Internal Coverage Evaluations Not Protected Work-Product

The United States District Court for the Southern District of Illinois, applying both Illinois and federal law, granted the insured’s motion to compel, which sought the production of documents, including internal coverage evaluations, found on the insurer’s privilege log and the inclusion of more detailed descriptions for other entries on the privilege log. The insurer, Federated Mutual Insurance Company (“Federated”), refused to provide the insured, Coyle Mechanical Supply, Inc. (“Coyle”), with a defense or indemnity coverage for a lawsuit against Coyle that concerned Coyle’s recommendation of faulty valves for operating units of a power plant.

The central issue in the coverage case is whether the claims against Coyle fall within the purview of an injury or occurrence under Federated’s policy; discovery is ongoing. The motion to compel concerned nine documents that Federated asserted are privileged: six as protected by the work-product privilege and three as protected by both the attorney-client privilege and the work-product privilege.

Coyle argued that Federated cannot meet its burden of showing that four of the six—all internal coverage evaluations—were written exclusively in anticipation of litigation and that Federated’s privilege log does not provide sufficient information for Coyle to adequately address the claims of privilege for the latter three documents. Federated, in turn, claims that Coyle cannot show that the requested documents are relevant and that the four coverage evaluations were prepared in anticipation of litigation, and thus protected under the work-product privilege.

In analyzing relevance, the district court held that if Federated evaluated the factual circumstances surrounding the allegedly faulty valves, that evaluation could help define and clarify the central issues of the case. Thus, because courts should “err on the side of permissive discovery,” the district court determined that the documents are relevant and should be produced.

Additionally, in discussing the work-product doctrine as applied to internal coverage evaluations, the district court focused its discussion on the definition of “in anticipation of litigation.” It recognized that insurance practices carry a high likelihood of potential litigation, but also stated that documents created to assist an insurer in evaluating claims of coverage are more appropriately characterized as “routine corporate practices” than as legal work product. Thus, because insurance companies create internal coverage evaluations in the ordinary course of their business, rather than because of any potential litigation, the work-product privilege does not apply, and Federated must produce its internal coverage evaluations.

Finally, the district court found that documents listed on Federated’s privilege log and described only as “Letter” and “Email” do not properly indicate why Federated claims protection over them, and, thus, Federated must provide some additional descriptions sufficient to justify its assertions. With these three determinations, the district court held that Federated must produce its internal coverage evaluations to Coyle and resubmit the privilege log, ultimately granting the motion to compel to Coyle. Federated Mutual Ins. Co. v. Coyle Mechanical Supply Inc., 2021 WL 3186959 (S.D. Ill. July 28, 2021).