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In a bad faith case, an insurer must turn over documents relating to its reserves as well as the “mental impressions” of its investigators because those issues are “germane” to the issues being litigated, a federal judge has ruled. In his eight-page opinion in Maiden Creek T.V. Appliance Inc. v. General Casualty Insurance Co., U.S. District Judge Harvey Bartle III said he recognized that courts have consistently held that reserve information is ordinarily not discoverable due to the “tenuous link between reserves and actual liability.” As a result, Bartle said, courts require “a showing of good cause before it will order production of reserve information.” But when liability is undisputed, and the plaintiff has made a claim for bad faith, Bartle found that “the reserve information is ‘germane’ to defendant’s analysis of the value of the insured’s claims and is therefore discoverable on the question of bad faith.” Likewise, Bartle concluded that “mental impressions of an insurer’s non-attorney agents contained in claims files are also at issue and are discoverable.” But in a victory for the defense, Bartle ruled that letters between a lawyer and the insurer’s investigator are protected by the attorney-client privilege and need not be turned over. “An attorney does not step outside of his role as an attorney simply because he conducts some investigation,” Bartle wrote. In the suit, Maiden Creek T.V. Appliance claims it suffered extensive damage in an August 2003 fire at its facility in Reading, Pa. The suit says General Casualty made a series of payments totaling more than $260,000 between September 2003 and July 2004, but has since refused to pay more. In its bad faith claim, Maiden Creek claims that the insurer’s “breaches, delays, dilatory tactics and bad faith conduct” forced the company “to incur unnecessary and additional administrative staff time and expense.” To keep its business running, the suit says, Maiden Creek was also forced to obtain additional financing. As a result of its fire damages and lost profits, Maiden Creek claims it is entitled to more than $170,000. The discovery dispute arose when Maiden Creek’s lawyer — Scott L. Grenoble of Buzgon Davis Reed Charles & Huber in Lebanon, Pa. — demanded additional information about the insurer’s investigation. General Casualty’s lawyer, Michael S. Saltzman of Fineman Krekstein & Harris in Philadelphia, insisted that the plaintiff had received all of the documents it was entitled to, and that the documents withheld by the insurer related to “reserve information” and the “mental impressions” of its investigator. Saltzman said the insurer also withheld correspondence to and from a lawyer on attorney-client and work product privilege grounds. In a motion to compel, Grenoble demanded unredacted copies of activity logs and investigative reports, and a new deposition of the claim analyst, Stephen Ebensen, if necessary, pertaining to the redacted information. He also demanded unredacted copies of documents not produced because the defendant claimed them to be protected by attorney-client or work product privilege, and bills and receipts received by the defendant from attorney Lee Janiczek and accountant David Wright, including its financial records for 2004. In response, Saltzman argued that the reserve information redacted from the investigative and activity log reports was not discoverable because it was not reasonably calculated to lead to the discovery of admissible information. Bartle found that “there is generally only a tenuous link between reserves and actual liability given that numerous considerations factor into the calculation of reserves in accordance with statutory requirements.” But since Maiden Creek is pursuing a bad faith claim, Bartle found that the reserve information germane to the case. Turning to the question of attorney-client privilege, Bartle found that some portions of the investigative reports include information that was told to the investigator by Lee Janiczek, an outside attorney. “These portions are protected by the attorney-client privilege and need not be produced,” Bartle said.

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