Ingram v. Great Am. Ins. Co.

112 F.Supp.3d 934

Kenneth INGRAM, et al., Plaintiffs,

v.GREAT AMERICAN INSURANCE COMPANY, et al., Defendants.

No. CV–13–02265–PHX–SPL.

United States District Court, D. Arizona.

Signed June 30, 2015.

James Alan Hertz, Kenneth R. Friedman, William Seimon Cummings, Freidman Rubin, Bremerton, WA, Robert J. Hommel, Patricia Ronan, Robert J. Hommel PC, Scottsdale, AZ, for Plaintiffs.

John Kristian Wittwer, Steven James Gross, Steven Plitt, Timothy R. Hyland, Kunz Plitt Hyland & Demlong PC, Phoenix, AZ, Travis S. Gamble, Wayne B. Mason, Sedgwick LLP, Dallas, TX, for Defendants.

ORDER

STEVEN P. LOGAN, District Judge.

Before the Court are the parties' joint motions for discovery dispute resolution (Docs. 95, 148, 149), motion for extension of time (Doc. 174), and stipulation (Doc. 175). The Court will address each in turn as follows.

I. Background

While transporting Department of Defense cargo for M3 Transport, LLC ("M3"), Plaintiffs Kenneth Ingram and Wylie Harrison's commercial truck malfunctioned. (Doc. 1–1 at 7.) On June 3, 2011, Plaintiffs delivered the truck to an M3 terminal in Glendale, Arizona, and remained at a nearby motel awaiting its repair. (Docs. 1–1 at 7–8; 172–1.) While traveling to the M3 terminal in a rental car on June 6, 2011, Plaintiffs were struck head-on by an oncoming vehicle. (Doc. 1–1 at 8–9.) Both Plaintiffs sustained serious injuries. (Doc. 1–1 at 9.)

Plaintiffs filed workers' compensation claims for wage and medical benefits with Great American Insurance Company ("GAIC"), M3's insurer, on July 15, 2011. (Doc. 102–11 at 3; Doc. 1–1 at 9.) RTW Incorporated ("RTW") was retained as the adjustor to administer the claims. (Doc. 102–11 at 3.) On August 30, 2011, the claims adjustor recommended that they be denied. (Doc. 102–5 at 3–4.) On September 16, 2011, RTW issued a Notice of Claim Status denying Plaintiffs' claims. (Doc. 1–1 at 10, 28.)

Plaintiffs sought review by the Industrial Commission of Arizona ("ICA") on November 8, 2011 (Doc. 172–1 at 162–163), and hearings were held before an Administrative Law Judge ("ALJ") between April and June of 2012. Finding Plaintiffs "status did not become off-duty immediately as of the time the truck was brought in for repairs," on October 30, 2012, the ALJ determined that Plaintiffs' claims were compensable and that they were entitled to benefits. (Doc. 172 at 86–96, 98–108.) M3 requested administrative review on November 28, 2012, and the ALJ summarily affirmed the awards on January 23, 2013. (Doc. 172–1 at 165–179, 181–184.) On February 22, 2013, M3 Transport filed a special action for review of ICA's decision, which was affirmed by the Arizona Court of Appeals on December 26, 2013. (Doc. 172–1 at 186–189, 191–197); M3 Transport, LLC v. Industrial Commission of Arizona, 2013 WL 6844147 (Ariz.Ct.App. Dec. 26, 2013).

Plaintiffs filed their original and amended complaint in the Maricopa County Superior Court against M3,¹ GAIC, and RTW. (Docs. 1–1 at 5–26; 1–2 at 3–17.)² On November 6, 2013, Defendants removed this action to federal court. (Doc. 1.) Plaintiffs bring claims for bad faith and punitive damages, alleging there was no legal justification or reasonable basis for Defendants' interpretation and denial of their workers' compensation claims.³ They allege Defendants knowingly sought unmeritorious review before the ICA and on appeal before the Arizona Court of Appeals.

II. Discovery Disputes

Under Rule 26 of the Federal Rules of Civil Procedure, a party is entitled to "obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party."

Fed.R.Civ.P. 26(b)(1). Relevance is construed broadly to encompass any matter that bears on, or that reasonably could lead to information that bears on, any issue that is or may be in the case. Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351, 98 S.Ct. 2380, 57 L.Ed.2d 253 (1978). "Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence." Fed.R.Civ.P. 26(b)(1). "For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action." Fed.R.Civ.P. 26(b)(1). The Court has broad discretion to permit or deny discovery, as well as in determining relevance for discovery purposes. Little v. City of Seattle, 863 F.2d 681, 685 (9th Cir.1988) ; Hallett v. Morgan, 296 F.3d 732, 751 (9th Cir.2002).

