Discovery in Bad Faith Cases Is a Two-Way Street

WDC Journal Edition: Winter 2006
By: Karen L. Riemer - Winner, Wixson & Pernitz

Insurance bad faith claims can strike fear in the hearts of insurance executives. At a minimum, it requires insurance companies to disclose documents and information that previously were “private,” i.e. for intra-company purposes only. Handling bad faith cases requires methodical processing and handling of documents in the possession of the insurance company and its counsel hired to handle the underlying liability claim. This article addresses that issue from the defense perspective and also techniques for discovering the plaintiff’s case and narrowing the issues for trial.

GATHER INFORMATION CRITICAL TO DEFENDING THE CASE

The defendant’s theory and approach to discovery in a bad faith case is essentially the same as any other type of litigation. The defense should try to determine as much information as it can about the opposing side's theory of the case, evidence, witnesses, and experts' opinions. Before initiating any discovery, have in mind the defense’s objectives so that the discovery can be properly framed. At a minimum, the defense objectives should include:
A. Determining the plaintiff's theory of the case.
B. Establishing a basis for the defendant’s theory of the case.

The rules of discovery are broad. Under Wis. Stat. § 804.01, a party may discover "...any matter, not privileged, which is relative to the subject matter involved in the pending action..." This includes: "...the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things ...” Finally, it allows discovery of “...the identity and location of persons having knowledge of any discoverable matter". Wis. Stat. § 804.01(2)(a).

Discovery is limited by the attorney-client and attorney work product privileges. Although these privileges will limit the plaintiff’s discovery while the underlying liability (third-party or UIM) claims are pending, during litigation of a bad faith claim, these privileges asserted by the defense are largely waived. At least, a court will probably not protect the defendant from disclosing those documents. The challenge is for the defense to discover the plaintiff’s theories and factual predicates that are not contained within the claims file or defense attorney’s trial file from the underlying case. The defense must find a way to discover information by overcoming the plaintiff’s assertions of attorney-client and attorney work product privileges.

In summary, the purpose of discovery is to avoid surprises. Utilize the various means of written discovery to establish the plaintiff's theory of the case, the identity of the witnesses, the documents that the plaintiff is relying on, and the opinions of their experts to give the defense the information necessary to defend the case. Ensure knowledge of the documents contained in the claims file. For third-party bad faith cases, the defense will also need to have a thorough understanding of the merits counsel’s file and if applicable the coverage counsel’s file.

  1. Information The Defense Absolutely Needs – Where to Find It

The focus of a bad faith claim is on the documents that reveal how a claim was handled. Most, if not all, of these documents are in the possession of the insurance company. The Defense practitioner should obtain the complete claims file from the insurance company including branch claims department and individual adjuster’s files and review all notes, correspondence, committee minutes and investigatory documents. Since the plaintiff will probably be asking for the claims file, it is good practice to Bate stamp the file, before it is copied for the plaintiff, and create an index, which is protected from disclosure as defense work product, so that the documents can be quickly located in context later in a deposition or at trial.

Contention Interrogatories

Discovery directed to the plaintiff is still required. The defense should try to determine the scope of the plaintiff’s claim(s). Wisconsin Stat. § 804.01(2) allows discovery of all documents and witnesses that support the plaintiff's claim. Therefore, an initial set of "contention interrogatories" should be used to determine the specific factual basis for each of the allegations of the Complaint. If the Complaint is quite detailed then the questions can mirror the allegations. Break down each allegation into its component parts so that the question is quite specific.

In addition to asking for the factual basis for an allegation, ask for all documents, which support that allegation, and the identity of witnesses that support that allegation. A typical format for this type of Interrogatory is as follows:

INTERROGATORY EXAMPLE NO. 1: State all facts, which you are relying upon in contending in paragraph (__) of the Complaint that (defendant insurance company) failed to properly and promptly investigate the damage, and specify the following:

a. List all documents, correspondence, memos, notes, or other printed or written materials, which might be used as evidence to support the facts identified in Interrogatory No. 1;

b. Name all persons who might be called to testify as to the facts referenced in Interrogatory No. 1;

  1. For each person identified in Interrogatory No. 1, subsection b, summarize the testimony of that person;

d. If for any part of a response you may lack knowledge, then describe all the steps that you have taken to ascertain that knowledge, including the name, address, and business affiliation of each person you contacted, the date each person was contacted, the inquiry made of each person, and the response you received from each person.

