ORDER

*1 Judge Benjamin Beaton referred this matter to Magistrate Judge Lanny King for hearing and determining all pretrial matters, including non-dispositive motions. (DN 5). Defendant Nationwide Property and Casualty Insurance Company (“Nationwide”) filed a Motion for Protective Order on July 7, 2023, to which Plaintiff C E B Investments, LLC (“CEB”) responded on August 4, 2023. Nationwide replied on August 11, 2023. For the following reasons, the Court GRANTS Defendant's Motion for a Protective Order.

Procedural History and Background

This action stems from a commercial property damage claim arising from an EF4 tornado which struck Mayfield, Kentucky on December 10, 2021. Compl. ¶ 6 (DN 1-1). The property was owned by CEB, and leased by Ultimate Fitness, LLC. Compl. ¶¶ 7, 14 (DN 1-1). Ultimate Fitness and CEB had entered into a Contract for Deed allowing Ultimate Fitness to purchase the property. Compl. ¶ 15 (DN 1-1).

After the tornado, both CEB and Ultimate Fitness filed insurance claims with their respective providers, Nationwide and West Bend Mutual Insurance Company. Compl ¶¶ 9–10, 14–16. Nationwide issued a check to CEB for $287,950 on December 20, 2022, which represents Nationwide's policy limits for the property less CEB's deductible. Pl.’s Resp. to Def.’s Mot. Protective Order 1 (DN 31). No later than December 22, 2021, Nationwide was made aware of Ultimate Fitness's policy with West Bend, and that West Bend would stop Ultimate Fitness's claim due to CEB's claim with Nationwide. Def.’s Mot. Protective Order 2 n.7 (DN 28). Nationwide subsequently stopped payment on their prior check to allow Ultimate Fitness's claim to proceed. Def.’s Mot. Protective Order 2 (DN 28).

CEB filed suit against Nationwide on October 18, 2022, for breach of contract, claims of bad faith under both the Kentucky Unfair Claims Settlement Practices Act and common law, and a claim for punitive damages for Nationwide's “outrageous” behavior. Compl. ¶¶ 37–56 (DN 1-1). During discovery for these claims, Nationwide produced a December 23, 2021, email between Nationwide claims specialist Jeffrey Lorenzo and Nationwide Managing Counsel John White (“December 23 email”) in response to a discovery request by CEB. Def.’s Mot. Protective Order 3 (DN 28) (email attached as Exhibit I). Nationwide seeks return of this document and destruction of any remaining copies by CEB under the principles of attorney-client privilege. Def.’s Mot. Protective Order 4 (DN 28).

Legal Standard

Unless otherwise limited, “Parties 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[.]” Fed. R. Civ. P. 23(b)(1). In the event of an inadvertent disclosure, otherwise privileged material may be subject to a protective order. See Fed. R. Civ. P. 23(b)(5)(B). However, privileges “should be strictly construed, because they contravene the fundamental principle that ‘... the public has a right to every man's evidence.’ ” Haney v. Yates, 40 S.W.3d 352, 355 (Ky. 2000) (quoting Sisters of Charity Health Sys. v. Raikes, 984 S.W.2d 464, 469 (Ky. 1998)). In diversity cases, state law is applied to resolve claims of attorney-client privilege. In re Powerhouse Licensing, LLC, 441 F.3d 467, 472 (6th Cir. 2006); Fed. R. Evid. 501. The party requesting a protective order has the burden in establishing the privilege exists. Haney, 40 S.W.3d at 355.

*2 The Kentucky law on attorney-client privilege is codified in the Kentucky Rules of Evidence. Ky. R. Evid. 503. The general rule in Kentucky is that “[a] client has a privilege to refuse to disclose and to prevent any other person from disclosing a confidential communication made for the purpose of facilitating the rendition of professional legal services to the client” by or between several categories of persons. Ky. R. Evid. 503(b). These categories are the client, the client's representative, the lawyer, or the lawyer's representative. Haney, 40 S.W.3d at 354. Inclusion of these categories of persons alone is insufficient for the privilege to attach—when an attorney acts merely as a “business adviser” the privilege is inapplicable. GATX Corp. v. Appalachian Fuels, LLC, No. 09-41-DLB 2010 WL 5067688 at *2 (E.D. Ky. Dec. 7, 2010) (citing Lexington Pub. Libr. v. Clark, 90 S.W.3d 53, 60 (Ky. 2002)). When a document contains a mixture of legal and business advice, courts look to the “predominant purpose” of the communication to determine if the privilege applies. Cooey v. Strickland, 269 F.R.D. 643, 650 (S.D. Ohio 2010). Where otherwise ambiguous, Kentucky courts look to federal common law for guidance on issues of attorney-client privilege. See Lexington Pub. Libr., 90 S.W.3d at 60 (citing cases from the Supreme Court, Second, and Eighth Circuits).

