AUGUST 2009 BAD FAITH CASES
DOCUMENTS PREPARED BY INSURER’S ACTUARY ON INTERPRETING “ACTUAL DAMAGES” EFFECT ON PAYMENTS ARE DISCOVERABLE IN CONNECTION WITH BAD FAITH CLAIM(Western District)

In Smith v. Life Investors Insurance Company of America, the insurer inadvertently produced documents to Plaintiff that included calculations prepared by its actuary. Those documents revealed that the actuary analyzed the financial impact of changing the insurer’s interpretation of “actual damages” ” in a supplemental cancer insurance policy. The actuary concluded that the carrier would reduce benefit payments by 23.2% if it changed the manner in which it interpreted “actual damages”.

Defendant contended that the documents, although inadvertently produced, was subject to the attorney-client privilege and/or work product protection because they were prepared at the request of outside legal counsel. Plaintiff, on the other hand, contended that the documents contained calculations made for business reasons and, in the alternative, that the privilege was waived when the documents were produced.

The Court found that the documents did not contain any attorney-client communication, and there was no indication on the document that the attorney-client privilege may be implicated. Rather, the documents represented a financial analysis prepared by a non-lawyer. Consequently, the Court ruled that the documents did not fall within the attorney-client privilege. Further, the Court ruled that the documents were not protected by the work product doctrine because no impressions, opinions or thoughts of an attorney are revealed, and the documents were produced to insurance departments in at least two states.

Plaintiff also contended that Defendant refused to produce communications between the actuary and the state insurance departments. Plaintiff contended that consideration of the financial benefits that would accrue from the changed treatment is relevant to her bad faith claim. Defendant again argued that the documents were subject to the attorney-client and/or work product privilege. The Court, for the reasons stated above, ruled that the documents were not privileged.

Date of Decision: July 9, 2009

Smith v. Life Investors Ins. Co. of Am., U.S. District Court, Western District of Pennsylvania, Civil Action No. 2:07-cv-681, 2009 U.S. Dist. LEXIS 58261 (W.D.Pa. July 9, 2009)(McVerry, J.)