If the Complaint is general, rather than specific, then a specific question for each duty will have to be asked. For example:

INTERROGATORY EXAMPLE NO. 2: Do you claim that the (defendant insurance company) failed to make a proper investigation of the plaintiff's claim? If so, then state:

  1. All facts upon which you base this claim;
  1. All documents which support this claim,
  1. All witnesses who will testify regarding this claim.
  1. For each person identified in Interrogatory No. 2, subsection c, summarize the testimony of that person; and
  1. If for any part of a response you may lack knowledge, then describe all the steps that you have taken to ascertain that knowledge, including the name, address, and business affiliation of each person you contacted, the date each person was contacted, the inquiry made of each person, and the response you received from each person.

Take each of the elements of proof for the particular type of bad faith claim that the defense is dealing with, and ask a question as to whether the plaintiff is claiming a specific deficiency with regard to each element. For example, in third-party excess verdict cases, the jury instruction and the cases list a number of duties with which the insurance company must comply. Determine whether the plaintiff is claiming a breach of any or all of these duties. Determine the specific nature of their criticism. Things to find out would include:
1. Whether the plaintiff claims the insurance company did not conduct a proper investigation. Find out what they consider to be deficient in the investigation. Was it a failure to interview witnesses, a failure to obtain documents, a failure to visit the scene of the accident or a failure to hire an expert?
2. Determine whether or not the claim is that the company did not properly defend the case. Is the plaintiff critical of defense counsel's failure to take a particular deposition? Is the plaintiff critical of the insurance company's decision to not depose an expert for strategic reasons? Is the plaintiff critical of the insurance company for not conducting an IME, hiring a vocational consultant or an economist? Is the plaintiff critical of the insurance company for not having done an accident reconstruction?
3. Determine whether the plaintiff is claiming there was a breach of the insurance company's duties to communicate with the insured. Obtain copies of all correspondence between, and among, the insured, his personal attorney, defense counsel, and the carrier.
4. Is the plaintiff claiming that the insured was not kept advised of the status of settlement negotiations? Again, establish what offers or demands were made, which the plaintiff claims he or she was not aware occurred.
5. Is the plaintiff claiming that he or she was not advised of the possibility of an excess verdict or judgment?
6. Determine if the plaintiff is claiming that the insurance company failed to abide by its own internal company guidelines, such as a claims manual. If so, find out specifically what portion of the claims procedure the plaintiff claims were not followed.
7. Determine whether the claim is that the insurance company breached any statute, code, or ordinance. For example, the plaintiff might claim a failure to comply with one or more of the provisions of Wis. Admin. Code § INS 6.11.
8. In a first-party case, determine whether the plaintiff is claiming that there was a denial of benefits or an underpayment of benefits. Establish the specifics.
9. Determine what coverage provisions of the policy the plaintiff is relying on and/or what exclusions might be applicable.

Follow-up Interrogatories: First Party claims

Once you have received answers to the "Contention Interrogatories" you may need to follow up with a Second Set of Interrogatories based on the answers given. In a first-party claim you will want to establish:
1. When did the plaintiff first notify the company of the accident or incident which gave rise to the claim?
2. What information did the plaintiff receive from the company with respect to processing the claim?
3. What date did the plaintiff first notify the company of their claim?
4. What documentation was submitted to support the claim, i.e., proof of loss, claim form, or demand letter?
5. What oral communications occurred between the plaintiff and the insurance company?
6. What written communications occurred between the plaintiff and the insurance company?
7. The sequence in timing when the damage information was submitted and the timeliness of the response by the insurance carrier.
8. The degree of cooperation, or lack thereof, by the insured in providing requested information.
9. The existence of documentation that would have supported the claim, but was not provided.
10. An itemization of all damages claimed as a consequence of the bad faith including actual damages, consequential damages, costs, interest, and attorney's fees.

