STATE FARM FIRE AND CASUALTY COMPANY, Petitioner, v. NORTH LAUDERDALE CHIROPRACTIC CENTER, INC. (a/a/o Carline Simon), Respondent.

18 Fla. L. Weekly Supp. 648d

Online Reference: FLWSUPP 1808SIMO Insurance — Discovery — Claim file — Privilege — Trial court erred in ordering production of documents from insurer’s claim file in first-party dispute over medical bills without considering attorney-client privilege objection — Trial court further erred in ruling that claim file notes and other internal documents were not protected by work product privilege, in failing to consider objections to relevancy of documents sought and in overruling preserved objections to production without affording parties adequate notice and opportunity to be heard — Order compelling production of materials for which attorney-client and work product privileges are invoked presents potential for irreparable harm warranting certiorari relief

STATE FARM FIRE AND CASUALTY COMPANY, Petitioner, v. NORTH LAUDERDALE CHIROPRACTIC CENTER, INC. (a/a/o Carline Simon), Respondent. Circuit Court, 17th Judicial Circuit (Appellate) in and for Broward County. Case No. CACE 09-064929 (09). May 20, 2010. Honorable David Krathen, Judge. Counsel: Nancy W. Gregoire, Kirschbaum Birnbaum, et al., for Petitioner. Byron T. Jackson, Labovick & Labovick, P.A., for Respondent.

Opinion

This case came before the Court, sitting in its appellate capacity, on a petition for writ of certiorari¹ from an order of the lower court requiring State Farm to produce a number of documents from its claim file. Respondent has failed to respond to the petition.² Based on the background and analysis that follows, the Court finds that the order is a departure from the essential requirements of the law that will cause State Farm harm throughout the remainder of the litigation and quashes it.

A. Background

The underlying case was brought by North Lauderdale Chiropractic Center, Inc. (“Clinic”), as assignee of a State Farm insured, alleging that State Farm breached the insured’s automobile policy by reducing or denying the Clinic’s bills. With its Complaint, the Clinic served a request for production that included State Farm’s claim file, underwriting standards, underwriting manuals, and various other documents.

State Farm objected to production of its claim file on the grounds of privacy, undue burden, relevance, work product privilege, attorney-client privilege, and claim file protection in a first party non-bad-faith context. It also provided a privilege log describing the documents for which it sought protection. After a hearing and in camera inspection, the lower court held that various documents were not entitled to work product protection and ordered them produced. The basis of the court’s ruling was that the documents were “prepared under no more than the ‘mere likelihood of litigation,’ which is insufficient to trigger the work-product privilege.” In support, the court cited Cotton States Mutual Insurance Company v. Turtle Reef Associates, Inc., 444 So. 2d 595 (Fla. 4th DCA 1984), and Neighborhood Health Partnership, Inc. v. Peter F. Merkle, MD., P.A., 8 So. 3d 1180, 1185 (Fla. 4th DCA 2009) [34 Fla. L. Weekly D766a].

State Farm sought certiorari relief from this Court and filed its documents under seal. The lower court stayed its order pending this Court’s review. The Court now quashes the order based on the following analysis.

B. Analysis

The standard of review that this Court must apply is whether the Production Order departs from the essential requirements of the law and will cause State Farm irreparable harm throughout the remainder of the case. See American Exp. Travel Related Services, Inc. v. Cruz, 761 So. 2d 1206, 1208 (Fla. 4th DCA 2000) [25 Fla. L. Weekly D1542a] (citing Martin-Johnson, Inc. v. Savage, 509 So. 2d 1097 (Fla. 1987)); Bared & Co., Inc. v. McGuire, 670 So. 2d 153 (Fla. 4th DCA 1996) [21 Fla. L. Weekly D707a] (en banc). The Court finds that both standards are met.

First, the order departs from the essential requirements of the law because the lower court did not consider State Farm’s attorney-client privilege objection before it ruled. According to section 90.502, Florida Statutes, the attorney-client privilege applies to protect “communications” in the “rendition of legal services” if they are:

not intended to be disclosed to third persons other than: Those to whom disclosure is in furtherance of the rendition of legal services to the client. 2. Those reasonably necessary for the transmission of the communication.

