No. 03SA030, In re Judy Lazar v. Patrick Riggs : Civil Procedure — Deposition and Discovery — Scope of Discovery.
Judy Lazar, the plaintiff in the underlying personal injury action, petitioned for exercise of the supreme court's original jurisdiction, pursuant to C.A.R. 21, seeking pretrial disclosure of statements the defendant, Patrick Riggs, made to his insurance company's claims adjusters. Without any explanations or findings, the district court denied her motion to compel disclosure, on the grounds that the statements were taken in anticipation of litigation.
The supreme court issued rule to show cause and made the rule absolute because the district court's order was not supported by the record. The court held that in the case of an insurance company defending a claim and asserting that its reports and witness' statements are trial preparation materials under C.R.C.P. 26(b)(3), the insurance company has the burden of demonstrating that the document was prepared or obtained in order to defend the specific claim which already had arisen and that when the documents were prepared or obtained, there was a substantial probability of imminent litigation over the claim or a lawsuit had already been filed. The defendant's recorded statements at issue in this case appear to have been taken at the direction of his insurance company well before the initiation of this lawsuit.
JUSTICE COATS delivered the opinion of the court. JUSTICE KOURLIS dissents.
Judy Lazar, the plaintiff in the underlying personal injury action, petitioned for exercise of our original jurisdiction, pursuant to C.A.R. 21. She seeks pretrial disclosure of statements made by the defendant, Patrick Riggs, to his insurance company's claims adjusters. The district court denied her motion to compel disclosure, on the grounds that the statements were taken in anticipation of litigation. We issued a rule to show cause, and because the district court's order is not supported by the record, we now make the rule absolute.
I.
The lawsuit arises from an automobile accident that occurred on September 18, 2001. Lazar alleges that the failure of Riggs to exercise reasonable care caused the collision and her injuries. A police accident report indicated that officers cited Riggs at the scene for driving under the influence of alcohol, driving with excessive alcohol content, and careless driving.
More than nine months later, Lazar filed her lawsuit. In his Rule 26 disclosures, Riggs disclosed the existence of a resume of a recorded statement by him in his insurance company's claim file, but he objected to production of the document on the grounds that it was protected as work product. He responded to Lazar's motion to compel disclosure with authorities supporting the proposition that investigations by insurance companies in defense of claims against their insureds are shielded from discovery as work product. Without hearing the matter or making particularized findings of fact, the district court denied the motion, indicating merely that the recorded statement given to Riggs' insurer following the accident, as well as a written statement by Riggs prepared in response to a subrogation specialist for the insurance company, was made in anticipation of litigation.
Lazar petitioned for review of that order.
II.
Exercise of the supreme court's original jurisdiction is entirely within its discretion. In re: People v. Lee, 18 P.3d 192, 194 (Colo. 2001). Relief pursuant to C.A.R. 21 is appropriate to remedy a lower court's abuse of discretion where appellate review would be inadequate.Id. Although interlocutory in nature, discovery orders have been reviewed by original proceedings in a number of circumstances, including where the ruling's impact will be substantial and incurable and where it raises significant questions about the administration of pretrial discovery generally that call for immediate resolution. See Sanchez v. Dist. Ct., 624 P.2d 1314, 1317 (Colo. 1981); In re Attorney D., 57 P.3d 395, 398 (Colo. 2002).
While the applicability of the work product doctrine to insurance claim files is not a matter of first impression in this jurisdiction, related developments in this and other jurisdictions have brought into question the continued vitality of some of our prior pronouncements. As the argument and ruling below indicate, distinctions between claims by an insured and claims by third parties against an insured, which we have recognized in related contexts and other jurisdictions have applied to the work-product context, have made unclear the discoverability of third-party insurance claim files in this jurisdiction as well. Because these discovery issues appear to be of increasing significance in the jurisdiction and yet remain resistant to review through the normal appellate process, we consider it appropriate to exercise our original jurisdiction.
III.
