This case concerns an insurance dispute that arose after a fire destroyed Plaintiffs' home and personal belongings therein. See ECF No. 5-6. On October 8, 2020, Plaintiffs filed this suit against Defendant Liberty Mutual Insurance, Inc. in Ferry County Superior Court. ECF No. 1-1. On November 18, 2020, Defendant timely removed the action to the Eastern District of Washington. ECF No. 1. On November 19, 2020, Plaintiffs filed an amended complaint. ECF No. 5-6.

On July 9, 2021, the parties filed the present motions. ECF Nos. 26, 28. The parties timely filed their respective responses and replies. ECF Nos. 31-32, 34, 36. The motions place the same discovery at issue. See id. Plaintiffs seek to compel and Defendant seeks to avoid a witness or witnesses testifying to various topics in a Rule 30(b)(6) deposition. Id.

Plaintiffs seek to compel:

ECF No. 26 at 2.

Defendant moved for a protective order regarding the same topics except for Topics 3 and 9 (All documents and communications related to adjusting the Pickett claim, regardless of source or timing), although Defendant opposes those topics in response to the motion to compel. See ECF No. 28 at 2-3.

A. Motions to Compel and for Protective Order

Pursuant to Federal Rule of Civil Procedure 26(b)(1), “[p]arties 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.” “The discovery process in theory should be cooperative and largely unsupervised by the district court.” Salie v Corona Reg. Med. Ctr., 884 F.3d 1218, 1219 (9th Cir. 2018). Nevertheless, absent an amicable resolution of a discovery dispute, a party may move the Court for an order compelling discovery. Fed. R. Civ. P. 37(a)(1). The party opposing discovery bears the burden of resisting disclosure. Rogers v. Glurbino, 288 F.R.D. 469, 479 (S.D. Cal. 2012). The motion must include certification that the moving party “in good faith conferred or attempted to confer” with opposing counsel in an effort to obtain discovery without court action. Id. at 477. Here, Plaintiffs certify the parties conferred on the topics and were unable to come to a resolution. ECF No. 26 at 2-3.

Additionally, “any person from whom discovery is sought may move for a protective order in the court where the action is pending .... The court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense,” including “forbidding the disclosure or discovery.” Fed. R. Civ. P. 26(c)(1)(A). The Court is vested with broad discretion to permit or deny discovery. Hallett v. Morgan, 296 F.3d 732, 751 (9th Cir. 2002).

Pursuant to Federal Rule of Civil Procedure 30, a party may question a corporation's designee provided that the notice describes “with reasonable particularity the matters for examination.” Fed. R. Civ. P. 30(b)(6). “The persons designated must testify about information known or reasonably available to the organization.” Id. “Before or promptly after the notice or subpoena is served, the serving party and the organization must confer in good faith about the matters for examination.” Id. The purpose of Rule 30(b)(6) is to streamline the discovery process. Great Am. Ins. Co. of New York v. Vegas Const. Co., 251 F.R.D. 534, 538 (D. Nev. 2008).

Here, Defendant seeks to quash or limit the deposition notice because Plaintiffs failed to meet and confer promptly after issuing the notice. ECF No. 28 at 4. The Court declines to quash or limit the topics on this basis as the parties have met and conferred prior to the deposition – Defendant has suffered no prejudice. ECF No. 32 at 3-4. The Court also declines to limit the notice at Defendant's request due to the “Plaintiffs' efforts to skirt LCR 34(d)” where there is no limit on the number of topics allowed to be noticed in a Rule 30(b)(6) deposition. ECF No. 32 at 5-6; ECF No. 36 at 8-11.

1. Topics 3, 9: All documents and communications related to adjusting the Pickett claim, regardless of source or timing.

Plaintiffs assert that all claim activity is discoverable. ECF No. 26 at 5. Defendant argues that this topic seeks seeking privileged communications that are protected by the attorney client privilege and work product doctrine. ECF No. 31 at 2-5. The primary dispute is whether the presumption in Cedell v. Farmers Ins. Co. of Washington, 176 Wash. 2d 686 (2013) applies to this case. ECF No. 26 at 5; ECF No. 31 at 4.

