*1 I. Appointment of the Discovery Master

II. Recommendation

III. Report

A. Star Lodge's Complaint and Endurance American Specialty Insurance Company's Defenses

B. Star Lodge's Discovery Motion and Endurance's Response

C. Analysis

D. Star Lodge's Motion for In-Camera Review Should be Denied

E. Endurance Should be Precluded from Further Use of Any Documents it Refuses to Disclose Based on a Privilege Assertion

F. Conclusion and Summary of Recommendations

G. Notice Regarding Objection to Recommendation

I. Appointment of the Discovery Master

On September 29,[1] the Court appointed me as Discovery Master under Fed. R. Civ. P. 53. (ECF No. 28, PageID.539-540.) The Order directed review of the pending Plaintiff Star Lodge's Motion to Compel (ECF No. 24, PageID.356-511) and Defendant Endurance's Response (ECF No. 26, PageID.515–18); and for a report and recommendation to be filed no later than November 28. (ECF No. 28, PageID.539-540.) Below I make my recommendation and report.

II. Recommendation

For the reasons stated in the report below, I recommend entry of an order that Plaintiff Star Lodge, LLC's Motion to Compel Discovery or for an In-Camera Review (ECF No. 24, PageID.356-511) be GRANTED IN PART AND DENIED IN PART as follows:

*2 IT IS FURTHER ORDERED that Endurance has seven days from entry of the Order to supplement its production and waive any privilege or work-product doctrine protections, or it will be precluded from using any documents withheld from discovery, absent further order of the Court.

III. Report

Star Lodge's Complaint alleges: (1) that three fires damaged its building and business personal property located at 9430 Michigan Avenue, Detroit, Michigan, where it operated the Victory Inn Hotel. (ECF No. 1, PageID.3.); (2) that it was insured at the time of each fire by Endurance. (ECF No. 1, PageID.3.); (3) that it timely made a claim to Endurance for insurance coverage and thereafter provided documents and examinations under oath. (ECF No. 1, PageID.4.); and (4) that Endurance wrongfully denied the claim, in breach of the insurance contract between the parties. (ECF No. 1, PageID.5.)

Endurance alleges in its defense: (1) that it did not breach the insurance contract because it properly rescinded Star Lodge's insurance policy based on material misrepresentations regarding prior criminal activity on the insured's premises. (ECF No.26, PageID.514.); (2) that the while applying for insurance, Star Lodge misrepresented that no crimes had occurred on the premises for three years. (ECF No.26, PageID.514.); and (3) that two months before the first fire, the hotel had been raided by federal agents in connection with a sex trafficking investigation and Wayne County Circuit Court Judge Robert Columbo ordered it to close. (ECF No.26, PageID.514.)

Endurance retained the outside law firm of Nielson Zehe Antas to conduct examinations under oath and analyze both the legal strength of Endurance's potential coverage defenses and subrogation action related to the fire. (ECF No. 26, PageID.514.) Terry Welch of Nielsen Zehe Antas, an attorney of record for Endurance, conducted the examinations under oath and allegedly provided legal advice regarding the strength of Endurance's coverage defenses. (ECF No. 26, PageID.514.) Nielsen Zehe Antas attorney Marc Katalanic, another attorney of record, provided legal advice regarding the strength of a potential subrogation action. (ECF No. 26, PageID.514.) On March 1, 2018, Endurance rescinded Star Lodge's insurance policy based on its alleged material misrepresentations regarding prior criminal activity on the premises. (ECF No. 26, PageID.514.)

On September 1, Star Lodge filed its “Motion to Compel Discovery or for an In-Camera Review.” (ECF No. 24, PageID.356-511.) Star Lodge asserts that in response to its first interrogatories and first request for production of documents, Endurance produced a claim file with improper redactions of alleged privileged materials. (ECF No. 24, PageID.363–64.) Star Lodge alleges the claim file “contained thousands of redactions most relate[d] to the dates Endurance was investigating Star Lodge's Fires.” (ECF No. 24, PageID.363.) Star Lodge alleges that Endurance's privilege log is deficient. (ECF No. 24, PageID.363.)

