Insurer's Attorney Acts as Claims Investigator

Saturday, March 10, 2007 | 0

By Larry Rogak

Geneva Mtge. Corp. v. Certain Underwriters at Lloyd's, London, 2006 NY Slip Op 52576(U) (Supreme Court, Nassau County) (Bucaria, J.)

Plaintiff Geneva Mortgage Corp. (hereinafter referred to as "PMCC"), moved for an order pursuant to CPLR 3124 compelling defendants Certain Underwriters at Lloyd's, London ("Lloyd's") to produce their claims and investigation files relating to PMCC's insurance claim and directing defendants to produce a witness for oral deposition within the State of New York or to defray the costs incurred for a deposition in a foreign venue.

In this action, plaintiff sued to recover monetary damages based upon breach of contract and duty of good faith. Plaintiff also sought a judgment declaring that defendants were obligated to defend and/or indemnify PMCC for claims made against it by Wells Fargo Funding, Inc.

Lloyd's issued a policy of insurance known as Mortgage Bankers / Brokers Errors and Omissions Insurance to PMCC. Wells Fargo commenced an action against PMCC in the United States District Court of New Jersey seeking to recover monetary damages based upon PMCC's alleged failures in providing professional mortgage broker or banker services with respect to five loans that PMCC had sold to Wells Fargo. The Wells Fargo complaint alleges causes of action for breach of contract, violation of Minnesota Prevention of Consumer Fraud Act, and unjust enrichment.

On October 26, 2000, defendants' attorneys, Mendes & Mount, LLP, advised PMCC that it did not believe the claims asserted by Wells Fargo were afforded coverage under the subject insurance policy. By letter dated December 19, 2000, Mendes & Mount LLP expressly stated that "there is no coverage for this matter under the professional liability subscribed by our clients."

As a result of Lloyd's failure or refusal to defend PMCC or provide coverage, PMCC retained its own counsel and paid for its own defense. In addition, PMCC had to pay all of the damages to Wells Fargo plus interest. Thereafter, PMCC commenced this action based upon Lloyd's wrongful or improper failure and refusal to defend and/or indemnify PMCC for the claims asserted against PMCC by Wells Fargo.

On this application, plaintiff sought to compel production of defendants' "claims and investigation files." Plaintiff argued that defendants' counsel, Mendes & Mount, LLP, acted as their primary investigator in the factual investigation and adjustment of PMCC's claim under the policy, a role rooted in the regular course of insurance business. Plaintiff further requested that defendants' oral deposition be conducted in the State of New York.

Defendants opposed the motion, claiming that their claims and investigation documents are protected by the attorney-client privilege (CPLR 3101; and 4503[a]). As to the deposition, defendants contended it would suffer substantial hardship if the oral deposition was conducted in the State of New York since their witness resides and works in London, England. Lloyd's, therefore, requested that the oral deposition be held in London, England or under letters rogatory pursuant to CPLR 3113(a)(3).

The Court held that "Generally, where the deponent is a party to the action, the deposition may be scheduled within the deponent's residence or business county, or in the county where the action is pending (CPLR 3110[1]; Hoffman v Kraus, 260 AD2d 435 [2nd Dept. 1999]). Statutory disclosure provisions apply to non-residents as well as to residents of the State (Levine v St. Luke's Hosp. Ctr., 109 AD2d 694 [1st Dept. 1985]) and in the absence of a showing of substantial hardship, the deposition should be held in the forum of the litigation (CPLR 3110[1]; Hoffman v Kraus, supra; Swiss Bank Corp. v Geecee Exportaciones, Ltda, 260 AD2d 254 [1st Dept. 1999]; Kahn v Rodman, 91 AD2d 910, 911[1st Dept. 1983]; Gazerwitz v Adrian, 28 AD2d 556, 557 [2nd Dept. 1967])."

"On this record, Lloyd's has not sufficiently established that submitting to an oral deposition in the forum of the litigation would result in substantial hardship."

"Accordingly, PMCC's motion is granted to the extent that Lloyd's is directed to produce a witness for oral deposition within the State of New York no later than 30 days prior to the trial date (see, ZVI Englander & Co. v Leslie Kleyman Corp., 36 AD2d 529 [1st Dept. 1971]). In the event that Lloyd's prevails in this action, Lloyd's may recover its travel expenses as taxable disbursements. (Levine v St. Luke's Hosp. Ctr. , supra; Jungua v Tobey and Kirk, 34 AD2d 740 [1 st Dept. 1970]; B.B. & D. Productions, Inc. v Screen Gems, Inc., 29 AD2d 747 [1st Dept. 1968])."

"As to the production of defendants' claims and investigation files, this Court is not persuaded that the documents requested are protected by the attorney-client privilege (CPLR 4503[1])."

"Reports prepared by attorneys resulting from the examination of claims which are made prior to an insurance carrier's denial of coverage are not protected from disclosure either as work product or materials prepared in anticipation of litigation (Bertalo's estaurant, Inc. v Exchange Insurance Company, 240 AD2d 452, lv to app dism. 91 NY2d 838; see, Westhampton Adult Home Inc. v National Union Fire Ins. Co. of Pittsburgh, Pa., 105 AD2d 627, 628 [1st Dept. 1984]). Here, the documents submitted for inspection indicate that they consist primarily of reports made by attorneys who conducted the investigation of the claim on behalf of the defendant carrier, and communications from the carrier to those attorneys."

"In order to invoke the attorney-client privilege, the party seeking to withhold the information must demonstrate that it was a confidential communication' made between the attorney and the client in the context of legal advice or services". The communication must be primarily or predominantly of a legal character and made for the purpose of facilitating the endition of legal advice or services, in the course of a professional relationship. The payment or rejection of claims is a part of the regular business of an insurance company. Consequently, reports which aid it in the process of deciding which of the two indicated actions to pursue are made in the regular course of its business. Further, merely because such an investigation was undertaken by attorneys will not cloak the reports and communications with privilege because the reports, although prepared by attorneys, are prepared as part of the regular business of the insurance company."

"Applying these principles to the case at bar, those communications which occurred prior to the date that Lloyd's rejected the claim (December 19, 2000) are not immune from discovery. Here, all of the documents listed in the privilege log were prepared before December 19, 2000, when defendants, through Mendes & Mount, LLP, and in the regular course of insurance business, denied PMCC's claim under the policy. Consequently, the documents are discoverable."

"Accordingly, Lloyd's is directed to produce the documents at issue within 30 days after a copy of this order is served upon their attorneys."

Lawrence N. Rogak is an insurance defense attorney in New York. He writes The Rogak Report, a daily insurance law newsletter, and his insurance law articles appear in several industry publications. For more information see www.Rogak.com.

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