire, alleging bad faith (Count 1) and breach of contract for failing to pay comprehensive general liability ("CGL") coverage (Count 2). (Doc. 21.) United Fire has asserted an "advice of counsel" defense, (Doc. 26 at 22), and designated attorneys as expert witnesses, (Doc. 32-1).

         There are two discovery motions pending. First, High Country seeks to compel United Fire to produce documents currently withheld under claims of either privilege or work-product protections on the ground that United Fire has waived such protections. (Doc. 31.) Second, United Fire seeks to compel production of communications containing any evaluation of the third-party claims against High Country. (Doc. 35.) All the documents identified in the parties' privilege logs have been reviewed in camera. (See Doc. 71.) For the reasons discussed below, both motions are granted.[1]

         Legal Standard

         A motion to compel may be filed when a party disagrees with the objections interposed by the other party and wants to compel more complete answers. See Moreno Rivera v. DHA Global Forwarding, 272 F.R.D. 50, 53-54 (D.P.R. 2011). While the scope of discovery is quite broad, see Fed. R. Civ. P. 26(b)(1), otherwise discoverable information may be withheld if it is privileged or protected by the work product doctrine, Fed.R.Civ.P. 26(b)(5)(A). Montana privilege law and federal work product law apply here. Moe v. Sys. Trans., Inc., 270 F.R.D. 613, 622 (D. Mont. 2010).

         Attorney-client privilege is construed narrowly under Montana law. Am. Zurich Ins. Co. v. Mont. Thirteenth Jud. Dist. Ct, 280 P.3d 240, 245 (Mont. 2012). In the bad faith context, privilege is waived when an insurer relies on advice of counsel as a defense, Palmer by Diacon v. Farmers Ins. Exch, 861 P.2d 895, 907 (Mont. 1993), or when it names its attorneys as expert witnesses, Dion v. Nationwide Mut. Ins. Co., 185 F.R.D. 288, 295 (D. Mont. 1998).

         To be protected under the work product doctrine, a document must be "prepared in anticipation of litigation." Fed.R.Civ.P. 26(b)(3)(A). The party withholding the documents has the burden to show that each document withheld was "prepared or obtained because of the prospect of litigation." Moe, 270 F.R.D. at 625 (internal quotation marks and emphasis omitted). Nevertheless, work product protection is not absolute and materials may be discoverable if the opposing party can establish a substantial need for the information and undue hardship in obtaining it by other means. See Fed. R. Civ. P. 26(b)(3)(A). Mental impression work product is subject to additional protection, see Id. 26(b)(3)(B), and a requesting party must show that the "mental impressions are directly at issue in a case and the need for the material is compelling." Dion, 185 F.R.D. at 292.


         I. High Country's Motion to Compel

         High Country generally requested information and correspondence related to the claim file, with no temporal limitation. (See Doc. 32-3.) In response to High Country's discovery requests, United Fire provided a privilege log that includes 36 entries. (See Doc. 32-2.) High Country now seeks production of all the items included in United Fire's privilege log except documents related to the collateral criminal proceeding against Mr. Farrin Pearson, the driver involved in the accident giving rise to the case. (See Doc. 31 at 2.) Thus, the following documents need not be produced: UF000041-44, 000054-55, 000061-62, 000083-88, 000113-16, 000171-79, 000182-87, 000213-18, 001587, 001588, and 001589. Additionally, it appears that some of the requested documents have already been produced, including: UF000001-02, 000039, 001570, 001571, and 002186-87. The remaining documents in United Fire's privilege log are addressed below.

         A. Privilege

         Under Montana law, "[t]he attorney-client privilege applies unless the insurer directly relies on advice of counsel as a defense to the bad faith charge." Palmer, 861 P.2d at 907 (internal quotation marks and emphasis omitted). Privilege is also abrogated when an insurer names its attorney as an expert witness. Dion, 185 F.R.D. at 295. United Fire, having done both, concedes that it has waived the attorney-client privilege but disputes the scope of that waiver. United Fire argues that the waiver only applies "up until that point in time at which the [underlying] claim .. . was settled," id. at 296, which it proposes was December 8, 2017.[2] High Country rejects a temporal limitation, rather insisting on a subject-matter waiver circumscribed only by "considerations of fairness." (Doc. 43 at 22-23.) Given the circumstances of this case, High Country's position is more persuasive. Nevertheless, the documents were reviewed in camera. C.f. Palmer, 861 P.2d at 908 (discussing the consequences when discovery is "erroneously compelled").

         United Fire's proposes December 8, 2017, the date United Fire paid the $3 million in policy limits, as the waiver cut-off date. (Doc. 22 ¶ 3(x), (y).) But, High Country did not independently settle with the third-party claimants until almost two months later, during which time United Fire continued to provide a defense. Moreover, the circumstances under which United Fire settled were unique and High Country maintained that United Fire was required to pay any additional settlement amount. United Fire was first told by in-house counsel Katherine Huso that it need not pay the full amount without a release under Montana law. (See Doc. 32-7.) Guy Rogers then recommended they do so, (see Doc. 32-1 at 6), and Ms. Huso ultimately agreed, (id. at 7-9). Thus, which "advice of counsel" United Fire relied upon is very relevant to its defense. December 8, 2017, is therefore rejected as the cut-off date for United Fire's attorney-client privilege waiver.[3]

         The next possible waiver cut-off date is February 5, 2018, the date that High Country settled with the third-party claimants for an additional payment of $1, 275 million. (Doc. 22 at ¶ 3(ee).) This date marks the final release and end of the third-party claimants' action against High Country. Thus, consistent with United Fire's own argument, this is a better estimation of the point in time at which the underlying claim was settled. See Dion, 185 F.R.D. at 296. But, in Dion, the insurer did not assert an "advice of counsel" defense. Id. at 295. If it had, the court indicated that "any and all communication with its attorney would clearly ...

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