Follow-up Interrogatories: Third-Party Claims

In a third-party bad faith claim, much of the above would also be pertinent. In addition, establish:
1. The degree of participation and consent by the insured. Was the insured an active participant in his defense, or was he content to sit on the sidelines? The defense would like to establish that the insured was an active participant, was kept well informed, and agreed with the decision to try the case.
2. Establish that the insured received, and understood, the excess warning letter and voluntarily chose not to hire separate counsel. Alternatively, if personal counsel was retained, then establish that personal counsel was actively involved and likewise agreed with the decision to try the case.
3. Establish the degree of cooperation, or lack thereof, by the insured. If the insured was uncooperative, and did not assist in developing and proving the defense, those facts should be established. This would include failure to meet and confer with counsel, failure to supply documentation, and failure to cooperate in preparing the case, such as answering interrogatories.

  1. Eliminate Headaches When Gathering Interrogatories and Related Documents

As stated above, most of the discovery will be driven by the plaintiff requesting documents and materials from the defendant insurance company. The documents from the plaintiff will probably consist of expert reports and the materials the experts relied upon. The focus of the expert’s opinions will be in analyzing the insurance company’s documents. Therefore, having good organization of the insurance company’s documents is very important.
1. Bate stamp EVERYTHING.
To eliminate, or at least minimize headaches later, the defense should create indexes and filing systems that allow it to find documents quickly and in context, for defending motions to compel, handling depositions, motion hearings and ultimately trial. Bate stamping and providing notes to the file of what documents have been provided and when they were provided are essential in defending a motion to compel or motion for sanctions for failing to timely respond to discovery requests. In addition, at deposition or at trial, the plaintiff may pull out a document and have a witness answer questions based upon that document. The context of the document, i.e. the nature and content of the other documents that were created contemporaneously or just before or after that document, will be helpful in explaining, and perhaps defending the statements made in the document. The context is helpful in explaining actions taken when they were taken.

2. The Defense Must Be Able to Demonstrate that the Claims Handling Sequence of Events is Reasonable.

The reason for knowing the sequence of events is the insurance company has a duty to conduct a reasonable investigation of the claim both in the first-party setting and the third-party negligence claim. Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 688, 271 N.W.2d 368 (1978); Hilker v. Western Automobile Ins. Co., 204 Wis. 1, 8-10, 231 N.W. 257 (1930). In Riehl v. Wisconsin County Mut. Ins. Corp., 212 Wis. 2d 46, 56, 568 N.W.2d 4 (Ct. App. 1997), the court said, “Whether an issue is fairly debatable is based upon the information available to the insurance company at the time the demand is presented.
In spite of a competent investigation, initially, facts develop or become known which eliminate the initial reason for denying the claim. In effect, there is a continuing duty to investigate and evaluate. The insurer should be prepared to reevaluate its decision in light of new information supplied by the insured or known to the insurer. For instance, in Poling v. Wisconsin Physicians Service, 120 Wis. 2d 603, 608, 357 N.W.2d 293 (Ct. App. 1984),it became clear that the claim was proper and that the initial reason for denial of the claim was shown to be erroneous. This duty to reevaluate initially proffered reasons for denying coverage or withholding payment was implicated in Weiss v. United Fire & Cas. Co., 197 Wis. 2d 365, 387, 541 N.W.2d 753 (1995). In that suspected arson case, the insurer offered several reasons for denial of the claim, many of them circumstantial, but did not apparently adjust its original decision after the insured was able to contradict most of the originally proffered reasons for denial of the claim. The court stated that, “[t]here was credible evidence that United Fire acted unreasonably in ignoring information that the fire might have been accidental in origin, that the fire might have been electrical in origin, and that the fire was not caused by arson.” Id. at 390-91.
In the third-party coverage setting, this principle has similarly been applied. In Majorowicz v. Allied Mut. Ins. Co., 212 Wis. 2d 513, 530, 569 N.W.2d 472 (Ct. App. 1997), the experts’ criticism was that the insurance company did not “bite the bullet” once it received a negative independent medical examination. The court also criticized the investigation and discovery with respect to the claimant’s medical and vocational experts. Id.
Thus, to demonstrate a “reasonable basis” for contesting or denying a claim, the defendant insurance company must be prepared to demonstrate what it knew and when it knew it.

