Accident Fund Gen. Ins. Co. v. Best

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ACCIDENT FUND GENERAL INS. CO., and NICOLE PALAGI, Petitioners, v. MONTANA EIGHTH JUDICIAL DISTRICT COURT, CASCADE COUNTY, HONORABLE ELIZABETH A. BEST, PRESIDING JUDGE, Respondent.

No. OP 24-0302

Supreme Court of Montana

June 4, 2024

ORDER

Petitioners Accident Fund General Ins. Co. and Nicole Palagi (collectively "Accident Fund") seek a writ of supervisory control to vacate the December 3, 2023 Order on Plaintiff's Motion to Compel ("First Order") and portions of the April 30, 2024 Order Granting Plaintiffs' Second Motion to Compel ("Second Order") of the Eighth Judicial District Court, Cascade County, in its Cause No. BDV-23-0092. Accident Fund asserts the rulings are abuses of discretion and errors of law and this Court should accept supervisory control to overturn them.

Accident Fund and Palagi are the defendants in an insurance bad faith claim initiated by Contessa Bryer, Personal Representative of the Estate of Johnny Lee Sheldon, and Taylor Sheldon (collectively "Bryer"), concerning Accident Fund's adjustment of the workers' compensation claim of Johnny Lee Sheldon (Sheldon). Bryer also filed a workers' compensation claim in the Workers' Compensation Court (WCC), which determined Sheldon suffered a compensable claim that Accident Fund unreasonably adjusted. Bryer v. Accident Fund Gen. Ins. Co., 2022 MTWCC 8 (affd Bryer v. Accident Fund Gen. Ins. Co., 2023 MT 104, 412 Mont. 347, 530 P.3d 801). Pertinent to the present petition, Accident Fund provided Sheldon's employer with workers' compensation insurance at the time of Sheldon's industrial injury and it hired a third-party adjuster, Gallagher Bassett Services Inc. (Gallagher Bassett), to adjust the claim, who in turn assigned the claim to Palagi, a Montana-based claims examiner. Bryer, 2023 MT 104, ¶ 8.

In the bad faith claim underlying the present dispute, Bryer first moved the District Court to compel Accident Fund to provide discovery responses after she found its response to her requests for production inadequate. The District Court examined Accident Fund's responses and found them "woefully inadequate, obstructive, and facially abusive of the discovery process." It ruled that Accident Fund had obstructed discovery and waived claims of privilege because it interposed "facially and blatantly improper objections" and neither filed a privilege log nor moved for a protective order. The court found that Accident Fund refused to respond to sixteen of Bryer's requests for production when the information and documents Bryer sought were clearly within the scope of discovery. The court concluded that Accident Fund had no justification for its failure to respond to discovery. Granting Bryer's motion the court ordered Accident Fund to fully respond to Bryer's requests for production and pay Bryer's associated expenses, including attorney fees.

Bryer moved to compel for a second time and further requested sanctions for Accident Fund's alleged failure to provide adequate supplementation following the First Order. Bryer alleged that Accident Fund had failed to produce six items that the District Court had ordered Accident Fund to produce. One item Accident Fund failed to produce was the contract in place between Accident Fund and Gallagher Bassett at the time of Sheldon's injury. Accident Fund responded, in part, that it had produced the only responsive contract it possessed. Based on Accident Fund's representation that it did not have the remaining contracts and documents incorporated by reference into the existing contract, Bryer then argued spoliation. Bryer requested various remedies and sanctions for Accident Fund's alleged failure to comply with the First Order.

In the Second Order, the District Court stated, "Starting in the underlying workers' compensation case, Accident Fund has, at best, slow-walked production of documents in its claim file to Plaintiffs, which the WCC Court did not tolerate. . . . Accident Fund's dilatory death-by-a-thousand-cuts approach to discovery has continued in this Court." The court explained that for Bryer's first Request for Production, a complete copy of the claims file, Accident Fund provided an initial response and four supplemental responses over nine months, in several instances asserting, incorrectly, that it had produced the complete claims file, only to "drip [more] claim file documents . . . when pressure was applied," and even though § 39-71-107(3), MCA, requires workers' compensation insurers to maintain claims files at the Montana office of the claims adjuster in a manner that allows the documents to be retrieved and copied at the claimant's request. The court'noted that in the fourth supplemental response, Accident Fund provided more than two years' worth of claims notes that it had not previously produced. The court found Accident Fund's explanations for its serial failures to produce the entire claims file unpersuasive. It specifically rejected Accident Fund's insistence that it did not handle Sheldon's claim, pointing out that workers' compensation insurers are vicariously liable for the acts or omissions of their administrators under Montana workers' compensation case law.

The court next rejected Accident Fund's argument that it need not produce Gallagher Bassett's unredacted claim notes, even though Accident Fund had waived attorney-client privilege, because Palagi had not done so. The court reasoned that Accident Fund, not Palagi, was the client and it was thus Accident Fund's privilege to waive.

The court further granted Bryer's request to allow her expert to inspect Accident Fund's databases and claims handling portals to verify that Accident Fund had produced all information and documentation regarding Sheldon's workers' compensation claim in Accident Fund's possession. The court determined it could not rely on Accident Fund's assertion that it had fiilly produced all information because of Accident Fund's approach to discovery and persistence "in hedging its discovery responses on its objection that it did not adjust John Sheldon's workers' compensation claim." The court found the declaration of Accident Fund's corporate representative to be "replete with conditional representations" that caused the court to lack faith in the completeness of Accident Fund's responses. It determined Bryer could inspect Accident Fund's database under M. R. Civ. P. 26(a) and 34(a)(1)(A). The court limited the scope of the inspection, permitted an Accident Fund representative to be present for the inspection, and ruled Bryer could only use or disclose any information obtained for the purpose of this litigation and could not publicly disclose any of the information obtained.

The court further determined sanctions were warranted due to Accident Fund's dilatory discovery actions and Bryer was entitled to relief for Accident Fund's spoliation of evidence. The District Court ordered Accident Fund to pay Bryer's reasonable expenses, including attorney fees associated...