Rule 26 limits the otherwise broad discovery permitted by the Colorado Rules of Civil Procedure of documents and tangible things, to the extent that they were obtained by or for another party or his representative in anticipation of litigation. See C.R.C.P. 26(b)(3). The general contours of the phrase, "in anticipation of litigation," as it appears in the rule, and the test for determining when documents fall within the protections of the rule, have been well-established in this jurisdiction for more than twenty years. InHawkins v. Dist. Ct., 638 P.2d 1372, 1377 (Colo. 1982), we made clear that the rule was not intended to protect materials prepared in the ordinary course of business, whether litigation had already commenced or not, id. at 1378; and that "the general standard to be applied is whether, in light of the nature of the document and the factual situation in the particular case, the party resisting discovery demonstrates that the document was prepared or obtained in contemplation of specific litigation.: Id. at 1379; see also Nat'l Farmers Union Prop. and Cas. Co. v. Dist. Ct., 718 P.2d 1044, 1047 (Colo. 1986); see generally 8 C. Wright A. Miller Federal Practice and Procedure § 2024 (2nd ed. 1994 Supp. 2003).
In Hawkins, we also expressly rejected the notion that Rule 26(b)(3) insulates insurance company investigations merely because they always deal with potential claims. Hawkins, 638 P.2d at 1378. Instead, we drew almost the opposite conclusion. Because a substantial part of an insurance company's business is to investigate claims made by an insured against the company or by some other party against the insured, it must be presumed that such investigations are part of the normal business activity of the company and that reports and witness' statements compiled by or on behalf of the insurer in the course of such investigations are ordinary business records as distinguished from trial preparation materials. Id. (relying on Thomas Organ Co. v. Jadranska Slobodna Plovidba, 54 F.R.D 367, 373 (N.D.Ill. 1972)).
Therefore, "[i]n the case of an insurance company defending a claim and asserting that its reports and witness' statements are trial preparation materials under C.R.C.P. 26(b)(3), the insurance company has the burden of demonstrating that the document was prepared or obtained in order to defend the specific claim which already had arisen and when the documents were prepared or obtained, there was a substantial probability of imminent litigation over the claim or a lawsuit had already been filed.: Hawkins, 638 P.2d at 1379. At the same time, we also noted that a showing that a claims adjuster, or even a lawyer not acting as a legal counselor for the insurer, conducted an investigation of a claim, during which he compiled various reports and statements, would not be sufficient by itself to overcome the presumption of an ordinary business activity.Id.
An insurance company owes a duty to its insured (but not to a third-party with a claim against its insured) to adjust a claim in good faith. Farmers Group, Inc. v. Trimble, 691 P.2d 1138 (Colo. 1984). As a result, we have noted that insurance information may be relevant or may lead to relevant evidence in an action by an insured against its insurer for a bad faith breach of its insurance contract, even though the same information might not be relevant in a personal injury claim by a third-party against the insured; and that the scope of discovery of insurance information should therefore be correspondingly broader in the former case. Silva v. Basin Western, Inc., 47 P.3d 1184, 1192 (Colo. 2002). We have nowhere suggested, however, that an insurance company owes any less of a duty to investigate and settle claims of third parties against its insureds arising under their insurance policies, or that the results of such investigations are somehow entitled to greater protection from discovery.
Quite the contrary, in Kay Labs. v. Dist. Ct., 653 P.2d 721 (Colo. 1982), we expressly rejected such an attempt to limit Hawkins, reiterating the conclusion that "it is as much a part of an insurance company's normal business activity to investigate potential claims by third parties against its insureds as it is to investigate potential claims by its insureds against itself.: Kay Labs., 653 P.2d at 722-23. While Kay Labs. involved claims against a self-insured hospital for actions by its employee, we extended the rationale of Hawkins in that case to deny protection under Rule 26 for the hospital's investigation, as if it were an insurance company.
In Silva, we relied on the opinion of a federal magistrate for the proposition that "[w]hen a liability insurer investigates a third-party personal injury claim, the investigation is made in anticipation of claims which, if denied, will likely lead to litigation.: Silva, 47 P.3d at 1191. Unlike the federal district court, however, we did not infer from this proposition that it is the possibility of litigation that "provides the insurer the impetus" to investigate the claim, and therefore we did not similarly infer that insurance investigations of third-party claims are always conducted in anticipation of litigation. See Weitzman v. Blazing Pedals, Inc., 151 F.R.D. 125, 126 (D.Colo. 1993).
