No Discovery into Insurers’ Non‑Settlement Litigation Conduct in Kentucky Bad‑Faith Actions: Commentary on Allied World Specialty Insurance Co. v. Wingate

No Discovery into Insurers’ Non‑Settlement Litigation Conduct in Kentucky Bad‑Faith Actions: Commentary on Allied World Specialty Insurance Co. v. Wingate

I. Introduction

This memorandum opinion of the Supreme Court of Kentucky in Allied World Specialty Insurance Company f/k/a Darwin National Assurance Company v. Hon. Thomas D. Wingate addresses a recurrent and often contentious set of issues in insurance bad‑faith litigation: the permissible scope of discovery into an insurer’s internal files, the extent to which post‑litigation conduct can support and be used to prove bad faith, and how the attorney‑client privilege and work‑product doctrine interact with “advice‑of‑counsel” defenses.

Although designated “Not to Be Published” under Kentucky’s RAP 40(D), the opinion synthesizes and clarifies several important strands of Kentucky law:

  • It reaffirms and sharpens the rule that an insurer’s non‑settlement, post‑litigation conduct is neither admissible nor discoverable in a bad‑faith action.
  • It confirms that raising an advice‑of‑counsel defense results in an implied waiver of the attorney‑client privilege as to communications bearing on the challenged coverage decision.
  • It applies the qualified nature of the work‑product doctrine to bad‑faith suits, holding that a plaintiff’s substantial need for counsel’s settlement‑related work product can override that protection.
  • It refines prior guidance on discovery of personnel files in bad‑faith cases, distinguishing relevant performance/disciplinary material from “truly personal” and private information.
  • It reiterates the standards for writs of prohibition in the discovery context and clarifies the Court of Appeals’ role as a trial court when sitting in an original writ action, including its ability to consider a privilege log not presented below.

The case arises out of a dispute between the insurer, Allied World, and its insured, Kentucky State University (“KSU”), over the handling and denial of coverage for an employment discrimination claim (the “Fox Suit”), and the subsequent assertion of bad‑faith claims after coverage was ultimately judicially confirmed. When the Franklin Circuit Court ordered very broad discovery—including all post‑litigation claims‑handling materials and full personnel files—the insurer sought a writ of prohibition from the Court of Appeals, which was denied. The Supreme Court of Kentucky now affirms in part, reverses in part, and remands with directions for issuance of a limited writ.

II. Summary of the Opinion

A. Factual and Procedural Background

Allied World issued an employment practices liability insurance policy to KSU in 2012, renewed to cover claims made and reported through July 1, 2015. In April 2016, a former employee, Sirrethia Fox, filed an employment discrimination suit against KSU (the “Fox Suit”). KSU did not tender that claim to Allied World until mid‑2018, well after the claims‑made-and-reported policy period.

The policy included a “related claims” provision permitting a late‑reported claim to be treated as timely if related to an earlier, timely claim. KSU argued the Fox Claim was related to a prior claim involving another employee, Stephanie Bastin. Allied World consulted outside coverage counsel, determined the claims were not “related,” and denied coverage based on late notice. Subsequently, the courts held that the Fox and Bastin claims were indeed “unequivocally related,” making KSU’s claim for coverage timely and covered. Allied World ultimately paid KSU’s Fox settlement in full.

KSU had, however, filed a third‑party complaint in October 2018 against Allied World asserting:

  • a declaratory claim for coverage; and
  • bad‑faith claims for wrongful denial of coverage.

The trial court bifurcated coverage and bad faith. After coverage was resolved in KSU’s favor and affirmed on appeal (with the Supreme Court denying discretionary review), the parties litigated KSU’s bad‑faith claims. The discovery disputes that followed are central to this opinion.

