United States District Court, W.D. Washington, Seattle
PATRICIA S. HAWTHORNE, individually and as assignee of Oklahoma Court Services, Inc., Plaintiff,
MID-CONTINENT CASUALTY COMPANY, OKLAHOMA SURETY COMPANY, an Oklahoma Insurance Company, Defendant.
ORDER GRANTING IN PART PLAINTIFF'S MOTION TO
Robert S. Lasnik United States District Judge
matter comes before the Court on plaintiff Patricia S.
Hawthorne's motion to compel. Dkt. # 40. Having
considered the parties' briefing and the remainder of the
record, the Court finds as follows.
November 2016, acting in her individual capacity and as
assignee of various insurance claims, plaintiff filed this
action in King County Superior Court against Oklahoma Surety
Company (“Oklahoma Surety”) for bad faith,
violation of Washington's Unfair Trade Practices Act, and
breach of the contractual duties to defend, settle, and
indemnify. Dkt. # 1-1. On December 21, 2016, Oklahoma Surety
removed this case to federal court, Dkt. # 1, and shortly
thereafter moved to dismiss the case for lack of personal
jurisdiction, Dkt. # 9. The Court denied that motion in April
2017. Dkt. # 39.
discovery underway, plaintiff moves under Local Civil Rule 37
to compel production of certain emails that defendant
Oklahoma Surety has withheld on the grounds that they
constitute privileged attorney-client communications and/or
work product. Plaintiff argues that, under Washington state
law, these privileges give way in the context of an insurance
bad faith claim.
true that Washington law establishes an exception to the
attorney-client privilege in the context of certain insurance
bad-faith claims. As this Court recognized in Meier v.
Travelers Home and Marine Insurance Company, No.
C15-22RSL, 2016 WL 4447050 (W.D. Wash. Aug. 24, 2016), under
Washington law, in the context of first-party insurance
coverage, an insurer owes its insured a quasi-fiduciary duty
to investigate and adjust the claim in good faith. Cedell
v. Farmers Ins. Co. of Washington, 176 Wn.2d 686, 696
(2013). In Cedell, the state Supreme
Court determined that when an insured asserts that the duty
has been breached, the insured should have access to the
entire claim file: an insurer will not be permitted to refuse
production “because of the participation of lawyers
hired or employed by the insurers” for fear that a
blanket privilege “would unreasonably obstruct
discovery of meritorious claims and conceal unwarranted
practices.” Id. at 696-97. Thus, there is a
presumption in such cases that the attorney-client privilege
does not apply as between an insured and her insurer in the
claims adjusting process. Id. at 698-99. The insurer
can rebut the presumption by showing that a particular
communication or document had nothing to do with the
insurer's quasi-fiduciary functions (e.g.,
investigating, evaluating, negotiating, or processing the
claim). To the extent the insurer is able to show that
documents in the claim file seek or reflect legal advice
regarding the insurer's own liability under the policy,
those documents are not subject to the presumption and remain
privileged under state law. Id. at 699-700. Even
with regards to these documents, however, the insured may
pierce the privilege by showing a foundation in fact for her
allegation of bad faith. If the insured is able to make a
colorable showing that the insurer attempted in bad faith to
defeat a meritorious claim for coverage, the privilege is
waived, and the entire claim file must be produced.
Id. at 700.