Star Lodge's Motion secondarily references a subpoena it served on non-party Optima Security Services, Inc., an entity apparently retained by Endurance to investigate Star Lodge during its claims review. (ECF No. 24, PageID.364.) Star Lodge asserts that Endurance conducted a privilege review of Optima's documents before production, resulting in Optima's production of “Special Investigation Unit documents [that] contained hundreds of redactions most relate[d] to the dates Endurance was investigating Star Lodge's Fires.” (ECF No. 24, PageID.364.) Optima's production was accompanied by a privilege log, which Star Lodge also alleges is deficient. (ECF No. 24, PageID.364-365.)

*3 Star Lodge argues that the withholding of documents and redactions are improper, and that it is unable to determine the veracity of several redactions for attorney-client privilege or the work product doctrine because the “privilege logs that Endurance provided didn't comply with Fed. R. Civ. P. 26(5), and didn't include: 1) The subject or topic of the communications; and 2) The specific legal basis for the redactions.” (ECF No. 24, PageID.365.) Star Lodge identifies the following bates-stamped page numbers it seeks to be produced:

(ECF No. 24, PageID.365-366.)

Star Lodge further identifies specific bates pages that it seeks from Optima's third-party production, including:

(ECF No. 24, PageID.366.)

Endurance filed its Response on September 15. (ECF No. 26, PageID.513–35.) Endurance argues that it properly withheld communications with counsel that were created for the purposes of obtaining legal advice, and only redacted information which was subject to the attorney-client privilege and work product doctrine. (ECF No. 26, PageID.513.) Endurance includes the affidavit of Mr. Richard Ketaily, its Vice President of, US Property and Inland Marine Claims, as Exhibit A, attesting that the 60 assertions of privilege in the claim file involved communications between Endurance and its outside counsel for the purposes of obtaining legal advice. (ECF No. 26, PageID.515.)

Endurance also addresses the privilege assertions and redactions to the Optima special investigation file produced in response to Star Lodge's third-party subpoena. (ECF No. 26, PageID.515.) Endurance states it made 12 assertions of privilege, redacted nine instances of personal financial information, and redacted seven entries related to insurance reserves. (ECF No. 26, PageID.515.)

A party may obtain discovery regarding any non-privileged matter that is relevant to any claim or defense. Fed. R. Civ. P. 26(b)(1). If a party fails to respond to discovery, including if that party's discovery response is evasive or incomplete, the requesting party may move for an order compelling discovery. Fed. R. Civ. P. 37(a)(1)-(4). The Court “may order discovery of any matter relevant to the subject matter involved in the action.” Fed. R. Civ. P. 26(b)(1).

The attorney-client privilege exists to “encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.” Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). It applies:

*4 United States v. Goldfarb, 328 F.2d 280, 281 (6th Cir.) (quoting 8 J. Wigmore, Evidence in Trials at Common Law § 2292, at 554 (McNaughton rev. 1961)). “[T]he privilege is narrowly construed because it reduces the amount of information discoverable during the course of a lawsuit.” United States v. Collis, 128 F.3d 313, 320 (6th Cir. 1997).

The work product privilege “protects from discovery documents and tangible things prepared in anticipation of litigation by or for a party or by or for that party's representative.” United States v. Roxworthy, 457 F.3d 590, 593 (6th Cir. 2006) (citing Fed. R. Civ. P. 26(b)(3)). Documents prepared in the ordinary course of business are not privileged; “a document will not be protected if it would have been prepared in substantially the same manner irrespective of the anticipated litigation.” Roxworthy, 457 F.3d at 593-94.

The party claiming privilege bears the burden of establishing that the documents were created because of the party's “subjective anticipation of litigation, as contrasted with an ordinary business purpose,” and that its “subjective anticipation of litigation was objectively reasonable.” Id. If that party meets this burden, the burden shifts back to party seeking disclosure to demonstrate a “(1) substantial need of the materials to prepare the case and (2) inability without undue hardship to obtain a substantial equivalent by other means.” Stampley v. State Farm Fire & Cas. Co., 23 F. App'x 467, 470 (6th Cir. 2001) (citing Rule 26(b)(3)).

