Discovery Of Ordinary Claims-Handling Business Documents In Insurance Coverage Disputes

This article was originally published in the Policyholder Advisor (March/April 2015)

Insurance companies are in the business of underwriting risks and deciding whether a claim is covered. Often they will use attorneys for these ordinary business activities, particularly the claim-related activities. Policyholders are entitled to know what factors an insurance company considered in deciding whether to pay a loss under an insurance policy. Particularly when the policyholder and insurance company are embroiled in coverage litigation, these claims-handling and claims-related documents can take on added importance.

Claims-Handling Documents Generated Prior to Denial of Coverage Are Not Privileged

Because documents that a company generates in the ordinary course of business are not privileged, courts in New York, Pennsylvania and elsewhere have held that an insurance company cannot refuse to produce in litigation documents generated while deciding whether to pay a claim. "[T]he payment or rejection of claims is a part of the regular business of an insurance company." Blanco v. Prada USA Corp., Index No. 101644/07, 2008 N.Y. Misc. LEXIS 10080, at *2 (Sup. Ct. Apr. 30, 2008) (internal citation omitted). Even so, many insurance companies continue to refuse to produce claim-related documents that those companies generated in the ordinary course of business, while deciding whether to pay a claim. Even if insurance companies engage outside attorneys to perform the ordinary claims functions to give those ordinary claims-related documents the appearance of "privilege" or "attorney work-product," the documents are still business records and discoverable.

Examples of routine business activities that are part of the claims process and so subject to discovery include:

investigating the circumstances of the loss; examining the insurance policy terms and conditions in question; examining the damages incurred and whether and how those damages are covered by the insurance policy; taking a position as to the payment, if any, to be made for the claimed damages; and otherwise investigating and analyzing the claim and the insurance policy. The business documents relating to these routine functions of handling a claim are all subject to production in discovery. These claims-related documents are not in general privileged work product or materials like other documents prepared in anticipation of litigation, regardless of the involvement of in-house or outside counsel.

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