In Washington, insurers owe a quasi-fiduciary duty to insureds. Cedell, 176 Wash. 2d at 698. A breach of this duty during the claim administration process gives rise to a cause of action for bad faith. Id. at 696. A plaintiff who sues his or her own insurance company for bad faith has a particularized need to access the insurer's claims file; without access to the insurer's records, the plaintiff could almost never prove that the insurer acted in bad faith. Id. at 696-697. As a result of this particularized need, as well as the quasi-fiduciary relationship between the parties, the insurer's claims file is subject to disclosure. Id. at 698. However, this need is not absolute; the insurer may withhold documents on the basis of attorney-client privilege or the work product doctrine. Id. at 699. In so doing, however, the insurer must overcome a presumption that withheld material is discoverable:

Id. at 698-99 (internal citations and footnote omitted). Only if a court finds that the attorney-client privilege applies, will the court address arguments to pierce the attorney client privilege, such as the civil fraud exception. Id. at 699-700.

Here, Plaintiffs filed suit while the claim file remained open. ECF No. 31 at 3. Defendant's litigation counsel instructed Plaintiffs to send all communications, including claim communications, through counsel. Id. Defendant asserts these communications contain work product and legal advice because counsel advised client how to respond in light of pending litigation. Id. Based on the limited information provided to the Court, Defendant's counsel owes Plaintiffs a quasi-fiduciary duty when counsel performed functions of “investigating, evaluating, negotiating, and processing the claim,” including “prompt and responsive communications with the insured,” especially where Plaintiffs' counsel was instructed to send all claim communications through Defendant's counsel. Cedell, 176 Wash. 2d at 701. Because the presumption applies to the extent Defendant's counsel handled the open claim communications, Defendant may only assert the attorney-client privilege upon a showing in camera that the communications to the insurer were litigation-related rather than communications based on the quasi-fiduciary function of handling Plaintiff's claim in good faith. Id. at 699.

Defendant's argument that it is an “incorrect notion that an insurer continues to be bound by good faith duties of investigation after litigation has been filed” is questionable at best. 31 at 3-4. The cases Defendant cites to are distinguishable. Defendants cites to decisions that are irrelevant here, including those that found the time for an insurer to respond under the Washington Administrative Code becomes subordinate to the Federal Rules of Civil Procedure following commencement of litigation. ECF No. 31 at 4 (collecting cases). Second, Defendant's citations to underinsured motorist claims (“UIM”) cases are distinguishable because such cases do not apply the presumption in Cedell. ECF No. 31 at 5; Cedell, 176 Wash. 2d at 697 (“[O]f course, we recognize a difference between UIM bad faith claims and other first party bad faith claims.”).

Defendant also contends that Cedell does not apply to the work product doctrine. ECF No. 31 at 5. Under the Erie Doctrine, a federal court sitting in diversity applies federal procedural law and the substantive law of the forum state. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). The attorney-client privilege is a substantive evidentiary privilege governed by state law. See Fed. R. Evid. 501; Lexington Ins. Co. v. Swanson, 240 F.R.D. 662, 666 (W.D. Wash. 2007). The work product doctrine is a procedural immunity governed by the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 26(b)(3); Shreib v. Am. Family Mut. Ins. Co., 304 F.R.D. 282, 285 (W.D. Wash. 2014).

The work product doctrine protects “documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative” from discovery. Fed. R. Civ. P. 26(b)(3)(A). In a bad faith insurance action, the insured must demonstrate the “mental impressions are at issue in a case and the need for the material is compelling.” Holmgren v. State Farm Mur. Auto. Ins. Co., 976 F.2d 573, 577 (9th Cir. 1992).