KSU propounded very broad discovery requests, including:

  • Interrogatories seeking every communication between Allied World and KSU, and among Allied World employees, contractors, adjusters, or attorneys, related to the claim and subsequent litigation.
  • Requests for production seeking:
    • all correspondence or communications relating to KSU’s claim;
    • the complete claims file, home office file, and any other files or electronic media relating in any way to KSU’s claim, including attorney correspondence; and
    • the personnel files (for ten years) of various Allied World employees.

Allied World:

  • Produced its outside coverage counsel’s file, purporting to do so as a “partial” waiver of the attorney‑client privilege limited to coverage advice on the Fox Claim; but
  • Refused to produce claims‑handling documents created after service of KSU’s third‑party complaint, and resisted production of full personnel files.

The Franklin Circuit Court:

  • Denied Allied World’s summary judgment motion on bad faith;
  • Granted KSU’s motions to compel, ordering:
    • production of all documents relating to KSU’s claim, including post‑litigation documents; and
    • production of the requested personnel files in full; and
  • Rejected Allied World’s reliance on privilege, concluding Allied World could not withhold coverage‑related documents on attorney‑client grounds.

Allied World then petitioned the Court of Appeals for a writ of prohibition, arguing the discovery orders improperly compelled production of:

  • undiscoverable non‑settlement post‑litigation materials;
  • privileged attorney‑client communications;
  • protected attorney work product; and
  • irrelevant and private portions of personnel files.

The Court of Appeals denied the writ, reasoning:

  • post‑litigation conduct is discoverable in a bad‑faith case; and
  • Allied World had not supplied a privilege log to the trial court and therefore failed to carry its burden on privilege.

Allied World appealed to the Supreme Court.

B. The Supreme Court’s Holdings (In Brief)

  1. Scope of Discoverable Post‑Litigation Conduct:
    • The trial court correctly compelled production of post‑litigation materials relating to Allied World’s settlement behavior.
    • However, the court erred by ordering production of all post‑litigation documents; under Knotts and Mosley, non‑settlement post‑litigation conduct is neither admissible nor discoverable in a bad‑faith action.
    • A writ of prohibition is warranted to prevent enforcement of that overbroad aspect of the discovery order.
  2. Attorney‑Client Privilege and Work Product:
    • The Court of Appeals erred procedurally by refusing to consider Allied World’s privilege log, because in a writ action the appellate court acts as a trial court and may consider such materials even if not before the circuit court.
    • Substantively, no writ is warranted to bar discovery of privileged or work‑product materials to the extent they involve settlement conduct, because:
      • Allied World waived the attorney‑client privilege by raising an advice‑of‑counsel defense and selectively disclosing privileged communications to justify its coverage denial.
      • KSU demonstrated substantial need for Allied World’s settlement‑related work product, which is central to its bad‑faith claim and unavailable from any other source; thus the work‑product protection yields under CR 26.02(3)(a).
  3. Personnel Files:
    • Relying on Grange Mutual Insurance Co. v. Trude, the Court held that portions of personnel files dealing with job performance, bonuses, wage data, and disciplinary matters are relevant and discoverable in a bad‑faith action.
    • But “truly personal” information (e.g., job applications, marital information, health insurance and medical data, workers’ compensation claims, retirement account data) is irrelevant and highly private and therefore should not be compelled in discovery.
    • A writ is appropriate to bar enforcement of the trial court’s order requiring production of those “truly personal” aspects of the personnel files.
  4. Remedy:
    • The Court affirms the trial court’s orders insofar as they:
      • compel production of post‑litigation settlement‑related materials, including otherwise privileged or work‑product documents; and
      • require production of relevant personnel file sections (performance, discipline, pay, etc.) up to ten years back.
    • The Court reverses in part and remands with directions to the Court of Appeals to issue a writ of prohibition preventing enforcement of:
      • the order compelling discovery of non‑settlement post‑litigation materials; and
      • the order compelling production of “truly personal” and irrelevant portions of personnel files.