Analysis

Nationwide argues that its inadvertent disclosure of the December 23 email did not waive any applicable attorney-client privilege, as it timely requested the document's return. Def.’s Mot. Protective Order 9 (DN 28). CEB does not dispute that the disclosure of the December 23 email was inadvertent and does not comment on whether Nationwide's attempts to claw back the document are timely. Nationwide's accidental disclosure of a single email in a large production of documents is a “classic example of inadvertent disclosure[.]” Owners Ins. Co. v. Reynold Concrete Pumping, LLC, No. 3:21-CV-00356-RGJ-CHL, 2023 WL 3166179, 2023 U.S. Dist. LEXIS 73456 (W.D. Ky. Apr. 27, 2023). The Court finds that the attorney-client privilege, if it existed in the first instance, was not waived with respect to the December 23 email.

The parties do dispute whether the attorney-client privilege applies to the December 23 email. Def.’s Mot. Protective Order 5–6 (DN 28); Pl.’s Resp. Mot. Protective Order 5 (DN 31). Nationwide notes that the parties to the subject email—Jeffrey Lorenzo and John White—are the kinds of parties covered under KRE 503. Def.’s Mot. Protective Order 5 (DN 28). They further contend that the subject email contained a legal analysis of the parties’ rights and obligations under Kentucky law. Def.’s Mot. Protective Order 5–6 (DN 28). Nationwide suggests Carman v. Signature Healthcare, LLC, No. 4:19-CV-00087-JHM-HBB, 2020 WL 807537 (W.D. Ky. Feb. 18, 2020), is instructive. Carman involved, in relevant part, emails between Signature Healthcare's in-house Associate Counsel for litigation and members of Signature Healthcare's legal department or upper management. Id. at *3. Those emails entailed the enforceability of arbitration agreements in light of a recent Kentucky Supreme Court case. Id. Acting under federal question jurisdiction, the Carman court applied federal common law and found the communications protected by attorney-client privilege. Id.

CEB contends that John White was not acting as legal counsel in the December 23 email, because he was making a recommendation as to coverage of the claim rather than an analysis of legal obligations. Pl.’s Resp. Def.’s Mot. Protective Order 5 (DN 31). CEB argues that Carman is inapposite because it does not concern the insurance industry, where business advice and legal advice are harder to disentangle. Pl.’s Resp. Def.’s Mot. Protective Order 6 (DN 31). Instead, CEB points to Herman v. State Farm and Casualty Ins., No. 1:18-CV-00311, 2019 WL 3024700 (W.D. Mich. June 14, 2019), and Olsen v. Owners Ins. Co., No. 18-CV-1665-RM-NYW, 2019 WL 2502201 (D. Colo. June 17, 2019), for support. Herman stands for the proposition that in the first-party claim insurance context, where an attorney is acting to “gather information, evaluate [a] claim, and make a recommendation ... on how to dispose of the claim[ ]” the attorney is acting as an insurance claims investigator, not as counsel. Herman, 2019 WL at *1. Olsen explains that a first-party claim to insurance, where an insured requests payment under the terms of an insurance contract, does not automatically contemplate litigation. Olsen, 2019 WL at *3. The Olsen court then evaluated several communications which occurred during the initial adjustment of an insurance claim and found none covered by the attorney-client privilege. Olsen v. Owners Ins. Co., No. 18-CV-1665-RM-NYW, 2019 WL 2502201, at *5–7 (D. Colo. June 17, 2019). Neither Herman nor Olsen were applying Kentucky or federal common law on the issue of privilege. Herman dealt with a diversity jurisdiction case applying Michigan's law of privilege. Herman, 2019 WL at *2. Likewise, Olsen applied Colorado substantive law to matters of attorney-client privilege. Olsen, 2019 WL at *2.

