Allstate Fire & Cas. Ins. Co. v. Drakulich

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ALLSTATE FIRE AND CASUALTY INSURANCE COMPANY, Petitioner, v. THE HONORABLE KATHLEEN M. DRAKULICH, DISTRICT JUDGE; AND THE SECOND JUDICIAL DISTRICT COURT OF THE STATE OF NEVADA, IN AND FOR THE COUNTY OF WASHOE, Respondents, and STACI MITCHELL, Real Party in Interest.

No. 83931

Supreme Court of Nevada

March 28, 2023

UNPUBLISHED OPINION

ORDER GRANTING PETITION IN PART

This is an original petition for a writ of prohibition or, in the alternative, mandamus challenging a district court order compelling disclosure of assertedly privileged documents and imposing discovery sanctions.

The underlying suit arises out of an underinsured motorist (UIM) claim by real party in interest Staci Mitchell against petitioner Allstate Eire and Casualty Insurance Company (Allstate), in her second amended complaint, Mitchell seeks contract, tort, and punitive damages from Allstate for its alleged breach of contract, bad faith, and violation of Nevada's Fair Claims Practice Act, see NRS 686A.310. During discovery, Mitchell served Allstate with requests for production of documents under NRCP 34, asking Allstate, among other things, to "[p]roduce the claim file for the claim of Staci Mitchell." After motion practice and several rounds of court-ordered disclosures by Allstate, the Allstate adjustor assigned to Mitchell's UIM claim, Lynn Williamson, testified in deposition that Allstate maintained two separate files that contained information potentially relevant to this litigation. One file consisted of documents directly related to Mitchell's contract-based claim to UIM policy benefits (the UIM file); the other related to Allstate's potential extracontractual-liability exposure to tort and punitive damages for its handling of Mitchell's UIM claim (the ECL file). Williamson testified that, while she maintained the UIM file, she had never seen and did not have access to the ECL file, which she believed was maintained by Allstate's extracontractual liability consultant, Tom Thompson, whom she did not deal with or report to.

Allstate had not previously identified or produced the ECL file in discovery. Additionally, while Allstate had produced the pre-suit documents in its UIM file, Allstate failed to timely comply with an order directing it to either produce or provide an adequate privilege log for the post-January 4 2021, documents that it withheld from the UIM file. Contending that the "claim file" comprised both the UIM file and the ECL file Mitchell filed a motion to compel and for sanctions. The district court agreed with Mitchell that the request to produce the claim file encompassed both, the ECL and the UIM files and that Allstate had violated its prior discovery orders in not producing and adequately scheduling the documents withheld from those files. Based on Allstate's failure to have identified the ECL file earlier in the litigation, the district court sanctioned Allstate by striking its answer and defenses as to liability. The district court further held that Allstate had waived any claim of privilege as to the ECL file and the post-January 4 2021, documents withheld from the UIM file and ordered Allstate to produce the same with no redactions. This petition for writ relief followed. We deny the petition in part and grant it in part.

DISCUSSION

"A writ of mandamus is available to compel the performance of an act that the law requires as a duty resulting from an office, trust, or station or to control an arbitrary or capricious exercise of discretion." Inti Game Tech., Inc. v. Second Judicial Dist. Court, 124 Nev. 193, 197, 179 P.3d 556, 558 (2008). A writ of prohibition may issue to restrain the district court from acting in excess of its jurisdiction. NRS 34.320; Smith v. Eighth Judicial Dist. Court, 107 Nev. 674, 677, 818 P.2d 849, 851 (1991). The petitioner bears the burden to show that extraordinary relief is warranted; such relief is proper only when there is no plain, speedy, and adequate remedy at law. Pan v. Eighth Judicial Dist. Court, 120 Nev. 222, 224, 228, 88 P.3d 840, 841,844 (2004). A writ is an extraordinary remedy, see Walker v. Second. Judicial Dist. Court, 136 Nev. 678, 4 76 P.3d 1194, 1195 (2020), and whether a petition for extraordinary relief will be considered is solely within this court's discretion. Smith, 107 Nev. at 677, 818 P.2d at 851.