A. Production of Materials Subject to Attorney–Client Privilege

Plaintiffs ask that Defendants be compelled to produce unredacted portions of claims files and communications between claims adjustors and Defendants' counsel that have been previously redacted or withheld on the basis of attorney-client privilege.⁴ Plaintiffs seek relevant communications relating to the decision to deny coverage (July 15, 2011—September 16, 2011), to delay payment of benefits, to appeal the ALJ's decision, and to negotiate settlement (October 29, 2012—November 28, 2012; January 23, 2013—February 20, 2013). Plaintiffs argue that Defendants impliedly waived the attorney-client privilege with respect to these materials, and the redacted or withheld materials are relevant to their bad faith claims.

Under Arizona law,⁵ an implied waiver of attorney-client privilege may be found, making otherwise privileged material discoverable, where the "(1) assertion of the privilege was a result of some affirmative act, such as filing suit [or raising an affirmative defense], by the asserting party; (2) through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case; and (3) application of the privilege would have denied the opposing party access to information vital to his defense." State Farm Mut. Auto. Inc. Co. v. Lee, 199 Ariz. 52, 13 P.3d 1169, 1173 (2000) (quoting Hearn v. Rhay, 68 F.R.D. 574 (E.D.Wash.1975) ). See also Mendoza v. McDonald's Corp., 222 Ariz. 139, 213 P.3d 288 (Ariz.Ct.App.2009) (discussing "Hearn test"). Raising an affirmative defense of good faith in response to a bad faith claim in itself is not sufficient to constitute an implied waiver of the attorney client privilege. Lee, 13 P.3d at 1175. Rather, in order to impliedly waive the privilege, the party asserting the privilege must assert some claim or defense invoking the subjective reasonableness of its evaluation and that analysis must have incorporated information the litigant learned from counsel. Id. at 1178.

Here, Defendants do not dispute that claims adjustors conferred and received information from counsel in processing and litigating Plaintiffs' claims. (See e.g., Doc. 152–1 at 8.) Prior to the initial denial of Plaintiffs' claims, Kris Wigant, RTW claims adjustor, conferred with counsel Chuck Richards. (See Doc. 102–5 at 2.)

Angela Wilson–Travis, GAIC Managed Care Specialist, testified that she received case law from Richards, and subsequently concurred with the decision to deny Plaintiffs' claims, noting that "[u]pon review of the investigation and various ruling's provided by defense counsel agree with denial." (Docs. 102–5 at 2; 109–1 at 12.) Karen Handel, GAIC claims adjustor, testified that counsel "may have provided some information" in deciding whether to pursue an appeal. (Docs. 102–8 at 3; 109–1 at 18.)

Rather, Defendants dispute that the attorney-client privilege has been impliedly waived because claims adjustors did not rely on the advice of counsel in making their decisions at any stage. (Docs. 109; 152 at 3.) Defendants' decisions however, were not independent of counsel's advice. Under Defendants' theory of denial, as noted by the ALJ, an evaluation of the law was required in order to evaluate and make the determination on Plaintiffs' claims at all stages of the underlying action. (See Doc. 172–1 at 87, ¶ 3 ("Whether an Applicant is in the course of employment at the time of injury is a legal determination.").) Thus, while Defendants' decisions may have been based on what their agents believed was right, and not based on what their lawyers expressly advised them to do, those decisions necessarily incorporated counsel's "advice" and consultation on the law. See Lee, 13 P.3d at 1174 ("As part of that evaluation, the agents were informed by counsel. On the basis of this evaluation, including, we must suppose, the information gained from counsel, [Defendants'] agents denied the claims in good faith based on their view of the law, not because of what its lawyers advised."). Cf. Everest Indem. Ins. Co. v. Rea, 236 Ariz. 503, 342 P.3d 417, 420 (Ariz.Ct.App.2015) (finding that because "there ha[d] been no showing that Everest was in doubt as to any legal issue ... [t]he decision Everest made to settle the case was not necessarily the product of legal advice").

In evaluating Plaintiffs' claims, Wigant testified that she considered whether Plaintiffs engaged in "leisure activities that ... deviate from their work duties" (Doc. 172–1 at 149) and whether their actions "benefited the employer" (Doc. 172–1 at 152). Wilson–Travis testified that based on their evaluation of the facts, they concluded that Plaintiffs "were not within the course and scope of their employment" at the time of the collision. (Doc. 109–1 at 12–13.) Handel believed that there was a valid basis to pursue an appeal based on their investigation and findings, which included their "understanding of the overnight traveling employee rule and how it applied to the facts of this case." (Docs. 102–8 at 5–6; 109–1 at 18–19.) Ultimately, Defendants state that Plaintiffs' claims were denied because a threshold condition of compensability had not been met, namely, "the existence of legal causation: whether the accident arose out of and in the course of the worker's employment." (Docs. 102–9 at 2–3; 172–1 at 88, ¶ 4; 174–1 at 6–7.) Defendants maintained that Plaintiffs' conduct fell within the scope of non-compensable deviation. (Docs. 102–9 at 5–6; 174–1 at 9–10.) To the extent that Defendants argue that...