*3 The cases underpinning CEB's argument are neither instructive nor persuasive. As stated above, in this diversity action the Court looks to Kentucky law for guidance. In re Powerhouse, 441 F.3d at 472; Fed. R. Evid. 501. As such, cases interpreting Colorado or Michigan law are less persuasive than the opinions of courts interpreting Kentucky or federal law. Furthermore, unlike the cases relied upon by CEB, the December 23 email at issue was not sent during the initial adjustment of a first-party claim. CEB's claim was reported, processed, and remitted between December 10, 2023, and December 20, 2023. While the record is incomplete as to what precipitated the December 23 email, the timeline suggests that it was not for the purpose of gathering information or making a decision in the initial disposition of a claim. While, unlike Carman, the December 23 email was not sent by a member of the litigation department or refer to the specific application of a case on existing contracts, Carman v. Signature Healthcare, LLC, No. 4:19-CV-00087-JHM-HBB, 2020 WL 807537 at *3 (W.D. Ky. Feb. 18, 2020), it nevertheless contemplates the application of Kentucky law on the terms of a contract and the legal obligations of Nationwide in a known dispute over insurability of property. See Jacob v. Dripchak, 331 S.W.3d 278, 282 (Ky. App. 2011) (citing Frear v. P.T.A. Indus., Inc., 103 S.W.3d 99 (Ky. 2003)) (stating contract interpretation is a legal issue). By December 23, Nationwide was aware that two entities had competing insurance claims over the same property, and West Bend had indicated these claims were incompatible. When John White provided a claims handler with advice regarding the terms of a contract and whether each party had an insurable interest in the destroyed property, the predominant purpose of the advice was legal—not business. Therefore, the Court finds that attorney-client privilege applies to the December 23 email.

Accordingly, the Court GRANTS the Defendant's Motion for Protective Order [DN 28] and IT IS FURTHER ORDERED that Plaintiff C E B Investments, LLC must destroy all copies of the subject document in Plaintiff's possession and is hereby prohibited from using this document as evidence in the subject action.

CEB Invs., LLC v. Nationwide Prop. & Cas. Ins. Co.

Citation: 2023 WL 7329559 (W.D. Ky. 2023)

Summary: The court granted Nationwide's motion for a protective order and ordered CEB to destroy all copies of an email inadvertently produced during discovery, citing attorney-client privilege. The email contained legal advice regarding the parties' rights and obligations under Kentucky law in relation to a commercial property damage claim resulting from a tornado.