A party may not discover such documents unless the party shows a “substantial need” for the materials and the inability to obtain the equivalent by other means without undue hardship. Fed. R. Civ. P. 26(b)(3)(A)(ii). Even where a court orders disclosure of work product, “it must protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of a party's attorney or other representative concerning the litigation.” Fed. R. Civ. P. 26(b)(3)(B). In a bad faith insurance action, the insured must demonstrate the “mental impressions are at issue in a case and the need for the material is compelling.” Holmgren v. State Farm Mur. Auto. Ins. Co., 976 F.2d 573, 577 (9th Cir. 1992). The party invoking the work product doctrine bears the burden establishing that it applies. United States v. Richey, 632 F.3d 559, 566 (9th Cir. 2011).

The analysis of whether the work product doctrine applies requires a case-by-case inquiry where “a document should be deemed prepared in anticipation of litigation ... if in light of the nature of the document and the factual situation of the particular case, the document can be fairly said to have been prepared or obtained because of the prospect of litigation.” In re Grand Jury Subpoena (Mark Torf/Torf Env't Mgmt.), 357 F.3d 900, 907 (9th Cir. 2004) (internal citation and quotation marks omitted). Where a document would be created in substantially similar form in the normal course of business, the document will not be shielded from discovery. Id. at 908. However, if the document serves more than one purpose, the Ninth Circuit applies the following test:

Richey, 632, F.3d at 567-68 (internal citation and quotation marks omitted).

Here, Defendant merely asserts “[i]t can hardly be disputed that communications from counsel to their client during litigation is work product.” ECF No. 31 at 5. Due to the specific procedural setting of this case, i.e. Plaintiffs filed suit while the insurance claim remains open, the Court does not know whether the claimed documents were created for a “dual purpose.” Richey, 632, F.3d at 567-68. Therefore, the Court finds that documents that Defendant claims are protected under attorney client privilege and the work product doctrine should be submitted for in camera review. Upon receiving the documents, the Court will determine whether they must be disclosed for use during the Rule 30(b) deposition.

2. Topics 4, 5, 11, 27, 36, 37: Policies, procedures, guidelines, proposals, contracts, and cost-benefit analyses involving third parties, vendors, or experts hired or used to assist with plaintiffs' claim.

Plaintiffs asserts that this topic is relevant to Plaintiff's claim of negligent handling and bad faith because “Liberty Mutual's agreements with third-party vendors or experts are important to understand things like the scope of the adjusting tasks delegated by Liberty Mutual and whether the vendor had an incentive to save Liberty Mutual money on the claim, which also ties to plaintiffs' CPA claim and could form a basis for injunctive relief.” ECF No. 26 at 7. Defendant asserts that some of the listed topics apply to any vendor and are therefore overbroad, unduly burdensome, and not proportional to the needs of the case. ECF No. 31 at 9-10.

The Court agrees that topics related to third-party vendors who did not handle Plaintiffs' claim are irrelevant and overly broad and need not be discussed at the Rule 30(b) deposition. The topics may further be limited to only the policies, procedures, guidelines, contract, and cost-benefit analyses that were relied on in handling Plaintiffs' claim. The Court declines to limit the topics related to the structural evaluation, where Defendant argues it is “entirely irrelevant in this case, in which [Defendant] agreed to the price of repairs with plaintiffs' contractor.” ECF No. 28 at 11. An argument on the substantive merits of Plaintiffs' claims can be more appropriately addressed at a later time.

3. Topic 15: Prior bad-faith complaints and lawsuits against Liberty Mutual for the previous ten years.

Plaintiffs asserts that evidence of prior bad-faith complaints is relevant to (1) a pattern or practice to establish a CPA claim, (2) conduct to establish a CPA injunction, (3) locating witnesses or experts from other cases, and (4) admissions by the insurer under the party-opponent rule or the doctrines of judicial or collateral estoppel. ECF No. 26 at 7-8. Defendant asserts that the request is irrelevant, unduly burdensome, and not proportional to the needs of the case. ECF No. 31 at 5-6.