3. Separate Files According to Their Source and Insured.
Keeping track of documents becomes increasingly difficult when multiple insureds are involved and litigation of the underlying suit is lengthy. It may be helpful to have a unique Bate stamping code for each category or source of documents. For example, mark all claims file documents, after putting them in date order, beginning with “Claims 001” and count up. All defense counsel documents can be marked beginning with “[atty’s initials] 001.” If the case was split with a separate attorney representing the insurance company on coverage, mark coverage counsel’s file with “[coverage counsel atty’s initials] 001.” That way if the document is brought up at deposition or a hearing or trial, the context of the document can be quickly found.

Some cases have a lengthy and involved litigation history. In those cases, it may be helpful to separate the underlying case correspondence from the rest of the trial file. In that situation, either organize the documents by attorney or claim. For example, the attorney representing one of the insureds will have correspondence and other documents. The correspondence could be Bate stamped in chronological order, first, and then the rest of the file can be Bate stamped. It may be useful to leave the file in the order received, for the benefit of the attorney who represented the insured on the underlying case, or it may be helpful to put it all in chronological order or some order that makes sense to the counsel defending the bad faith claim. If it makes no difference to the underlying case counsel in refreshing his or her memory of the case, it is best to organize the “trial file” in a manner that makes sense to the counsel defending the bad faith claim because finding documents quickly is important for handling the case properly.

In some cases, multiple parties may have tendered the defense of the claim to an insurance company, but ultimately no coverage was found. Those parties likely had separate claims files. These files can be found at the insurance company, the defense counsel hired to evaluate and contest coverage and, if hired, the defense counsel that was hired to defend the insured on the merits. These claim files should be kept separate from each other even if they all stem from the same event, such as the same construction project or same car accident.

  1. Object and File Motions for Protective Orders on Other Insured’s Claims Files.

The defense should object to producing the claim files of other insureds or potential insureds, who have not asserted bad faith claims, and file motions for protective orders, even if the other insureds or potential insureds were involved in the same accident, incident or project. As found in Borgwardt v. Redlin, 196 Wis.2d 342, 354, 538 N.W. 2d 581 (Ct. App. 1995), the work product privilege protects documents created in anticipation of litigation even if the litigation was not the proceeding in which the doctrine was asserted. This rule reasonably applies to the claims files of other insureds. This privilege is not waived when one insured claims bad faith.

C. Cover All The Bases When Requesting Documents
Contention interrogatories as described above should be coupled with a request for production of documents. These requests should be broad enough to cover any possible document that may exist including electronic files and documents. The document requests to the insured are designed to insure that the defense has copies of all communications that the insured received during the course of the litigation, whatever the source. For example, in a third-party excess judgment case, the insured may have a personal attorney who was advising him or her. They may have had communications with the underlying personal injury claimant or their attorney. The insurance company, during the course of the underlying litigation, may not have been privy to those communications. Those should be requested at this time.

Ensure the Defense Has All Insurance Policies and Claims File Documents at Issue.

As stated above, copies of all policies of insurance that may have been applicable to the loss should be requested. This is to verify that the insured, and the company, are dealing with the same policy and coverages.

Also, ensure that the defense has a full copy of the claims file, the original file of defense counsel from the underlying claim, and coverage counsel’s file, if coverage was contested.

Having received and reviewed all of those documents, the defense should have a good idea of the majority of documents that exist in the case. If the file suggests some documents that were not obtained during the handling of the underlying case, then those documents should be obtained now. For example, if in the underlying case a medical report was produced at trial, but which had not been obtained by the defense in discovery, then a copy of that report should be obtained.

2. Ensure the Defense Has Electronic Documents.

It is important to remember that some documents are only stored in electronic or computer format. Make sure that you include those virtual documents in your definition section of the request for production of documents. Here is a sample:

Definitions
“Document” is used in the broadest possible sense and refers to any form of communication or data storage however produced or reproduced, whether or not it now exists. This definition includes, but is not limited to advertisements, agreements, blueprints, books, calculations, cancelled checks, charts, e-mails, computer disks and tapes, computer printouts, computer data sheets, data processing cards, diaries, drawings, facsimiles, forms, graphs, handwritten notes, indexes, instruction manuals, invoices, invoices, letters, memoranda, minutes, pamphlets, periodicals, plans, photographs, records, reports, statements, studies, tapes, telegrams, transcripts and summaries of meetings, typewritten notes, and voice recordings, working papers, and every other device or medium through which information of any type is transmitted, recorded or preserved. The term “document” also means a copy where the originals are not in your possession, custody, or control. Any document that contains any comment, notation, addition, signature, insertion, or marking of any kind, so that it is different from the original, is a separate document.