§ 90.502(1)(c), Fla. Stat.; see also Gerheiser v. Stephens, 712 So. 2d 1252, 1254 (Fla. 4th DCA 1998) [23 Fla. L. Weekly D1615a]. As recently as 2006, the Fourth District emphasized that absent a ripe bad-faith case, all documents in an insurer’s claim file within the scope of the attorney-client privilege are protected from discovery. See Provident Life & Acc. Ins. Co. v. Genovese, 943 So. 2d 321, 322-23 (Fla. 4th DCA 2006) [31 Fla. L. Weekly D3124a]; see also United Services Automobile Association v. Crews, 614 So. 2d 1213, 1213-14 (Fla. 4th DCA 1993), (explaining that the “law is well-settled that any communication [in an insurer’s claim file] to which the attorney-client privilege attaches is absolutely immune from disclosure”).

In both Crews and Liberty Mutual Fire Insurance Company v. Bennett, 939 So. 2d 1113, 1114 (Fla. 4th DCA 2006) [31 Fla. L. Weekly D2495a], the Fourth District held that there was no authority doing away with the attorney-client privilege protection for an insurer’s claim file even in bad faith cases — which the Clinic’s case is not. See also United Services Auto. Ass’n v. Buckstein, 891 So. 2d 1153, 1154 (Fla. 4th DCA 2005) [30 Fla. L. Weekly D290c] (“Notwithstanding the work product objections, if any of the documents are protected by the attorney-client privilege, they are not discoverable.”).

In this case, the order is silent on State Farm’s request for protection of those documents subject to the attorney-client privilege. That fact alone, without more, entitles State Farm to quashal. See Dismas Charities, Inc. v. Dabbs, 795 So. 2d 1038, 1039 (Fla. 4th DCA 2001) [26 Fla. L. Weekly D2214a] (quashing a discovery order containing no particularized findings regarding the privileges); Crews, 614 So. 2d at 1214 (“[W]hether all or a portion of the matter sought to be discovered is protected-client privilege is a matter for the trial court’s determination.”); see also Lloyd’s Underwriters at London v. El-Ad Villagio Condominium Ass’n, Inc., 976 So. 2d 28, 29 (Fla. 4th DCA 2008) [33 Fla. L. Weekly D283b] (quashing a discovery order for failure to conduct an in camera inspection). While the latter two cases involve a failure to conduct an in camera inspection, unlike here, the result is the same because in this case the court did not rule on the attorney-client privilege issue — the equivalent of no review whatsoever.

The Fourth District has explained that the attorney-client privilege “is the oldest confidential communication at common law” and is “traditionally deemed worthy of maximum legal protection.” BNP Paribas v. Wynne, 967 So. 2d 1065, 1067 (Fla. 4th DCA 2007) [32 Fla. L. Weekly D2634a] (quoting American Tobacco Co. v. State, 697 So. 2d 1249, 1252 (Fla. 4th DCA 1997) [22 Fla. L. Weekly D1777b]). Waiver of the “attorney-client . . . privilege[ ] is not favored in Florida.” TIG Ins. Corp. of America v. Johnson, 799 So. 2d 339, 341 (Fla. 4th DCA 2001) [26 Fla. L. Weekly D2493a]. The First District has described the privilege as “absolute” subject to certain exceptions of which there is no evidence in this case. See XL Specialty Ins. Co. v. Aircraft Holdings, LLC, 929 So. 2d 578, 583 (Fla. 1st DCA 2006) [31 Fla. L. Weekly D1131b]. The order cannot stand without consideration of State Farm’s right to protection on this basis.

Second, the order departs from the essential requirements of the law because the court erred in ruling on State Farm’s work product privilege objection. Florida recognizes two types of work product privilege: (1) fact work product, which is only discoverable “upon a showing of need and undue hardship” as provided in rule 1.280(b)(3); and (2) opinion work product, which is not discoverable under any circumstances. See Leventhal v. Lohmann, 721 So. 2d 1249, 1250 (Fla. 4th DCA 1998) [24 Fla. L. Weekly D21a]. While the confidentiality of work product is a separate privilege outside the ambit of the attorney-client privilege codified in section 90.502, see City of Williston v. Roadlander, 425 So. 2d 1175, 1177 (Fla. 1st DCA 1983), the protections that Florida affords work product are equally rigid.

The guidelines for the discovery of fact work product are provided in Florida Rule of Civil Procedure 1.280(3) — a “showing that the party seeking discovery has need of the materials in the preparation of the case and is unable without undue hardship to obtain the substantial equivalent of the materials by other means.”