III. Precedents and Authorities Cited

A. Writ Jurisprudence: Hoskins, State Farm, Independent Order of Foresters, Bender, Grange v. Trude

The opinion works within Kentucky’s familiar two‑class framework for writs of prohibition, articulated in Hoskins v. Maricle, 150 S.W.3d 1 (Ky. 2004), and reiterated in State Farm Mut. Auto. Ins. Co. v. Edwards, 670 S.W.3d 873 (Ky. 2023):

  1. First class: where a court is proceeding outside its jurisdiction and there is no adequate remedy by appeal.
  2. Second class: where a court is acting erroneously, though within jurisdiction, and there is no adequate remedy by appeal; the petitioner must ordinarily show “great injustice and irreparable injury.”

Within the second class, Independent Order of Foresters v. Chauvin, 175 S.W.3d 610 (Ky. 2005), recognizes “certain special cases” where a writ may issue absent proof of “great and irreparable injury” if:

  • a substantial miscarriage of justice will occur if the lower court proceeds erroneously; and
  • correction is necessary in the interest of orderly judicial administration.

Discovery orders compelling production of contested materials are classic candidates for writ review because, as Bender v. Eaton, 343 S.W.2d 799 (Ky. 1961), and later State Farm reiterate, once the materials are produced, “the bell cannot be unrung.” The injury is complete upon disclosure and cannot be remedied on appeal.

Grange Mut. Ins. Co. v. Trude, 151 S.W.3d 803 (Ky. 2004), is especially important here. It holds that while discovery errors often can be corrected at trial or on appeal, orders compelling:

  • privileged materials, or
  • deeply private/irrelevant information from personnel files

can justify a writ as a “special case” because they cause a substantial miscarriage of justice and implicate systemic concerns about privacy and fairness in the discovery process.

B. Bad‑Faith and Post‑Litigation Conduct: Knotts and Mosley

The fundamental authority on post‑litigation conduct in bad‑faith cases is Knotts v. Zurich Insurance Co., 197 S.W.3d 512 (Ky. 2006). In Knotts, the Court drew a sharp distinction between:

  • Settlement behavior – how an insurer makes, refuses, or responds to settlement offers; and
  • Other litigation conduct – pleadings, motion practice, discovery positions, trial tactics, etc.

The Court held:

  • Insurers’ duties of good faith continue after suit is filed, so post‑filing conduct can, in principle, support a bad‑faith claim; but
  • Evidence of an insurer’s “other litigation conduct” (non‑settlement conduct) is inadmissible to prove bad faith, with the Court expressing a preference for an “absolute prohibition” on such evidence.

The policy rationale was twofold:

  1. Courts can monitor and correct improper litigation conduct in the underlying case itself, so using that conduct as a later basis for bad‑faith liability is unnecessary.
  2. Allowing litigation conduct to be used as bad‑faith evidence would chill insurers’ rights to mount a zealous defense and could impair access to courts—threatening the adversarial system itself.

Later, in Mosley v. Arch Specialty Ins. Co., 626 S.W.3d 579 (Ky. 2021), the Court extended this logic explicitly to discovery, stating that:

  • litigation techniques are not discoverable; and
  • only settlement conduct is discoverable in a bad‑faith case.

Allied World v. Wingate builds directly on these cases, confirming that the Knotts/Mosley dichotomy applies fully at the discovery stage.

C. Discovery Scope and Relevance: CR 26.02 and Relevance

Kentucky Rule of Civil Procedure 26.02(1) limits discovery to matters:

“not privileged, which are relevant to the subject matter involved in the pending action.”

By characterizing non‑settlement post‑litigation conduct as “not relevant to the insurer’s decision to deny coverage” (quoting Knotts), the Court effectively categorizes such materials as beyond the permissible scope of discovery in a bad‑faith case.