Here, Star Lodge's Motion to Compel alleges that Endurance failed to carry its burden of demonstrating a privilege or work-product doctrine applies to two sets of documents: (1) Documents produced by Endurance; and (2) Documents produced by Optima, redacted by Endurance. I provide a report and recommendation for each category below.

1. Star Lodge's Motion to Compel Regarding Endurance Documents Should be Granted in Part and Denied in Part

The Endurance documents that were withheld or redacted, those with bates-stamped page numbers beginning with “END,” consist of communications to and from counsel and other claim file notes and documents.

First, as to communications with counsel, Star Lodge argues the attorney-client privilege does not apply when attorneys act as investigators or claims adjustors. (ECF No. 24, PageID. 368.) It argues that “where a lawyer acts as a business advisor, his communications with a client are not privileged.” (ECF No. 24, PageID. 369.) And, “[t]herefore, any communications between Endurance and its attorneys acting as claims investigators, adjustors, or advisors up and until Endurance denied Star Lodge's claims and attempted to rescind its policy on March 1, 2018, aren't protected and must be produced.” (ECF No. 25, PageID. 368.).

The burden of establishing the existence of a privilege rests with the party asserting it. United States v. Dakota, 197 F.3d 821, 825 (6th Cir. 2000). Here, Endurance has carried its burden with regards to the claim file communications which it identified on the privilege log as being prepared by or sent to legal counsel – the same counsel which now represents it in this litigation. Endurance provided the affidavit of Mr. Richard Ketaily, its Vice President of, US Property and Inland Marine Claims, attesting that the 60 assertions of privilege in the claim file involved communications between Endurance and its outside counsel for the purposes of obtaining legal advice. (ECF No. 26, PageID.515.) Mr. Ketaily's affidavit meets Endurance's burden.

*5 Endurance properly withheld the communications with its legal counsel from the claim file as work product reasonably created in anticipation of litigation, and Star Lodge has not demonstrated it is unable to obtain the information in another manner, such as taking depositions. See Stampley, 23 F.App'x at 471 (“A party may be required to take the depositions of people who prepared the documents to obtain the information contained in them.”) Endurance should not be compelled to supplement its production with communications to and from its legal counsel.

Courts have “acknowledged the difficulty in determining whether documents prepared by an insurance company in investigating a claim are prepared in anticipation of litigation or are prepared in the regular course of business.” Lett v. State Farm Fire & Cas. Co., 115 F.R.D. 501, 502 (N.D. Ga. 1987). In Stampley, the court found that the documents at issue were prepared in reasonable anticipation of litigation because the fire department had deemed the fire “suspicious.” 23 F.App'x at *471. In Lett, the evidence established that the SIU investigator was assigned the case after an initial investigation “because of the insurance company's suspicion that the plaintiffs were involved in the fire.” 115 F.R.D. at 503.

To determine the veracity of the privilege, the parties and the court rely on the privilege log. Rule 26(b)(5) does not state specific information that must be present in a privilege log. See Fed. R. Civ. P. 26(b)(5) 1993 advisory committee notes cmt. A party asserting either privilege must make the claim expressly and “describe the nature of the documents ... in a manner that ... will enable other parties to assess the claim.” Fed. R. Civ. P. 26(b)(5). Failure to do so may constitute a waiver of privilege. See Casale v. Nationwide Children's Hosp., No. 2:11-CV-1124, 2013 WL 12203243, at *2 (S.D. Ohio Sept. 13, 2013) (citing Fed. R. Civ. P. 26(b)(5) 1993 advisory committee notes cmt. and collecting cases.)