Although most bad faith cases are venued in state court, it is conceivable that a case may be brought under diversity jurisdiction in federal court. If the case is venued in federal court, note that the U.S. Supreme Court has amended the Federal Rules of Civil Procedure relating to electronic documents and discovery. These rules are scheduled to take effect on December 1, 2006, unless Congress affirmatively acts before that date. For more information see: http://www.uscourts.gov/rules/newrules6.html#CV080... or the text of the Supreme Court’s order can be found at 2006 US Order 20.

The amendments affect rules 16 (pre-trial conference), 26 (general discovery rule of disclosure), 33 (interrogatories), 34 (production of documents), 37 (failures to produce electronically stored information lost because of the routine operation of the party’s computer system) and 45 (subpoena of electronically stored information). The disclosure of electronic documents will need to be addressed at Rule 16 conferences, in Rule 26(f) reports, scheduling conferences, and may be part of initial disclosures under Rule 26(a)(1). In addition, the Eastern District of Wisconsin has a local rule that will govern electronic discovery that defense counsel should be familiar with if the case is venued in that district. See L.R. 26.3(b)(2)(which references the federal Rule 34(a) in the definition of document).

3. Issue Discovery About the Plaintiff’s Experts.

Once expert witnesses have been identified, then interrogatories and document requests should be generated relating to the experts. The defense should obtain from each of the plaintiff’s experts copies of:
1. Resume or curriculum vitae.
2. Final report and any preliminary or draft reports.
3. Notes, memos, or other work product.
4. Any research that they did.
5. A listing of all documents they reviewed.
6. A description of all witnesses interviewed or persons who provided them with information.
7. A listing of prior cases in which they provided expert testimony.
8. Copies of all prior depositions or trial transcripts where they have given expert witness testimony.
9. Copies of all materials published such as seminar presentations, workbooks, procedures manuals or the like.
10. A listing of all documents and evidence that they reviewed in arriving at their opinions.

All of this material should be obtained in advance of taking the deposition.

  1. Implement a Request for Admissions and Save Time

Request for admissions can be used to establish the foundation for documents, to establish uncontested facts, and to eliminate elements of the claim. See Wis. Stat. § 804.11.

1. Narrow the Issues.

Based on the answers to interrogatories, if it appears that the plaintiff is not claiming a breach of certain specific duties, this can be nailed down through use of a request for admission. For example, the defense can ask the plaintiff to admit that the pre-trial investigation was properly performed. The defense can have the plaintiff admit that the insurance company's communications with the insured were adequate and proper and that all settlement discussions were timely conveyed. By doing this, the defense will narrow the trial down to the specific breach of duty at issue.

2. Establish the Foundation for Documents.

Admissions regarding the introduction of records eliminates the need for calling foundation witnesses. Use a request to admit to get agreement on the policy at issue. An expert can base his or her opinion on facts or data that might be otherwise inadmissible if the facts or data are of a type reasonably relied upon by experts in the same field. See Wis. Stat. § 907.03. This will get the data into evidence, but the document will need to meet an exception to hearsay under Wis. Stat. § 908.03 to be introduced into evidence. The defense can seek a stipulation on the use of documents through a request for admission.

The basic idea is to eliminate claims, allegations, or criticisms that are no longer a part of the case. This will narrow the focus for trial.

  1. The Defendant’s Obligation to Produce and Respond to Discovery

1. Delay Disclosure Until the Underlying Liability Case is Resolved.

If the underlying case has not yet been resolved, the defense should file a motion to bifurcate and stay discovery of the bad faith claim until the underlying liability case is resolved pursuant to Dahmen v. American Family Mutual Insurance Company, 2001 WI App 198, 247 Wis. 2d 541, 635 N.W.2d 1 and Wis. Stat. § 804.01(3). If discovery is already pending, the defense should include a motion for a protective order to protect the defendant insurance company from having to disclose the information or documents requested.

Under Dahmen,the court should protect a defendant insurance company from discovery of privileged communications and work product while the third-party liability, underinsured motorist (UIM) or uninsured motorist (UM) claim is pending. The court of appeals found that it was error for a trial court to fail to do this. Id. at ¶ 20. Under Wis. Stat. § 906.11 and § 805.05(2), the court has statutory authority to bifurcate bad faith claims.