The Court agrees with Defendant that this information is not necessary to establish Plaintiffs' CPA claims, where they can show a per se violation. ECF No. 36 at 6; see also Perez v. Am. Fam. Ins. Co., No. C20-849RSM, 2021 WL 928180, at *2 (W.D. Wash. Mar. 11, 2021). Moreover, the information may be readily obtained elsewhere, including IFCA complaints found on the Insurance Commissioner's website. ECF No. 36 at 7. The Court finds that this topic is overly broad as written where it does not narrow complaints and lawsuits who have similar issues presented, and the topic is therefore unduly burdensome in the context of a Rule 30(b) deposition.

4. Topic 16: Personnel records (including things like performance reviews, disciplinary action and excluding personal and health information) of key employees working on the Pickett claim.

Plaintiffs asserts this topic is for the purpose of investigating the education, training, qualifications, compensation, performance, financial incentives, and discipline of employees who handled Plaintiffs' claim. ECF No. 26 at 8-9. Defendant objects on that grounds that the topic invades the privacy rights of the employees. ECF No. 28 at 7-8.

To the extent the files contain records of discipline, termination, or resignation in lieu of termination, the topic is relevant to Plaintiffs' negligent handling claim, bad faith claim, and claim that Defendant violated its “responsibility to properly train employees involved in claims-handling activity.” ECF No. 5-6 at 5, ¶ 28. The Court notes that Plaintiffs are not seeking personal and healthcare information; in any event, the parties' pending stipulated motion for protective order, ECF No. 39, can allow Defendant to redact or mark any such information as confidential to prevent embarrassment, annoyance, or harassment.

5. Topics 20, 21, 22: Financial metrics, cost-saving policies, and bonus and incentive programs.

Plaintiffs assert this topic is relevant to Defendant's duty of good faith, and will allow Plaintiffs “to discover how Liberty Mutual's financial and compensation plans and policies relate to or incentivize its claims-handling conduct.” ECF No. 26 at 10-11. Defendant contends topic 20 is overbroad (“any and all” cost saving policies), topic 21 (efforts to not “overpay” claims) is not relevant nor proportional, and topic 22 (bonuses, compensation, and incentives) is not relevant to the claims at issue. ECF No. 31 at 8-9.

Here, the Court finds that such information is relevant to Plaintiffs' claim of bad faith as to whether Defendant put its own financial interest above the insured. ECF No. 26 at 9-10. However, the topics are overly broad as written and the Court will limit the topic to financial metrics, cost-saving policies, and bonus and incentive programs that apply to Plaintiffs' claims.

6. Attorney fees and costs

Federal Rule of Civil Procedure 37(a)(5) provides that a court must award reasonable costs and attorney's fees incurred in bringing a successful motion to compel, unless one of three circumstances is present: (1) the moving party failed to confer in good faith with opposing counsel prior to filing the motion; (2) the opposing party's non-disclosure of the requested information was substantial justified; or (3) “other circumstances” make an award of costs and expenses unjust. Fed. R. Civ. P. 37(a)(5)(A)(i)-(iii). In the event that the moving party is unsuccessful, the court must award costs and reasonable attorney's fees to the non-moving party, unless the movant was substantially justified in bringing the motion or other circumstances would make such an award unjust. Fed. R. Civ. P. 37(a)(5)(B). Finally, in the event that the motion is granted in part and denied in part, the court may “apportion the reasonable expenses for the motion” in any manner it deems appropriate. Fed. R. Civ. P. 37(a)(5)(C).

Here, parties' motions have been granted in part and denied in part. Under these circumstances, the Court finds it appropriate that each party bear its' own costs and fees. Fed. R. Civ. P. 37(a)(5)(C).

ACCORDINGLY, IT IS HEREBY ORDERED:

The District Court Executive is directed to enter this Order and furnish copies to counsel.