Court: United States District Court, W.D. Kentucky, Paducah Division

Date decided: August 25, 2023

Judge: King, Lanny

CEB INVESTMENTS, LLC, Plaintiff v. NATIONWIDE PROPERTY AND CASUALTY INSURANCE COMPANY, Defendant Case No. 5:22-cv-00162-BJB-LLK United States District Court, W.D. Kentucky, Paducah Division Signed August 25, 2023 Counsel E. Frederick Straub, Jr., Matthew S. Eddy, Whitlow, Roberts, Houston & Straub, PLLC, Paducah, KY, for Plaintiff. Darrin W. Banks, James E. Yeager, III, Laura Fayth Disney, Porter, Banks, Baldwin & Shaw, PLLC, Paintsville, KY, for Defendant. King, Lanny, United States Magistrate Judge ORDER *1 Judge Benjamin Beaton referred this matter to Magistrate Judge Lanny King for hearing and determining all pretrial matters, including non-dispositive motions. (DN 5). Defendant Nationwide Property and Casualty Insurance Company (“Nationwide”) filed a Motion for Protective Order on July 7, 2023, to which Plaintiff C E B Investments, LLC (“CEB”) responded on August 4, 2023. Nationwide replied on August 11, 2023. For the following reasons, the Court GRANTS Defendant's Motion for a Protective Order. Procedural History and Background This action stems from a commercial property damage claim arising from an EF4 tornado which struck Mayfield, Kentucky on December 10, 2021. Compl. ¶ 6 (DN 1-1). The property was owned by CEB, and leased by Ultimate Fitness, LLC. Compl. ¶¶ 7, 14 (DN 1-1). Ultimate Fitness and CEB had entered into a Contract for Deed allowing Ultimate Fitness to purchase the property. Compl. ¶ 15 (DN 1-1). After the tornado, both CEB and Ultimate Fitness filed insurance claims with their respective providers, Nationwide and West Bend Mutual Insurance Company. Compl ¶¶ 9–10, 14–16. Nationwide issued a check to CEB for $287,950 on December 20, 2022, which represents Nationwide's policy limits for the property less CEB's deductible. Pl.’s Resp. to Def.’s Mot. Protective Order 1 (DN 31). No later than December 22, 2021, Nationwide was made aware of Ultimate Fitness's policy with West Bend, and that West Bend would stop Ultimate Fitness's claim due to CEB's claim with Nationwide. Def.’s Mot. Protective Order 2 n.7 (DN 28). Nationwide subsequently stopped payment on their prior check to allow Ultimate Fitness's claim to proceed. Def.’s Mot. Protective Order 2 (DN 28). CEB filed suit against Nationwide on October 18, 2022, for breach of contract, claims of bad faith under both the Kentucky Unfair Claims Settlement Practices Act and common law, and a claim for punitive damages for Nationwide's “outrageous” behavior. Compl. ¶¶ 37–56 (DN 1-1). During discovery for these claims, Nationwide produced a December 23, 2021, email between Nationwide claims specialist Jeffrey Lorenzo and Nationwide Managing Counsel John White (“December 23 email”) in response to a discovery request by CEB. Def.’s Mot. Protective Order 3 (DN 28) (email attached as Exhibit I). Nationwide seeks return of this document and destruction of any remaining copies by CEB under the principles of attorney-client privilege. Def.’s Mot. Protective Order 4 (DN 28). Legal Standard Unless otherwise limited, “Parties 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[.]” Fed. R. Civ. P. 23(b)(1). In the event of an inadvertent disclosure, otherwise privileged material may be subject to a protective order. See Fed. R. Civ. P. 23(b)(5)(B). However, privileges “should be strictly construed, because they contravene the fundamental principle that ‘... the public has a right to every man's evidence.’ ” Haney v. Yates, 40 S.W.3d 352, 355 (Ky. 2000) (quoting Sisters of Charity Health Sys. v. Raikes, 984 S.W.2d 464, 469 (Ky. 1998)). In diversity cases, state law is applied to resolve claims of attorney-client privilege. In re Powerhouse Licensing, LLC, 441 F.3d 467, 472 (6th Cir. 2006); Fed. R. Evid. 501. The party requesting a protective order has the burden in establishing the privilege exists. Haney, 40 S.W.3d at 355. *2 The Kentucky law on attorney-client privilege is codified in the Kentucky Rules of Evidence. Ky. R. Evid. 503. The general rule in Kentucky is that “[a] client has a privilege to refuse to disclose and to prevent any other person from disclosing a confidential communication made for the purpose of facilitating the rendition of professional legal services to the client” by or between several categories of persons. Ky. R. Evid. 503(b). These categories are the client, the client's representative, the lawyer, or the lawyer's representative. Haney, 40 S.W.3d at 354. Inclusion of these categories of persons alone is insufficient for the privilege to attach—when an attorney acts merely as a “business adviser” the privilege is inapplicable. GATX Corp. v. Appalachian Fuels, LLC, No. 09-41-DLB 2010 WL 5067688 at *2 (E.D. Ky. Dec. 7, 2010) (citing Lexington Pub. Libr. v. Clark, 90 S.W.3d 53, 60 (Ky. 2002)). When a document contains a mixture of legal and business advice, courts look to the “predominant purpose” of the communication to determine if the privilege applies. Cooey v. Strickland, 269 F.R.D. 643, 650 (S.D. Ohio 2010). Where otherwise ambiguous, Kentucky courts look to federal common law for guidance on issues of attorney-client privilege. See Lexington Pub. Libr., 90 S.W.3d at 60 (citing cases from the Supreme Court, Second, and Eighth Circuits). Analysis Nationwide argues that its inadvertent disclosure of the December 23 email did not waive any applicable attorney-client privilege, as it timely requested the document's return. Def.’s Mot. Protective Order 9 (DN 28). CEB does not dispute that the disclosure of the December 23 email was inadvertent and does not comment on whether Nationwide's