The rationale supporting the [fact] work product doctrine is that one party is not entitled to prepare his case through the investigative work product of his adversary where the same or similar information is available through ordinary investigative techniques and discovery procedures.

Southern Bell Tel. & Tel. Co. v. Deason, 632 So. 2d 1377, 1384 (Fla. 1994) (quoting Dodson v. Persell, 390 So. 2d 704, 708 (Fla. 1980)); see also Estate of Schwartz v. H.B.A. Management, Inc., 673 So. 2d 116, 119 (Fla. 4th DCA 1996) [21 Fla. L. Weekly D1093g], app’d, 693 So. 2d 541 (Fla. 1997) [22 Fla. L. Weekly S236a].

“Documents protected by work product immunity must not be lightly invaded, but only upon a particularized showing of need satisfying the criteria set forth in Rule 1.280.” Intercontinental Properties, Inc. v. Samy, 685 So. 2d 1035, 1036 (Fla. 3d DCA 1997) [22 Fla. L. Weekly D203a]. Communications, reports, memoranda, and the like prepared in anticipation of litigation are protected work product. See Huet v. Tromp, 912 So. 2d 336, 340 (Fla. 5th DCA 2005) [30 Fla. L. Weekly D2205a]. “Opinion work product” is not subject to discovery on any basis, with or without a rule 1.280 showing.

In this case, the lower court failed to rule in accordance with either of the above well-settled standards because it concluded that State Farm’s documents, including those contained within its claim file, were not any type of work product. That decision was a departure from the essential requirements of the law based in part on the court’s incorrect application of the cases on which it relied. In Cotton States, 444 So. 2d at 596-a bad faith case according to Neighborhood Health, 8 So. 3d at 1184-the documents at issue were not an insurer’s internal claim files and materials, as here. They were the “contents of an independent insurance investigator’s file compiled during his investigation” of the insured’s claim. Id. In that context, the court held that these materials, prepared “in the early stages” of the investigation of a claim, are not necessarily work product. See id. Similarly, in Merkle, 8 So. 3d at 1182, the documents at issue were prepared not in anticipation of litigation but in responding to an inquiry by AHCA about the HMO’s policies. “Plainly, when the documents were created AHCA was not considering an adversarial disciplinary proceeding on the matter.” Id.

Neither case involved an insurer’s internal claim files, and only in the far different contexts of those cases did the Fourth District distinguish between “anticipation of litigation” and “mere likelihood of litigation.” Neighborhood Health, 8 So. 3d at 1184 (quoting Cotton States, 444 So. 2d at 596). In fact, the Neighborhood Health court itself explained that it did not intend Cotton States to impose a “heightened requirement for all claims of work product protection in this district.” Id.

In contrast, but as Neighborhood Health attempted to clarify, in Allstate Indemnity Company v. Ruiz, 899 So. 2d 1121, 1123 (Fla. 2005) [30 Fla. L. Weekly S219c], the Florida Supreme Court emphasized Florida’s long-standing policy that “[g]enerally, an insurer’s claim and litigation files constitute work product and are protected from production” — a long-standing policy that is altered only when “an insurance company is sued for bad faith,” which is not this case.³ [Editor’s note: In the court document, this footnote was numbered “1.”]

For its holding, the Ruiz court quoted Fidelity and Casualty Insurance Company of New York v. Taylor, 525 So. 2d 908 (Fla. 3d DCA 1987), where the Third District also emphasized that the no-production rule was “essentially because its contents are not relevant to the only issues involved, those of coverage and damages.” Ruiz, 899 So. 2d at 1129. The Ruiz court also cited with approval Old Republic National Title Insurance Company v. HomeAmerican Credit, Inc., 844 So. 2d 818, 819 (Fla. 5th DCA 2003) [28 Fla. L. Weekly D1214c], where the Fifth District cautioned that a “party is not entitled to discovery of an insurer’s claim file in an action for insurance benefits . . . until the insurer’s obligation to provide coverage has been established.”⁴ [Editor’s note: In the court document, this footnote was numbered “2”]

Other cases from the Fourth District also follow the well-settled work product rule instead of the exceptions addressed in Neighborhood Health and Cotton States. For example, in Publix Supermarkets, Inc. v. Johnson, 959 So. 2d 1274, 1275 (Fla. 4th DCA 2007) [32 Fla. L. Weekly D1681a], the court held that correspondence between Publix attorneys and suspected shoplifters was protected work product because if the suspected shoplifters refused to cooperate with a program suggested by Publix, it “would be expected to seek either civil or criminal remedies through a court of law.” The court found that potential sufficient to establish “anticipation of litigation.”