A stay on discovery is necessary to avoid prejudice to the defendant. During the pendency of the underlying liability claim, the claims file is protected by the attorney work product privilege under Wis. Stat. 804.01(2)(c) and Borgwardt v. Redlin, 196 Wis. 2d 342, 353-354, 538 N.W.2d 581 (Ct. App. 1995). Neither Wis. Stat. §804.01(2)(a), Wis. Stat. § 804.01(2)(c), nor case law, requires that an attorney needs to have been hired in order for a document to be considered “prepared in anticipation of litigation.” State ex rel. Dudek v. Circuit Court for Milwaukee County, 34 Wis.2d 559, 589, 150 N.W.2d 387 (1967). Instead, documents and information adopted by the lawyer after retainer in preparation of litigation are classified as work-product of the lawyer and are not subject to inspection or discovery unless good cause for discovery is shown. Id.

The Court in State ex rel. Shelby Mut. Ins. Co. v. Circuit Court for Milwaukee County, 67 Wis. 2d 469, 228 N.W.2d 161 (1975), issued a protective order against disclosure of the names and reports of non-witnesses expert consultants that had been retained by the insurance company in the course of investigating the claim. Id. at 470-71, 474. The court stated:
This broad definition of lawyers’ work-product requires that most materials, information, mental impressions and strategies collected and adopted by a lawyer after retainer in preparation of litigation and relevant to the possible issues be initially classified as work-product of the lawyer and not subject to inspection or discovery unless good cause for discovery is shown. The term ‘adopted’ clearly refers to the ‘materials, information, mental impressions and strategies’ of others that the lawyer assimilates as part of his own work-product.

Id. at 474 (emphasis in original).

In a case where the plaintiff seeks UIM, UM or third-party benefits and bad faith, two separate categories of claims are asserted, one for policy proceeds and one for bad faith. A discovery request for the claims file requests disclosure of the thought processes of the defendant insurance company in evaluating the underlying negligence and UIM or UM claims. As the court in Dahmen noted: “. . . the failure to bifurcate a claim of bad faith from an underlying claim for UIM benefits would significantly prejudice [the defendant insurance company]” Id. at ¶ 20. The court considered, and rejected, the suggestion of using specially drafted jury instructions to avoid prejudice. The court stated, “[The defendant insurance company] is entitled to the same discovery protections and privileges enjoyed by other litigants. . .” Id. at ¶ 16.

By bifurcating the bad faith claim and staying discovery, the defendant insurance company will have the same discovery “protections and privileges” that any other litigant would have in a third-party negligence case. At the conclusion of the negligence case, the plaintiffs will still have the option of pursuing their bad faith claims. At that time, appropriate discovery can be conducted.

Analyze the Attorney-Client and Attorney Work Product Privileges Prior to Disclosure.

Once the underlying liability case is resolved, the defendant insurer will have to respond to discovery requests on the bad faith claim. An analysis of whether any portion of the insurance company’s or defense counsel’s files can be or should be withheld because of the attorney client and work product privileges is required. As discussed above, all materials prepared in anticipation of litigation or trial contained in the claims file are arguably protected by the work product privilege. State ex rel. Shelby Mutual Insurance Co. v. Circuit Court for Milwaukee County, 67 Wis.2d 469, 470-475, 228 N.W. 2d 161 (1975).
A discussion of the attorney client privilege is found in Herget v. Northwestern Mutual Life Insurance Co., 169 Wis.2d 466, 487 N.W. 2d 660 (Ct. App. 1992)(unpublished). This was a first-party denial of disability benefits bad faith claim. Northwestern withheld a legal memorandum prepared by its in-house counsel on the public policy associated with denying benefits in the situation presented. They claimed attorney client privilege. The trial court ordered the memorandum produced. The Court of Appeals reversed and held that the memo was privileged and there was no waiver. They refused to follow cases from other jurisdictions, but instead held that Wisconsin has a specific statute defining a test for waiver of a privilege. See Wis. Stat. § 905.11(1).