attempts to claw back the document are timely. Nationwide's accidental disclosure of a single email in a large production of documents is a “classic example of inadvertent disclosure[.]” Owners Ins. Co. v. Reynold Concrete Pumping, LLC, No. 3:21-CV-00356-RGJ-CHL, 2023 WL 3166179, 2023 U.S. Dist. LEXIS 73456 (W.D. Ky. Apr. 27, 2023). The Court finds that the attorney-client privilege, if it existed in the first instance, was not waived with respect to the December 23 email. The parties do dispute whether the attorney-client privilege applies to the December 23 email. Def.’s Mot. Protective Order 5–6 (DN 28); Pl.’s Resp. Mot. Protective Order 5 (DN 31). Nationwide notes that the parties to the subject email—Jeffrey Lorenzo and John White—are the kinds of parties covered under KRE 503. Def.’s Mot. Protective Order 5 (DN 28). They further contend that the subject email contained a legal analysis of the parties’ rights and obligations under Kentucky law. Def.’s Mot. Protective Order 5–6 (DN 28). Nationwide suggests Carman v. Signature Healthcare, LLC, No. 4:19-CV-00087-JHM-HBB, 2020 WL 807537 (W.D. Ky. Feb. 18, 2020), is instructive. Carman involved, in relevant part, emails between Signature Healthcare's in-house Associate Counsel for litigation and members of Signature Healthcare's legal department or upper management. Id. at *3. Those emails entailed the enforceability of arbitration agreements in light of a recent Kentucky Supreme Court case. Id. Acting under federal question jurisdiction, the Carman court applied federal common law and found the communications protected by attorney-client privilege. Id. CEB contends that John White was not acting as legal counsel in the December 23 email, because he was making a recommendation as to coverage of the claim rather than an analysis of legal obligations. Pl.’s Resp. Def.’s Mot. Protective Order 5 (DN 31). CEB argues that Carman is inapposite because it does not concern the insurance industry, where business advice and legal advice are harder to disentangle. Pl.’s Resp. Def.’s Mot. Protective Order 6 (DN 31). Instead, CEB points to Herman v. State Farm and Casualty Ins., No. 1:18-CV-00311, 2019 WL 3024700 (W.D. Mich. June 14, 2019), and Olsen v. Owners Ins. Co., No. 18-CV-1665-RM-NYW, 2019 WL 2502201 (D. Colo. June 17, 2019), for support. Herman stands for the proposition that in the first-party claim insurance context, where an attorney is acting to “gather information, evaluate [a] claim, and make a recommendation ... on how to dispose of the claim[ ]” the attorney is acting as an insurance claims investigator, not as counsel. Herman, 2019 WL at *1. Olsen explains that a first-party claim to insurance, where an insured requests payment under the terms of an insurance contract, does not automatically contemplate litigation. Olsen, 2019 WL at *3. The Olsen court then evaluated several communications which occurred during the initial adjustment of an insurance claim and found none covered by the attorney-client privilege. Olsen v. Owners Ins. Co., No. 18-CV-1665-RM-NYW, 2019 WL 2502201, at *5–7 (D. Colo. June 17, 2019). Neither Herman nor Olsen were applying Kentucky or federal common law on the issue of privilege. Herman dealt with a diversity jurisdiction case applying Michigan's law of privilege. Herman, 2019 WL at *2. Likewise, Olsen applied Colorado substantive law to matters of attorney-client privilege. Olsen, 2019 WL at *2. *3 The cases underpinning CEB's argument are neither instructive nor persuasive. As stated above, in this diversity action the Court looks to Kentucky law for guidance. In re Powerhouse, 441 F.3d at 472; Fed. R. Evid. 501. As such, cases interpreting Colorado or Michigan law are less persuasive than the opinions of courts interpreting Kentucky or federal law. Furthermore, unlike the cases relied upon by CEB, the December 23 email at issue was not sent during the initial adjustment of a first-party claim. CEB's claim was reported, processed, and remitted between December 10, 2023, and December 20, 2023. While the record is incomplete as to what precipitated the December 23 email, the timeline suggests that it was not for the purpose of gathering information or making a decision in the initial disposition of a claim. While, unlike Carman, the December 23 email was not sent by a member of the litigation department or refer to the specific application of a case on existing contracts, Carman v. Signature Healthcare, LLC, No. 4:19-CV-00087-JHM-HBB, 2020 WL 807537 at *3 (W.D. Ky. Feb. 18, 2020), it nevertheless contemplates the application of Kentucky law on the terms of a contract and the legal obligations of Nationwide in a known dispute over insurability of property. See Jacob v. Dripchak, 331 S.W.3d 278, 282 (Ky. App. 2011) (citing Frear v. P.T.A. Indus., Inc., 103 S.W.3d 99 (Ky. 2003)) (stating contract interpretation is a legal issue). By December 23, Nationwide was aware that two entities had competing insurance claims over the same property, and West Bend had indicated these claims were incompatible. When John White provided a claims handler with advice regarding the terms of a contract and whether each party had an insurable interest in the destroyed property, the predominant purpose of the advice was legal—not business. Therefore, the Court finds that attorney-client privilege applies to the December 23 email. Accordingly, the Court GRANTS the Defendant's Motion for Protective Order [DN 28] and IT IS FURTHER ORDERED that Plaintiff C E B Investments, LLC must destroy all copies of the subject document in Plaintiff's possession and is hereby prohibited from using this document as evidence in the subject action.