The lack of a subject matter for several items identified on the privilege log from the claim file makes it impossible for a court to assess the applicability of the privilege. See First Horizon Nat'l Corp. v. Certain Underwriters at Lloyd's, No. 211CV02608SHMDKV, 2013 WL 11090763, at *6 (W.D. Tenn. Feb. 27, 2013). Where the information provided by Endurance is inadequate, the claimed privilege has been waived, and the unredacted documents must be provided to Star Lodge. The following entries on the privilege log are deficient, lacking the subject matter of the communication:

Endurance should produce each of these bate-stamped pages in unredacted form to Star Lodge.

2. Star Lodge's Motion to Compel Regarding Optima Documents Should be Granted in Part and Denied in Part.

The parties present almost identical arguments for the Optima documents, those with bates-stamped pages beginning with “SIU,” which were withheld or redacted. The only supplemental argument presented by Endurance is that redactions were made for its insurance reserves and for personal and sensitive information, such as social security numbers. (ECF No. 26, PageID.518.) Endurance states that it made 12 assertions of privilege, redacted nine instances of personal financial information, and redacted seven entries related to insurance reserves. (ECF No. 26, PageID.515.)

*6 Based on the privilege log, and in reliance on the affidavit submitted by Endurance in support, Endurance has carried its burden of establishing that it properly withheld communications with its legal counsel contained in the SIU file. Star Lodge has not demonstrated it is unable to obtain the information in another manner, such as taking depositions. Endurance also properly redacted its loss reserves, as that information is not relevant. This Court has held repeatedly that evidence of reserves is irrelevant and not discoverable. See e.g. U.S. Fire Ins. Co. v. The City of Warren, 2012 WL 1454008 (E.D. Mich. 2012) (holding, “the courts routinely find such information not discoverable under Rule 26 because it is neither relevant nor calculated to lead to the discovery of admissible evidence.”) Similarly, Endurance's redaction of tax identification numbers, social security numbers, and bank account numbers from the SIU documents is appropriate. Such information is not relevant or discoverable, as it is not reasonably calculated to lead to discovery of admissible evidence. Accordingly, Endurance should not be compelled to produce unredacted documents disclosing its loss reserves or the personal information.

But, similar to the above analysis related to the claim documents, the privilege log for the “SIU” documents, excluding communications with counsel, is inadequate to determine the applicability of the attorney-client and/or work product privileges. The Court, therefore, finds that the claimed privilege has been waived, and that the following 14 documents must be provided to Star Lodge, if not already produced, with only appropriate redactions of reserves and personal/financial information:

Star Lodge argued in the alternative that Endurance should submit documents to the Court for in-camera review. Because Star Lodge's motion was decided on inadequacies of the privilege logs, and the affidavit of Mr. Richard Ketaily, there is no need for an in-camera review to determine which, if any, documents should be produced. That portion of Star Loge's motion should be denied.

Star Lodge has requested all documents that Endurance intends to rely on at trial (Interrogatory No. 6), including specifically all “materials within the underwriting file, the claims file, and materials received from FOIA requests to the City of Detroit.” (Interrogatory No. 11) (ECF No. 24-3, PageID.403.) To the extent that Endurance asserts the work product doctrine or attorney-client privilege to shield documents from discovery, it should be precluded from later introduction of any such document as a sword in its own defense, absent further ruling by the Court. To that end, Endurance will have seven days from the entry of any order on Star Lodge's Motion to Compel filed by Star Lodge (ECF No. 24, PageID.356-511) to supplement its production and waive its privilege as to any documents that it wishes to use. Absent a timely waiver and supplement, Endurance should be precluded from the use any privilege documents as evidence in this litigation without further order of the Court.

For the reasons stated above, I recommend entry of an order that Plaintiff Star Lodge, LLC's Motion to Compel Discovery or for an In-Camera Review (ECF No. 24, PageID.356-511) be GRANTED IN PART AND DENIED IN PART as follows:

IT IS FURTHER ORDERED that Endurance will have seven days from entry of this Order to waive any privilege or work-product doctrine protections and to supplement its documents productions, or it will be precluded from using any documents withheld from discovery, absent further order of the Court.

Per Fed. R. Civ. P. 53(f)(2), the parties may object and seek review of this Recommendation within 21 days.