An exception to the privileges applies if the insured is raising an "advice of counsel" defense. In other words, their defense in the action will be proved through disclosure or description of an attorney- client communication. See e.g.,State v. Hydrite Chemical Co., 220 Wis.2d 51, 66, 582 N.W. 2d 411 (Ct. App. 1998).

Before commencing any discovery, defense counsel should review the law applicable to the type of bad faith claim that it is defending. The elements of proof for a first-party case are different than the elements of proof for a third-party claim.

  1. When and Who to Depose and How to Prepare Witnesses

Practically speaking, the majority of the depositions will be initiated by the plaintiff. The defense is interested in what the claimant believes was handled improperly. In one case, the plaintiff answered in response to the contention interrogatories that she was unaware of any facts related to her claim. The lawyer objected to answering the interrogatories based on attorney work product and that the answers were more properly addressed to an expert. This suggests that the case is lawyer and expert driven. This kind of response in effect blocks any meaningful discovery of the plaintiff’s claim, until experts are named. Discovery of the plaintiff’s expert opinions and the facts relied upon become more vital. A motion in limine prohibiting the claimant from testifying because he or she has no meaningful facts to testify about is probably in order. A deposition of the claimant would confirm this.

The defense will probably spend more time preparing witnesses than deposing them. When preparing a defense witness for deposition, establish first if there is an attorney-client relationship between the witness and the defense counsel handling the bad faith claim. The insurance company employee will have an attorney-client relationship with defense counsel. He or she should be asked to describe what he or she remembers about the claim without being prompted. Offer to provide access to the claims file and any transcripts from depositions taken in the case. The insurance company witness should be given an opportunity to view the complaint and any answers to requests to admit or contention interrogatories. If any details of the plaintiff’s theory of the case are known, it is helpful to make the relevant documents available to refresh the witness’s recollection regarding that aspect of the claim.

If there is no attorney-client relationship, any pre-deposition conversations and documents reviewed are discoverable, so defense counsel should not say anything or disclose any documents or other things that the defense does not want to have to later disclose.

CONCLUSION

In a bad faith case, the plaintiff will be issuing the majority of the discovery requests. However, the defendant should still use the rules of discovery to discover the plaintiff’s theory of the case. Defense discovery tools include contention interrogatories, with follow up interrogatories, interrogatories directed at the plaintiff’s experts and requests to admit, in addition to depositions.

Since the bulk of a bad faith case is based upon the insurance company’s documents, the defense should take great care in organizing and understanding those documents including the claims file, the defense counsel’s legal file and, if applicable, coverage counsel’s legal file. Knowing the sequence of events is necessary to proving that the insurance company acted reasonably.

The documents in complex cases can become overwhelming unless great care is taken to Bate stamp and organize the documents. The defense should also collect any electronic documents. Organize the documents in chronological order according to the source, i.e. claims file, merits counsel, or coverage counsel, and create an index so that the defense can find documents quickly. The defense should utilize requests to admit to narrow the issues and authenticate documents that will be needed at trial.

The defense will have to respond to discovery requests from the plaintiff, however, it can delay disclosure of the claims file and other privileged documents until after the underlying liability claim is resolved under Dahmen v. American Family Mutual Insurance Company, 2001 WI App 198, 247 Wis. 2d 541, 635 N.W.2d 1 and Wis. Stat. § 804.01(3).

Although the majority of the depositions will be requested by the plaintiff, the defense should still consider deposing the plaintiff’s experts and in a first-party case, the plaintiff. Preparation of the defense witnesses include providing the claims file to refresh their memories. Care should be taken if the witness is not an employee of the defendant insurance company because if there is no attorney-client relationship, conversations will not be privileged.

Karen L. Riemer is an associate at Winner, Wixson & Pernitz. Her practice includes litigation in Wisconsin state and federal courts on insurance liability, coverage and bad faith. She has written numerous training materials for insurance claims handling and legal issues facing the insurance industry. She formerly served as law clerk for Wisconsin Court of Appeals Judge Michael W. Hoover. Ms. Riemer is also a former law clerk to Milwaukee County Judge Patricia D. McMahon and Waukesha County Judge Kathryn W. Foster. During law school, she interned for Justice Janine P. Geske at the Wisconsin Supreme Court.

The author expresses gratitude to Attorney Scott G. Pernitz, Winner, Wixson & Pernitz, for editing assistance.