Silva involved the disclosure of insurance company reserves and settlement authority rather than the investigation of a third-party claim. Not only does our opinion in that case fail to imply any rejection of the Hawkins/Kay Labs. rationale concerning the investigation of third-party claims; our other holdings distinguishing first from third-party claims strongly support that rationale. With respect to actions by insureds for bad faith breach of insurance contracts, we have actually imposed a higher duty of care on insurance companies in denying or delaying the approval of claims by third parties against insureds than in denying claims by insureds themselves. See Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1275 (Colo. 1985); Trimble, 691 P.2d at 1142. Because of the quasi-fiduciary duty typically created by insurance contracts, both to investigate and settle claims arising from the policies and to defend actions brought against insured parties, an insurer must exercise reasonable care with respect to third-party claims but merely avoid recklessly rejecting claims by an insured party himself.Id.
An insurer therefore clearly has a contractual duty to determine whether third-party claims are within an insured's coverage and, if so, to resolve them. Both by contract and statute, see § 10-3-1104(1)(h)(III), 3 C.R.S (2003); § 10-3-1104(1)(h)(VI), 3 C.R.S. (2003), it has an obligation to investigate third-party claims in the ordinary course of its business. Whether or not denied third-party claims are actually more likely to result in litigation, even a virtual certainty of litigation after denial could not alter the insurer's obligation to assess the claim and determine coverage in the first instance. To the extent that the third-party nature of a claim indicates less about anticipation of litigation than about the insurer and insured's commonality of interests in defending against such claims, it implicates the work product doctrine less than the degree of confidentiality that should be accorded insurance relationships. No insurer/insured privilege has been recognized by this court or the General Assembly. Cf. CRE 501; § 13-90-107, 5 C.R.S. (2003).
Where an insurance contract includes a right and duty to defend (as it typically does), in addition to an obligation to investigate and settle claims arising under the policy, an insurance company's investigation of third-party claims may very well "shift from an ordinary business activity to conduct in anticipation of litigation.: See Hawkins, 638 P.2d at 1378. Because there is no bright line between these two activities in all cases, however, the nature of the document in question and the factual situation in the individual case must always be considered. As we held in Hawkins, it is the burden of the insurance company resisting disclosure to demonstrate that the documents in question were prepared in order to defend against a specific claim and that a lawsuit over that claim had already been filed or was imminent. Merely demonstrating that a claims adjuster conducted an investigation to determine whether a claim falls within its insured's coverage is no more sufficient to demonstrate preparation in anticipation of litigation when the claim is made by a third party than when it is the claim of an insured himself. See id. at 1379.
IV.
The recorded statements of the defendant that are at issue in this case appear to have been taken at the direction of his insurance company well before the initiation of this lawsuit. Without further explanation or findings, the district court denied disclosure on the grounds that the documents were prepared in anticipation of litigation. In light of the arguments and authorities advanced by the parties, it appears that the district court may have felt that the third-party nature of the claim was dispositive of the question and, in itself, was sufficient to justify protection under Rule 26(b)(3). In any event, as in Hawkins, there is nothing in the pleadings and documents filed with this court demonstrating that the statements enjoyed the qualified immunity from discovery provided by the rule for documents prepared in anticipation of litigation.
There is no suggestion here of a right or duty of the insurance company to defend against the criminal charges brought against its insured.
Riggs also asserts that his statements are protected by the attorney-client privilege. Because this was not the basis of the district court's order denying disclosure, we do not address it, noting only that the attorney-client privilege is entirely statutory, see § 13-90-107, 5 C.R.S. (2003), and cannot apply to documents created before the existence of an attorney-client relationship between the insurance company and its lawyer. See Kay Labs., 653 P.2d at n. 3 (expressly rejecting any suggestion to the contrary in Bellmann v. Dist. Ct., 531 P.2d 632 (Colo. 1975)).
V.
The rule is therefore made absolute and the matter is remanded to the district court for further proceedings consistent with this opinion.
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