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Anderson v. Country Mutual Insurance Co.

United States District Court, W.D. Washington, Seattle

August 25, 2014



JAMES L. ROBART, District Judge.


Before the court is Defendant Country Mutual Insurance Company's ("Country Mutual") renewed motion for a protective order. (Mot. (Dkt. #29).) Country Mutual seeks to withhold from discovery certain documents it claims are protected by the attorney-client privilege and the work product doctrine. ( See id. ) Plaintiff Christopher Anderson argues that Country Mutual should be required to produce the documents pursuant to the Washington State Supreme Court's decision in Cedell v. Farmers Insurance Co. of Washington, 295 P.3d 239 (Wash. 2013). The court has conducted an in camera review of the relevant documents, and GRANTS in part and DENIES in part the motion for a protective order as described in more detail below.


This is an insurance coverage case. Mr. Anderson owned a rental property in Seattle's Seward Park neighborhood, and on December 26, 2012, the property caught fire. (Compl. (Dkt. #1-1) ¶ 3.1.) The fire caused extensive damage, so Mr. Anderson made a claim on his insurance policy with Country Mutual. ( Id. ¶¶ 3.1, 3.3.) Shortly thereafter, Country Mutual discovered evidence that there had been a marijuana grow operation located on the property. (Thielbar Decl. (Dkt. #15) ¶ 4.) Consequently, Country Mutual undertook an extensive investigation of Mr. Anderson's claim. ( Id. ¶¶ 4-8.) Country Mutual retained outside counsel-the Thenell Law Group, P.C.-to assist with its investigation and coverage determination. ( Id. ¶ 7.) Country Mutual eventually denied Mr. Anderson's claim on October 14, 2013. ( Id. ¶ 8.) In response, Mr. Anderson brought this complaint alleging breach of contract, bad faith, and violations of Washington's Consumer Protection Act and Insurance Fair Conduct Act. (Compl. ¶ 4.1.)

In May of this year, Country Mutual filed a motion for protective order. (5/20/14 Order (Dkt. #13).) In the motion, Country Mutual asserted that certain documents that Mr. Anderson had requested in discovery were protected by the attorney-client privilege. ( See id. ) Country Mutual requested that the court conduct an in camera review pursuant to the Washington State Supreme Court's decision in Cedell. ( Id. ) Mr. Anderson opposed the motion. (5/28/14 Resp. (Dkt. #16).) The court requested, and received, additional briefing in light of its then-recent ruling in MKB Constructors v. American Zurich Insurance Co., No. C13-0611JLR, 2014 WL 2526901 (W.D. Wash. May 27, 2014). (6/9/14 Min. Order (Dkt. #24).) The parties agreed that, in light of that ruling, Country Mutual should amend its privilege log and Mr. Anderson should review the amended privilege log. ( See Pltf. Supp. Br. (Dkt. #25) at 3; Def. Supp. Br. (Dkt. #26) at 2.) This occurred, and the scope of the dispute between the parties narrowed considerably. ( See Mot. at 2-3.) However, some 103 pages of documents remained in dispute, so Country Mutual renewed its motion for a protective order on July 31, 2014. ( Id.; Resp. (Dkt. #31) at 2.) The court reviewed Country Mutual's amended privilege log and concluded that in camera review was necessary to determine which documents were privileged and which were not. (8/13/14 Order (Dkt. #33).) Country Mutual submitted the documents that remain in dispute, and the court has now reviewed those documents and can rule on Country Mutual's motion for a protective order.


A. Standard on a Motion for Protective Order

District courts have broad authority to issue protective orders where appropriate. Although the Federal Rules of Civil Procedure allow for broad discovery, see Fed.R.Civ.P. 26(b)(1); Shoen v. Shoen, 5 F.3d 1289, 1292 (9th Cir. 1993), discovery, "like all matters of procedure, has ultimate and necessary boundaries." Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978). Accordingly, a court "may, for good cause, issue a protective order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense." Fed.R.Civ.P. 26(c)(1). The party seeking a protective order "bears the burden, for each particular document it seeks to protect, of showing that specific prejudice or harm will result if no protective order is granted." Foltz v. State Farm Mut. Auto Ins. Co., 331 F.3d 1122, 1130 (9th Cir. 2003). District courts are vested with broad discretion in determining whether a protective order is appropriate and, if so, what degree of protection is warranted. Seattle Times Co. v. Rhinehart, 467 U.S. 20, 36 (1984); Phillips ex rel. Estate of Byrd v. Gen. Motors Corp., 307 F.3d 1206, 1211-12 (9th Cir. 2002).

B. Attorney-Client Privilege

Here, the decision whether to grant a protective order is a simple one. A protective order is appropriate for documents that are protected by the attorney-client privilege or the work product doctrine, and not appropriate where no privilege or protection applies. Thus, the central question the court must answer is which documents submitted for in camera review are protected from disclosure and which are not.