D. Attorney‑Client Privilege and Waiver: St. Luke Hospitals and 3M v. Engle

The opinion reiterates that the attorney‑client privilege is “absolute” in the sense that it cannot be overcome simply because the information is important or even essential to the opposing party’s case. St. Luke Hosps., Inc. v. Kopowski, 160 S.W.3d 771 (Ky. 2005), is cited for the proposition that privileged communications are not discoverable even when:

  • they are essential to the underlying case; and
  • they cannot be obtained from another source.

However, the privilege can be waived. 3M Co. v. Engle, 328 S.W.3d 184 (Ky. 2010), explains “implied waiver” or “at‑issue waiver”: when a client takes positions that place the substance of attorney‑client communications directly in issue—especially by claiming it acted on advice of counsel— fairness requires disclosure. The inquiry for the trial court is whether allowing the privilege to shield such information would be “manifestly unfair” to the opposing party.

In Allied World, the Court finds:

  • Allied World answered an interrogatory seeking its legal justifications for denying coverage by producing privileged coverage opinions from counsel.
  • That conduct amounts to assertion of an advice‑of‑counsel defense.
  • It would be manifestly unfair to allow Allied World to selectively disclose favorable advice while withholding potentially adverse communications on the same subject.

Thus, Allied World has waived the attorney‑client privilege as to all materials relating to its coverage decision, including post‑litigation settlement communications on that topic.

E. Work‑Product Doctrine: CR 26.02(3) and Morrow v. Brown, Todd & Heyburn

The work‑product doctrine (codified in CR 26.02(3)(a)) is expressly qualified: even materials prepared in anticipation of litigation may be discovered if the party seeking them shows:

  1. substantial need in preparing its case; and
  2. inability, without undue hardship, to obtain their substantial equivalent by other means.

Morrow v. Brown, Todd & Heyburn, 957 S.W.2d 722 (Ky. 1997), is pivotal. It recognizes that in some contexts—especially where a lawyer’s conduct is itself at issue (e.g., legal malpractice or insurance bad‑faith refusal to settle)—opinion work product may be discoverable. Morrow observes that:

“[T]he crucial issues that form the proof for the claim are likely to include what the lawyer knew, when the lawyer knew it, and how the lawyer knew it. Thus, the nature of the claim itself often necessarily puts work product into play.”

In Allied World, the Court applies this reasoning to KSU’s bad‑faith claim:

  • The conduct of Allied World’s counsel in handling settlement and coverage positions is central to determining bad faith.
  • KSU cannot obtain counsel’s internal assessments or strategy from any other source.
  • Therefore, KSU has the requisite “substantial need,” and the work‑product protection must yield with respect to settlement‑related materials.

F. Personnel Files and Privacy: Grange v. Trude and Lexington Public Library

Trude also provides the template for analyzing discovery of personnel files in bad‑faith cases. It draws a line between:

  • Irrelevant and “truly personal” information (e.g., applications, marital status, health and insurance data, retirement contributions), which is non‑discoverable; and
  • Relevant information (e.g., performance evaluations, disciplinary records, bonuses, salary data), which may reveal patterns of claims‑handling misconduct, systemic practices, or corporate knowledge of bad‑faith practices, and is therefore discoverable.

The Supreme Court in Allied World applies Trude and classifies KSU’s request for “all personnel records” over ten years as overbroad insofar as it captures the “truly personal” categories.

The Court also references Lexington Public Library v. Clark, 90 S.W.3d 53 (Ky. 2002), to underscore two procedural points:

  • When a writ petition challenges a discovery order involving privilege, the court may need a privilege log or in camera review to determine whether the privilege applies.
  • However, where the question is purely legal (e.g., whether a whole category of documents is discoverable as a matter of law), resolution does not require document‑by‑document review.