In Florida Farm Bureau General Ins. Co. v. Copertino, 810 So. 2d 1076, 1078 (Fla. 4th DCA 2002) [27 Fla. L. Weekly D652a], the court also recited the well-settled rule that “an insurer’s claim and litigation files constitute work product and are protected from production” except in bad faith suits. In Federal Express Corporation v. Cantway, 778 So. 2d 1052, 1053 (Fla. 4th DCA 2001) [26 Fla. L. Weekly D551a], the court recognized that accident reports and investigative materials of a party can constitute work product “even if they are prepared before a claim is filed,” and that even a report “routinely prepared” in part for another reason “may still be work product.”

Other district court have also adhered to the generally accepted work product privilege rule for insurers’ and other defendants’ claims files, litigation files, and other materials prepared with respect to their claims processing procedures. In GEICO General Insurance Company v. Hoy, 927 So. 2d 122, 123 (Fla. 2d DCA 2006) [31 Fla. L. Weekly D1090a], the Second District cited Ruiz, 899 So. 2d at 1123, and its own earlier authority in holding that the contents of an insurer’s accident investigation file is work product outside a bad faith context.

In State Farm Florida Insurance Company v. Gallmon, 835 So. 2d 389, 390 (Fla. 2d DCA 2003) [28 Fla. L. Weekly D330a], the same court held that the work product privilege also protected an insurer’s:

claim files, investigative reports, adjuster notes, underwriting files, company policies and manuals, training materials, certain personnel files, sales brochures and marketing materials, computer manuals for operating internal software and programs, details of rewards and bonus programs for employees, employee incentive and compensation programs, third-party programs and correspondence about [the claims at issue there], its casualty manual and estimating manual, and minutes of meetings at which [the claims at issue] were discussed.

Quashing the order requiring production of the above materials in its entirety, the Gallmon court said: “These materials are either irrelevant to the first-party dispute that this case presents or are privileged work product.” Id.; see also Seminole Cas. Ins. Co. v. Mastrominas, 6 So. 3d 1256, 1258 (Fla. 2d DCA 2009) [34 Fla. L. Weekly D559b] (“A trial court departs from the essential requirements of the law in compelling disclosure of the contents of an insurer’s claim file when the issue of coverage is in dispute and has not been resolved.”).

The Third District reached the same decision in State Farm Fire and Casualty Company v. Valido, 662 So. 2d 1012, 1013 (Fla. 3d DCA 1995) [20 Fla. L. Weekly D2514e]. In that case, in a breach of contract claim against an insurer, the insured sought production of its “claim files, manuals, [and] guidelines and documents concerning its claim handling procedures.” As did the Second District in Gallmon, the Third District “quashed in its entirety” the order directing production of the documents explaining that they were “irrelevant to the first party dispute in this case.” Id.

In Marshalls of MA, Inc. v. Minsal, 932 So. 2d 444, 445 (Fla. 3d DCA 2006) [31 Fla. L. Weekly D1425a], the Third District held that incident reports prepared in anticipation of litigation are also protected. The court in Marshalls held that the trial court there, as the trial court here, applied the incorrect standard in concluding that the reports were not prepared in anticipation of litigation merely because their preparation was the store’s standard procedure. See id. at 446. The court explained that the correct test is whether “the document was prepared in response to some event which foreseeably could be made the basis of a claim in the future.” Id.

The First District followed suit in Nevin v. Palm Beach County School Board, 958 So. 2d 1003, 1008 (Fla. 1st DCA 2007) [32 Fla. L. Weekly D1365a], holding that documents prepared by a party’s investigators are protected work product where the documents were developed in anticipation of the party’s lawsuit against the school board. The same court explained earlier, in McRae’s, Inc. v. Moreland, 765 So. 2d 196, 197 (Fla. 1st DCA 2000) [25 Fla. L. Weekly D1725e], that statements taken regarding an incident at a chain store were also protected by the work product privilege where it was “foreseeable that litigation could arise from the incident.”

State Farm’s claim file notes and the other internal documents listed on its privilege log are squarely within the protection recognized in the above cases. They were prepared by State Farm as part of its claims handling process. At the time they were prepared, there was of necessity a “claim” to be handled, because a demand had been made. And it is unquestionably foreseeable in Florida that any claim that does not result in an insurer paying 100% of the demand will result in litigation.