The court begins with the attorney-client privilege. The attorney-client privilege is a long standing doctrine established 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). When it applies, the privilege protects communications made in confidence by clients to their lawyers for the purpose of obtaining legal advice. Fisher v. United States, 425 U.S. 391, 403 (1976); Am. Standard Inc. v. Pfizer Inc., 828 F.2d 734, 745 (Fed. Cir. 1987).

In Washington, the attorney-client privilege applies differently in certain insurance cases. In a first-party insurance bad faith action, the attorney-client privilege is presumptively inapplicable. Cedell, 295 P.3d at 246. The Washington State Supreme Court recently explained this in its opinion in Cedell. Cedell significantly altered application of the attorney-client privilege in the context of first-party bad faith claims. See MKB, 2014 WL 2526901, at *4. Most significantly, in such cases, Cedell creates a "presumption that there is no attorney-client privilege relevant between the insured and the insurer in the claims adjusting process, and that the attorney-client... privilege [is] generally not relevant." Id. (citing Cedell, 295 P.3d at 246). Nonetheless, an insurer may overcome Cedell 's new "presumption of discoverability by showing its attorney was not engaged in the quasi-fiduciary tasks of investigation and evaluating or processing the claim, but instead in providing the insurer with counsel as to its own liability: for example, whether or not coverage exists under the law." Cedell, 295 P.3d at 246.

There are several key guideposts in this inquiry. First, where an attorney is acting as a de facto claims handler, the attorney's communications likely will not be privileged. MKB Constructors, 2014 WL 3734286, at *8. For example, in Cedell, the insurer's attorney examined witnesses under oath. Cedell, 295 P.33d at 242. He also communicated directly with the insured, authored and signed the insurer's denial letter, and initiated settlement negotiations with the insured. See id.; see also Hilborn v. Metro. Group Prop. & Cas. Ins. Co., No. 2:12-cv-00636-BLW, 2013 WL 6055215, at *3 (D. Idaho Nov. 15, 2013) (attorneys admitted that they were retained to investigate the claim and one attorney placed a phone call to a third party to investigate the claim); HSS Enters., LLC v. Amco Ins. Co., No. C06-1485-JPD, 2008 WL 163669, at *1-2 (W.D. Wash. Jan. 14, 2008) (attorneys conducted examinations under oath, assisted the insurer with its factual investigation, and adjusted the claim); Ivy Hotel San Diego, LLC v. Houston Cas. Co., No. 10cv2183-L (BGS), 2011 WL 4914941, at *5 (S.D. Cal. Oct. 17, 2011) (attorney became primary point of contact with insured regarding insured's claim). On the other hand, where the attorney is clearly acting as coverage counsel and advising the insurer of its potential for liability, the communications likely will be privileged. MKB Constructors, 2014 WL 3734286, at *8. It may be difficult to assess when a particular communication is on one side of this line or the other, but as a general matter, there will likely be no privilege for a lawyer investigating facts to reach a coverage decision, but there likely will be a privilege for a lawyer giving an insurer strictly legal advice about potential liability that could result from a coverage decision or some other course of action. See id.

In addition, even a showing that the privilege applies can be overcome. Even if an insurer demonstrates that an attorney was not serving in a quasi-fiduciary role, under Cedell, an insured may still be able to pierce the insurer's assertion of attorney-client privilege. See MKB, 2014 WL 2526901, at *4. If the insured asserts that the insurer has engaged "in an act of bad faith tantamount to civil fraud" and makes "a showing that a reasonable person would have a reasonable belief that an act of bad faith has occurred" or that an insurer has engaged in a "bad faith in attempt to defeat a meritorious claim, " then the insurer will be deemed to have waived the privilege. See Cedell, 295 P.3d at 246-47. Obviously, something more than an honest disagreement between the insurer and the insured about coverage under the policy must be at play. MKB Constructors v. Am. Zurich Ins. Co., No. C13-0611JLR, 2014 WL 3734286, at *7 (W.D. Wash. July 28, 2014).

C. Documents Protected by Attorney-Client Privilege

For the following documents, Country Mutual has not met its burden of overcoming Cedell 's presumption that the attorney-client privilege does not apply. For each of these documents, the court's review has revealed that either (1) the attorneys involved were engaged in the quasi-fiduciary process of investigating, evaluating, or processing the claim or (2) the attorney-client privilege is otherwise inapplicable. For most of these documents, the communications concern de facto claims handling. The communications involve, for example, conducting an examination under oath, making factual assessments and determinations, or being the direct point of contact with the insured. As outlined above, this puts these documents squarely in the category of unprivileged documents under Cedell. See Cedell, 295 P.33d at 242; Hilborn, 2013 WL 6055215, at *3; HSS Enters., 2008 WL 163669, at *1-2; Ivy Hotel, 2011 WL 4914941, at *5. Accordingly, the following documents should be produced:

• CMIC CLAIM FILE 000056-57
• CMIC CLAIM FILE 000073-74

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