IV. The Court’s Legal Reasoning

A. Post‑Litigation Conduct: Admissibility and Discoverability

The central doctrinal move is the Court’s extension of the Knotts rule from admissibility to discovery. The reasoning proceeds in several steps:

  1. Bad‑faith duty extends beyond filing of suit. An insurer’s obligation not to act in bad faith continues into litigation; its post‑filing settlement behavior can, in principle, support a bad‑faith claim.
  2. But “settlement behavior” is distinct from “other litigation conduct.” Settlement behavior includes making, refusing, or responding to settlement offers for the coverage demand; other litigation conduct encompasses pleadings, motions, discovery tactics, and trial strategy.
  3. Non‑settlement litigation conduct is inadmissible to prove bad faith. Under Knotts, the Court has already opted for an “absolute prohibition” against using non‑settlement litigation conduct as evidence of bad faith.
  4. Non‑settlement litigation conduct is also irrelevant to the coverage decision. The Court quotes Knotts that such conduct is “not relevant to the insurer’s decision to deny coverage.” That irrelevance, coupled with CR 26.02(1), means such materials fall outside the permissible bounds of discovery.
  5. Policy rationales apply equally to discovery. The chilling effect on insurers’ willingness to contest questionable claims, the risk of impairing the right to a zealous defense, and the threat to the adversarial system—concerns articulated in Knotts—are just as acute at the discovery stage. Allowing broad discovery into trial strategy, internal litigation communications, and case‑handling techniques would:
    • deter insurers from fully asserting defenses;
    • create a one‑sided advantage for plaintiffs, who would gain access to internal litigation materials that defendants cannot reciprocally obtain; and
    • complicate and protract bad‑faith proceedings with satellite disputes over litigation conduct.
  6. Therefore, non‑settlement post‑litigation conduct is neither admissible nor discoverable. The Court expressly “reiterates” this rule, tying together Knotts and Mosley.

Applied to this case:

  • KSU’s broad discovery requests for “all” communications and documents related to the Fox claim, extending through 2022, plainly encompassed non‑settlement litigation conduct.
  • The Franklin Circuit Court’s order compelling all post‑litigation documents, without carving out non‑settlement conduct, was therefore “overly broad” and erroneous.

B. Writ Standard Applied to Post‑Litigation Discovery

With error established, the Court turns to the writ criteria under the “second class” of writ cases:

  1. Error by the lower court – yes, in compelling all post‑litigation documents without limiting to settlement conduct.
  2. No adequate remedy by appeal – yes, as recognized in Bender and State Farm; once privileged or irrelevant information is produced, it cannot be “unseen,” and the harm is complete.
  3. Great and irreparable injury or “special case” miscarriage of justice – the Court relies on the “special cases” doctrine:
    • Compelling discovery into non‑settlement litigation conduct risks chilling insurers’ legitimate defenses and undermines core judicial policies protecting the adversarial system.
    • It creates a systemic imbalance, granting plaintiffs unilateral discovery into an opponent’s litigation tactics, strategies, and internal communications.
    • These systemic concerns elevate the error to a “substantial miscarriage of justice” whose correction is necessary “in the interest of orderly judicial administration.”

On this basis, the Court directs issuance of a writ of prohibition to prevent enforcement of the trial court’s discovery order as to non‑settlement post‑litigation materials.

C. Privilege and Work Product as to Post‑Litigation Settlement Conduct

1. The Court of Appeals’ Procedural Error

The Court first clarifies the procedural role of the Court of Appeals in writ actions. A writ petition is an “original action” in which the reviewing court functions as a trial court, not as an appellate reviewer of the circuit court’s record. Consequently:

  • The Court of Appeals could and should have considered Allied World’s privilege log, even though it had not been presented to the trial court.
  • In many writ cases, a privilege log or in camera review at the appellate level is precisely how courts determine whether privilege claims have merit.
  • Moreover, where the privilege objection concerns broad categories of documents as a matter of law (rather than document‑specific facts), the issue can be resolved without a privilege log.

Although the Court of Appeals erred in refusing to engage Allied World’s privilege arguments, the Supreme Court independently evaluates those arguments and finds that no writ is warranted.