Surety argues, however, that the privilege law of Oklahoma,
not Washington, applies. Applying Washington choice-of-law
rules, see Patton v. Cox, 276 F.3d 493, 495 (9th
Cir. 2002), the Court concludes: (1) an actual conflict
exists between Washington law, under which, in discovery, the
attorney-client privilege gives way to claims of insurer bad
faith, see Cedell, 176 Wn.2d at 700, and Oklahoma
law, which lacks an equivalent to the Cedell
bad-faith exception; and (2) even assuming arguendo
that Oklahoma has “the most significant
relationship” with the attorney-client communication
here, there is no “special reason” why the
Washington policy favoring admission of the communication
should not be given effect, see State v. Donahue,
105 Wn.App. 67, 71 (2001).
facts that Oklahoma Surety cites to show a “special
reason” do not suggest otherwise. For example, the fact
that both parties to the insurance policy are Oklahoma
companies bears on which state has the “most
significant relationship” to the communications at
issue, not on whether a “special reason” exists
to override the evidentiary policy of the forum state. And
the communications here appear to be material, as they may
shed light on any inconsistencies between Oklahoma
Surety's initial coverage analysis and its ultimate
justifications for denying coverage. Other facts cited
effectively urge application of the Oklahoma policy on the
grounds that it is a better policy than Washington's. The
Court will not ground its choice-of-law determination on such
a slippery foundation.
Oklahoma Surety attempts to distinguish Cedell on
the grounds that in this case, the attorney in question was
not performing the “quasi-fiduciary tasks of
investigating and evaluating or processing the claim, ”
but rather was “providing counsel to the insurer and
not engaged in a quasi-fiduciary function.”
Cedell, 176 Wn.2d at 700. But Cedell
explicitly contemplates that even the privilege for attorney
communications providing counsel to a client-insurer may be
“pierced” by an assertion of the civil fraud
exception. Id. As explained above, where an insurer
engages in bad faith in an attempt to defeat a meritorious
claim, that bad faith is tantamount to civil fraud, and the
privilege does not apply. Id.
an attorney was providing counsel rather than performing a
quasi-fiduciary task, and whether an act of bad faith
tantamount to civil fraud occurs in the course of that
counsel, require an in camera review of the communications in
question. Id. at 699-700. To warrant an in camera
review of the claimed privileged materials under the civil
fraud exception, the requesting party must make a showing
that a reasonable person would have a reasonable belief that
an act of bad faith has occurred. Id. at 700. If,
after reviewing the materials in camera, the Court finds that
there is a foundation to permit a claim of bad faith to
proceed, the attorney-client privilege shall be deemed to be
case, plaintiff has made a colorable showing that Oklahoma
Surety attempted in bad faith to defeat a meritorious claim
for coverage: after initially agreeing to defend the insured
under a reservation of rights, Oklahoma Surety ultimately
rescinded that defense on the grounds that the claim could
not possibly be covered under the insured's policy.
the Court concludes that an in camera review of the
attorney-client communications is warranted. During that
review, the Court will determine (1) whether Oklahoma
Surety's attorney was providing counsel to the insurer or
performing a quasi-fiduciary task; and if so, (2) whether a
foundation exists to permit a claim of bad faith to proceed.
See Taladay v. Metro. Group Prop. & Cas. Ins.
Co., No. C14-1290JPD, 2015 WL 12030116, at *6-7 (W.D.
Wash. Dec. 18, 2015) (explaining procedure for in camera
review in federal court).
time, the Court will also consider whether the federal
work-product privilege requires complete or partial redaction
of the withheld materials notwithstanding Cedell.
See Fed. R. Civ. P. 26(b)(3); In re Grand Jury
Subpoena (Mark Topf), 357 F.3d 900, 907 (9th Cir. 2004)
(holding that a document is eligible for work-product
protection if it “can be fairly said to have been
prepared or obtained because of the prospect of
litigation”); United States v. Richey, 632
F.3d 559, 567-68 (9th Cir. 2011) (holding that where a
document serves dual purposes, in that it was not prepared
exclusively for litigation, the issue is whether the document
was created “because of” the litigation as
opposed to for some other purpose). Because plaintiff has
failed to demonstrate a “substantial need” for
any work product contained in the withheld materials,
Oklahoma Surety will be permitted to redact whatever work
product the Court finds in those documents.
foregoing reasons, plaintiff's motion to compel (Dkt. #
40) is GRANTED in part. Within thirty days of the date of
this order, Oklahoma Surety is directed to deliver to the
Court two copies of the withheld materials - one unredacted,
and one with proposed redactions for the Court's
consideration - along with a privilege log indicating which
privileges are claimed as to each redaction. If the parties
are ultimately able to resolve this dispute between
themselves - as they are ...