As the Fourth District recognized in Johnson, 959 So. 2d at 1275, and as the Second District explained in National Union Fire Insurance Company of Pittsburgh, Pennsylvania v. Florida Construction, Commerce and Industry Self Insurers Fund, 720 So. 2d 535, 536 (Fla. 2d DCA 1998) [23 Fla. L. Weekly D1561c], it is not the chronological imminence or distance of litigation from the documents’ creation that is the decisive factor, but the probability that litigation will eventually occur at the time the documents are created. The lower court failed to recognize that reality.

Third, the order departs from the essential requirements of the law because the court did not consider the remainder of State Farm’s objections before ruling. Yet Florida courts have held that discovery requests for internal procedural memos, claims manuals, and the like are irrelevant, and thus not discoverable, in coverage disputes. In Allstate Insurance Company v. Langston, 655 So. 2d 91, 94 (Fla. 1995) [20 Fla. L. Weekly S217a], for example, the Florida Supreme Court said:

Although we cannot say that irrelevant materials sought in a discovery request necessarily cause irreparable harm, we do not believe that a litigant is entitled carte blanche to irrelevant discovery. We therefore quash the district court decision to the extent that it permits discovery even when it has been affirmative established that such discovery is neither relevant nor will lead to the discovery of relevant information.

See also Woodward v. Berkery, 714 So. 2d 1027, 1037 (Fla. 4th DCA 1998) [23 Fla. L. Weekly D393c] (explaining that information sought in discovery must be relevant admissible evidence or reasonably calculated to lead to admissible evidence). Langston and Woodward apply here as additional grounds on which the Production Order should be quashed.

Furthermore, the Fourth District has also held that a trial court departs from the essential requirements of the law in overruling preserved objections to production without adequate notice and an opportunity to be heard. See North Broward Hosp. Dist. v. Durham, 991 So. 2d 967, 968 (Fla. 4th DCA 2008) [33 Fla. L. Weekly D2211a]; Morpho Corp. v. Laser Applications, Inc., 790 So. 2d 577, 578 (Fla. 5th DCA 2001) [26 Fla. L. Weekly D1850b] (“We find the trial court’s failure to permit the parties an adequate opportunity to present their arguments . . . constituted a departure from the essential requirements of the law.”). On this basis also, the order is quashed.

Finally, the Court finds that State Farm has also carried its certiorari burden of showing that it will be irreparably harmed by the ordered production. Orders compelling production of matters for which attorney-client or work product privileges are invoked “present the required potential for irreparable harm.” Coyne v. Schwartz, Gold, Cohen, Zakarin & Kotler, P.A., 715 So. 2d 1021, 1022 (Fla. 4th DCA 1998) [23 Fla. L. Weekly D1705a] (citing Martin-Johnson, Inc. v. Savage, 509 So. 2d 1097 (Fla. 1987)); Menke v. Broward County School Bd., 916 So. 2d 8, 12 (Fla. 4th DCA 2005) [30 Fla. L. Weekly D2311a].

Accordingly, it is

ORDERED AND ADJUDGED that the order on review is quashed.

IT IS FURTHER ORDERED AND ADJUDGED that this case is hereby remanded to the lower court for further proceedings consistent with this opinion.

__________________

¹Filed December 3, 2009

²Despite two orders.

³As other courts have since recognized, even Ruiz left untouched the attorney-client privilege protection in bad faith cases. [Editor’s note: In the court document, footnoes 3 and 4 were numbered 1 and 2.]

⁴Ruiz also quashed the Fourth District’s decision in Allstate Indemnity Company v. Ruiz, 780 So. 2d 239, 240 (Fla. 4th DCA 2001) [26 Fla. L. Weekly D478a], in which it made the same “anticipation of litigation” versus “mere likelihood of litigation” distinction. In 2004, before Ruiz issued from the supreme court, in Liberty Mutual Fire Insurance Company v. Bennett, 883 So. 2d 373, 374 (Fla. 4th DCA 2004) [29 Fla. L. Weekly D2190a] (Klein, J., concurring specially), Judge Klein questioned the correctness of Cotton States. Four years after the supreme court quashed the Fourth District’s decision in Ruiz, the Fourth District issued Neighborhood Health, clarifying that it did not intend to change the work product standard.