2. Waiver of Attorney‑Client Privilege via Advice‑of‑Counsel Defense

The Court’s substantive analysis of privilege waiver follows 3M v. Engle:

  • Allied World produced privileged communications with outside coverage counsel in response to KSU’s interrogatory seeking the legal basis for coverage denial.
  • By doing so, Allied World effectively asserted that it acted based on counsel’s advice.
  • This both “places the substance of the communications in issue” and raises the concern that selective disclosure could distort the fact‑finding process.

The Court concludes:

“Given that Allied World seeks to rely on this advice of counsel to justify its denial of coverage, it would be manifestly unfair to protect other attorney‑client privileged materials relating to Allied World's decision to deny coverage from discovery.”

Accordingly, Allied World has impliedly waived attorney‑client privilege as to all communications “relating to its coverage decision,” including post‑litigation settlement communications that concern the same subject.

3. Overcoming Work‑Product Protection for Settlement Conduct

Turning to the work‑product doctrine, the Court recognizes its qualified nature under CR 26.02(3)(a). It reasons that in a bad‑faith case centered on:

  • what the insurer and its counsel knew,
  • when they knew it, and
  • how that informed settlement positions and coverage decisions,

the contents of attorneys’ settlement‑related work product are themselves probative “facts” essential to the plaintiff’s case. Citing Morrow, the Court emphasizes that when an attorney’s conduct is directly at issue in subsequent litigation, the protection of even opinion work product must sometimes yield.

KSU cannot access the internal communications and analyses of Allied World’s counsel by any other means. Therefore:

  • KSU has a “substantial need” for those materials; and
  • It cannot obtain their substantial equivalent without undue hardship.

The Court thus sustains the trial court’s order compelling production of settlement‑related work product and denies Allied World’s request for a writ on that point.

D. Personnel Files and Privacy

The Court’s treatment of personnel files tracks and refines Trude:

  • A request for “all personnel records” for specified employees over a ten‑year period is overbroad because it necessarily sweeps in irrelevant and “truly personal” information.
  • “Truly personal” items include:
    • original job applications;
    • marital and family information;
    • medical information and health insurance data;
    • workers’ compensation claims; and
    • retirement account or pension details.
  • Such items have no bearing on whether adjusters or supervisors engaged in bad‑faith practices and therefore are not discoverable.
  • By contrast, performance evaluations, disciplinary records, salary and bonus data, and similar metrics can illuminate patterns of behavior, incentives, and corporate knowledge of bad‑faith practices and are therefore relevant and discoverable.

On writ standards:

  • There is no adequate remedy by appeal once private, irrelevant information has been disclosed.
  • Compelling production of deeply personal information from personnel files constitutes a “deeply intrusive and unwarranted invasion of the employees’ privacy,” qualifying as a “substantial miscarriage of justice” under the “special cases” rubric.
  • Judicial administration is served by preventing such overreach and maintaining principled boundaries on discovery.

The Court therefore directs issuance of a writ to bar enforcement of the discovery order as to the “truly personal” aspects of personnel records, while affirming discovery of the performance‑ and discipline‑related portions for the ten‑year period.

V. Simplifying the Key Legal Concepts

A. Writ of Prohibition (Second‑Class, “Special Cases”)

A writ of prohibition is an extraordinary remedy by which a higher court orders a lower court to stop doing something. In Kentucky:

  • First‑class writs address situations where the lower court lacks jurisdiction.
  • Second‑class writs address situations where the court has jurisdiction but is acting erroneously and there is no adequate remedy by appeal.

Within the second class, “special cases” allow a writ even absent “great and irreparable injury” when:

  • the lower court’s error will cause a “substantial miscarriage of justice”; and
  • correcting that error is necessary for orderly administration of justice.

Discovery orders compelling privileged or deeply private information, or orders that threaten systemic values (like the right to a fair defense), often fit within these “special cases.”