Discovery orders seldom qualify for extraordinary writ relief, see Valley Health Sys., LLC v. Eighth Judicial Dist. Court, 127 Nev. 167, 171, 252 P.3d 676, 678 (2011), since most can be adequately reviewed on direct appeal from the eventual final judgment. Pan, 120 Nev. at 225, 88 P.3d at 841. However, we have made exceptions to this general rule where the petition challenges an order compelling disclosure of privileged information, see Valley Health, 127 Nev. at 171.-72, 252 P.3d at 679 (noting that "if the discovery order requires the disclosure of privileged material, there would be no adequate remedy at law that could restore the privileged nature of the information, because once such information is disclosed, it is irretrievable"), or "where, in the absence of writ relief, the resulting prejudice would not only be irreparable, but of a magnitude that could require the imposition of such drastic remedies as dismissal with prejudice or other similar sanctions," Wardleigh v. Second Judicial Dist. Court, 111 Nev. 345, 351, 891 P.2d 1180, 1184(1995).

The order Allstate challenges compels disclosure of assertedly privileged documents from both the UIM file and the ECL file and sanctions Allstate by striking its answer as to liability for not having previously produced or scheduled as withheld the documents comprising the ECL file. An order striking an answer as to liability is not of the same magnitude as an order imposing case-concluding sanctions. See Bahena v. Goodyear Tire &Rubber Co., 126 Nev. 243, 249, 235 P.3d 592, 596 (2010). Nonetheless, the magnitude of the prejudice Allstate faces with the threatened disclosure of the allegedly privileged materials and the striking of its answer as to liability persuades us that writ review is appropriate in this case. See Colter v. Eighth Judicial Dist. Court, 134 Nev. 247, 249, 416 P.3d 228, 231 (2018) (looking at the "magnitude" of prejudice to a party in deciding whether to consider a petition for writ) (internal quotation marks omitted).

Allstate waived its privileges as to the post-January 4, 2021, documents in its UIM file

Mitchell served Allstate with numerous requests for production of documents (RFPs). At issue here is RFP 1 which, reprinted in full text, asked Allstate to:

Produce the claim file for the claim of Staci Mitchell. The claim file, regardless of how it may actually be named contains all communications, claim valuation, reserve/s, and analysis regarding the underinsured and medical payment claim of Staci Mitchell.

Allstate interpreted REP 1. as requesting production of the UIM file.

In response to RFP 1, Allstate directed Mitchell to its NRCP 16.1 disclosures, which included the pre-suit documents from its UIM file, and objected on relevance and privilege grounds "to the extent the request seeks information that post-dates the filing of the Complaint." Motion practice followed, in which the district court rejected Allstate's categorical objection to the production of post-suit claim file documents. In doing so, the district court distinguished this case from Abueg v. State Farm Mutual Automobile Insurance Co., No. 2:14-GV-00635-GMN-GWE, 2014 WE 5503114 (D. Nev. 2014), where the federal district court denied post-suit UIM claim-file discovery. In Abueg, "|t]he bad faith claim [was] based [exclusively] on State Earm's pre-lawsuit conduct in allegedly delaying payment and denying Plaintiffs [UIM] claim on the basis of an allegedly biased medical records review." Id. at *3; see Richardson v. GEICO, 403 P.3d 115, 122-23, 125 (Wash. App. 2017) (similarly denying post-suit discovery in a suit seeking UIM benefits and damages for bad faith where the insurer denied the claim and committed the alleged bad faith before the insured sued). In this case, by contrast, Mitchell's bad faith claims included allegations that Mitchell's medical expenses were ongoing, and that Allstate failed to complete its investigation and adjust her UIM claim, which included those ongoing expenses, after the litigation began. Mitchell's allegations of ongoing bad faith in the claim adjustment process led the district court to hold that, in this circumstance, "post-litigation information in an insurer's claim file is not absolutely protected from disclosure and is not necessarily irrelevant." Accordingly, it ordered Allstate to either produce the post-suit claim-file documents or schedule them as privileged.

Even as to the UIM file-which REP 1 clearly encompassed- Allstate did not timely comply with the district court's order compelling it to produce or schedule the documents withheld from that file. This failure led the district court to overrule Allstate's claims of privilege as to the post January 4, 2021, documents in its UIM file and order their production. In its petition, Allstate maintains that its attorney-client privilege and work product protection "cannot be involuntarily waived as a sanction." But the district court did not sanction Allstate by finding its privileges waived as to one document for its withholding of another. Cf. Am. Nali Bank &Tr. Co. v. Equitable Life Assurance Soc'y, 406 F.3d 867, 878 (7th Cir. 2005) (recounting district court proceeding in which the court examined 20 documents within a larger subset that the party claimed were privileged, and if the court disagreed about the nature of more than three of those documents, it would strike the party's entire privilege log). Rather, the district court...