United States: Claim File Is Privileged

Co-written by Christopher Filiatraut

In Koster v. June’s Trucking, Inc., __Mich App__ (2000), Michigan Mutual Insurance Company appealed the trial court’s order to turn over its entire claim file regarding the Defendants, its insureds. The Court of Appeals ruled that certain portions of the file for which the attorney-client privilege and work product privileges were asserted may have been protected under the attorney work product privilege, only. The case was sent down to the trial court for an in camera review of the challenged documents.

The case arose from a fatal auto accident in Oakland County. The case was tried to a jury, and a verdict was entered against the Defendants in excess of their insurance policy limits. Michigan Mutual paid the policy limits, leaving a balance of the judgment unpaid.

Plaintiffs filed writs of garnishment against several insurers, as well as subpoenas to Michigan Mutual requesting its complete claim file concerning the accident. The Court of Appeals held that there was no attorney-client privilege between Michigan Mutual and the attorney retained to represent its insureds. However, litigation files prepared by insurers were protected by the work product privilege "under the clear language of MCR2.302(B)(3)(a)" as they were prepared in anticipation of litigation by or for an insurer or a party. Therefore, Plaintiffs could only obtain such items by showing a "substantial need" for them, as well as an inability to obtain the substantial equivalent of the materials without "undue hardship."

No Attorney Fees In Factual Dispute

In Lumaj v. State Farm, unpublished, Plaintiff and his brother were injured in an automobile accident. The brother had previously applied for and was issued an insurance policy from State Farm. However, subsequent to the accident, State Farm contended that the brother, with the help of Plaintiff, made material misrepresentations on the application. State Farm rescinded the policy and refused to pay PIP benefits to Plaintiff, contending that Plaintiff had lost his "innocent third party status" because he aided in the misrepresentations. The trial court ruled that Plaintiff was entitled to attorney’s fees because State Farm’s refusal to pay insurance benefits was unreasonable.

In its reversal, the Court of Appeals held that a refusal or delay in payment was not unreasonable if it was based on a legitimate question of statutory construction, constitutional law or factual uncertainty. Here, both parties agreed that a factual dispute existed. Thus, the trial court erred in awarding attorney fees.

The Court of Appeals also reversed the trial court’s ruling that State Farm should have rescinded its policy at an earlier date. The Court noted that an insurer does not have a duty to discover intentional material misrepresentations.

Unoccupied Vehicle Still "Involved In Accident"

In Dion v Childers, unpublished, Plaintiff’s uninsured car had stalled in the roadway. Plaintiff exited his car in order to push it off the road. Because the car did not have any lights, Mr. Childers did not see it until the last second, swerved, and hit Plaintiff. The trial court granted Defendant’s motion for summary disposition, finding that Plaintiff was not entitled to PIP benefits because his uninsured vehicle was involved in the accident.

In upholding the trial court’s dismissal, the Court of Appeals ruled that a person is not entitled to PIP benefits for accidental bodily injury if at the time of the accident the person was the owner or registrant of an uninsured vehicle involved in the accident. While Plaintiff argued that his car was not involved in the accident, as he was not an occupant of the vehicle at the time he was injured, the Court ruled that his vehicle "actively contributed" or was an "active link" to his injury. While Plaintiff was not injured by his vehicle, the accident was caused by it and, therefore, constituted an active link.

In Fadil v. Titan Insurance Company, unpublished, Mr. Fadil received an insurance renewal offer for his auto policy with Titan. The offer was for a policy period of November 14, 1995 through January 14, 1996. Payment was "due by" 12:01 am November 14, 1995, the same time at which his old policy expired. Mr. Fadil was involved in an automobile accident at 10:35 am on November 14, 1995, and paid his premium on November 16, 1995. Titan refused to pay any policy benefits stemming from the accident.

Citing Webster’s College Dictionary, the Court of Appeals concluded that "due by" meant "on or before" or "not later than." Since Mr. Fadil’s payment was to renew his policy rather than make a payment on an existing contract, there was no "grace period" under Weller v. Manufacturer’s Life, 256 Mich 532 (1932). Therefore, the original policy expired on its terms and Titan did not owe coverage to Mr. Fadil.