B. Insurance Bad‑Faith Claims (Basics)

In Kentucky, an insurance bad‑faith claim generally alleges that the insurer violated its duty of good faith and fair dealing by, for example:

  • unreasonably denying coverage;
  • failing to investigate a claim properly;
  • unreasonably delaying payment; or
  • unreasonably refusing to settle within policy limits.

Bad‑faith liability focuses on the insurer’s conduct, decision‑making process, and knowledge, often requiring examination of internal claims‑handling and settlement behavior.

C. Settlement Behavior vs. Litigation Conduct

The opinion’s distinction is crucial:

  • Settlement behavior – communications and actions directed to resolving the underlying claim:
    • making or refusing settlement offers;
    • negotiating amounts and terms;
    • responding to the insured’s or claimant’s demands.
  • Other litigation conduct – how lawyers and parties litigate:
    • what pleadings they file;
    • how they respond to discovery;
    • what motions they file and arguments they make at trial.

Kentucky allows bad‑faith plaintiffs to use settlement behavior as evidence of bad faith (even when it occurs after suit is filed), but absolutely forbids using other litigation conduct for that purpose—and now also forbids routine discovery into that litigation conduct.

D. Attorney‑Client Privilege and Advice‑of‑Counsel Defense

The attorney‑client privilege protects confidential communications between lawyer and client made for the purpose of obtaining or providing legal advice. Ordinarily, these communications are completely off‑limits in discovery.

However, if a party says, in substance, “I acted as I did because my lawyer told me this was lawful,” that party has:

  • put the substance of the legal advice directly at issue; and
  • effectively invited the court to decide whether the advice was reasonable or followed.

It would be unfair to:

  • let that party disclose only the helpful parts of the advice; and
  • use privilege to hide any unfavorable or contradictory advice.

Therefore, by asserting an advice‑of‑counsel defense (expressly or by conduct, like selectively disclosing counsel’s opinions), a party waives the privilege as to all communications on the same subject matter.

E. Work‑Product Doctrine and “Substantial Need”

The work‑product doctrine protects materials prepared by lawyers (or their agents) “in anticipation of litigation” from ordinary discovery. It is designed to preserve the privacy of attorneys’ preparation and mental impressions.

But this protection is not absolute. If an opposing party shows:

  • that it has a substantial need for those materials to prepare its case; and
  • that it cannot, without undue hardship, obtain the equivalent information by other means,

then the court may order disclosure—sometimes with redactions or other protections.

In bad‑faith litigation focusing on whether an insurer reasonably refused to settle, counsel’s internal file may be the only evidence of why certain settlement decisions were made. In such cases, the opposing party often can satisfy the “substantial need” standard.

F. Discovery of Personnel Files

Personnel files typically contain:

  • Personal data (birthdate, marital status, dependents, medical leave, benefits, etc.);
  • Hiring documents (applications, background checks);
  • Performance evaluations;
  • Disciplinary records; and
  • Compensation and bonus information.

In an insurance bad‑faith case:

  • The personal data is almost always irrelevant and highly private.
  • The performance/disciplinary/compensation information can be highly relevant: it may indicate whether adjusters were rewarded or disciplined for aggressive claim denials or other questionable practices.

Courts must strike a balance by allowing discovery of the latter and protecting the former—sometimes through redaction, protective orders, or in camera review.

VI. Practical and Doctrinal Impact

A. For Bad‑Faith Litigants in Kentucky

  • Discovery Limits on Litigation Conduct:
    • Insureds and claimants cannot use broad discovery to obtain insurers’ internal litigation strategies, trial tactics, or other non‑settlement conduct.
    • Insurers can resist discovery that seeks their post‑litigation internal communications, except where those communications are tied directly to settlement conduct or where privilege has been waived.
  • Expanded Access to Settlement‑Related Information:
    • Bad‑faith plaintiffs can obtain post‑litigation settlement communications and, in appropriate circumstances, counsel’s work product about settlement decisions.
    • When insurers raise advice‑of‑counsel—explicitly or implicitly—plaintiffs gain access to otherwise privileged coverage communications.
  • Personnel File Discovery Refined:
    • Bad‑faith plaintiffs have a green light to seek performance reviews, disciplinary records, and compensation data for adjusters and supervisors, even over a lengthy time frame (ten years in this case).
    • Insurers can and should object to production of marital, medical, benefits, and similar personal data as non‑discoverable and may seek writ relief if ordered to produce such information.

B. For Insurers and Defense Counsel

  • Careful Handling of Advice‑of‑Counsel:
    • Invoking counsel’s advice to justify a coverage decision or settlement stance can open the door to broad discovery of attorney‑client communications on that subject.
    • “Partial” waivers—producing only favorable opinions—are unlikely to be honored; courts will treat them as subject‑matter waivers.
  • Protection of Litigation Strategy:
    • The opinion reinforces that insurers’ internal litigation strategies and trial tactics should remain shielded from discovery in bad‑faith litigation.
    • This protection, however, does not cover settlement strategy and behavior, which remain discoverable and potentially admissible.
  • Personnel File Management:
    • Insurers should anticipate that performance and disciplinary data relating to key claims‑handling personnel may be discoverable in bad‑faith suits.
    • They should be prepared to segregate and, if necessary, redact “truly personal” information before production, possibly subject to court review.

C. For Trial Courts and the Court of Appeals

  • Tailored Discovery Orders:
    • Trial courts must precisely distinguish between settlement behavior and other litigation conduct when framing discovery orders in bad‑faith cases.
    • Personnel‑file orders should be crafted to include only relevant categories (performance, discipline, compensation) and exclude private material.
  • Writ Practice:
    • The Court of Appeals, in writ proceedings, functions as a trial court and may review privilege logs and even conduct in camera review, regardless of whether those materials were presented below.
    • However, where the dispute concerns purely legal questions—such as the discoverability of entire classes of documents—document‑by‑document review is unnecessary.

D. Broader Doctrinal Significance

Even though this opinion is unpublished and non‑precedential under RAP 40(D), it offers a coherent and practical integration of several strands of Kentucky law:

  • Knotts and Mosley on settlement vs. litigation conduct;
  • Trude, Bender, and State Farm on discovery‑related writs;
  • 3M v. Engle and St. Luke on privilege and implied waiver; and
  • Morrow on work product where counsel’s conduct is directly at issue.

It also underscores Kentucky’s commitment to:

  • protecting the integrity of the adversarial system and insurers’ rights to defend themselves in court; while
  • ensuring that bad‑faith plaintiffs have meaningful access to evidence of wrongful settlement and coverage practices.

VII. Conclusion

Allied World Specialty Insurance Co. v. Wingate is a nuanced decision that both narrows and expands discovery in Kentucky bad‑faith insurance litigation. It:

  • reaffirms that insurers’ non‑settlement post‑litigation conduct is categorically off‑limits as both evidence and discovery material in bad‑faith suits;
  • clarifies that when an insurer puts counsel’s advice at issue, it waives the attorney‑client privilege for the subject matter of that advice;
  • recognizes that plaintiffs in bad‑faith cases can, in appropriate circumstances, obtain attorney work product relating to settlement behavior when they show substantial need and lack of alternatives; and
  • sharpens the distinction between relevant personnel‑file content (performance, discipline, pay) and “truly personal” information (medical, marital, benefits, and retirement data), providing a principled framework for discovery orders and writ relief.

In balancing the need to expose wrongful insurance practices against the competing need to protect the adversarial process and individual privacy, the Court refines Kentucky’s approach to bad‑faith discovery. While unpublished, the opinion provides a detailed roadmap for litigants and courts confronting similar issues in the future.

Case Details

Comments