United States: Lit Alerts—April 2018, Vol. 2

Contract Construction: Eastern District of Pennsylvania Dismisses Claim That Insurance Policy Should Be Read as Including Terms from Earlier Policies

In Wescott Electric Co. v. Cincinnati Insurance Co., the Eastern District of Pennsylvania ruled that it would not add terms to an insurance policy even though the terms were contained in a different insurance policy the policyholder had previously purchased from the insurer.

The case centered around an insurance policy covering employee theft that Cincinnati Insurance (Cincinnati) wrote to Wescott Electric (Wescott). Wescott purchased a series of four similar policies from Cincinnati from 2004 to 2013. The first two allowed Wescott to make claims regarding incidents occurring during the policy period as long as they were discovered within one year of the policy expiring. In 2010, when Wescott purchased its third policy, Cincinnati changed the policy language to limit claims to employee theft discovered only during the policy's term. Wescott discovered an employee theft during the term of the fourth policy, five months after the third policy expired. Cincinnati paid Wescott according to the fourth policy, but refused to pay on the expired third policy.

Wescott argued that it reasonably expected the third policy to contain the grace periods contained in the earlier policies, and that Pennsylvania law obligated an insurer to honor terms that the insurer or its agent gave a policyholder the "reasonable expectation" would be included in a policy. In dismissing Wescott's complaint, the court distinguished cases where an insurer had omitted terms a policyholder had specifically requested, because Wescott had not specifically requested a one-year grace period. Once Cincinnati proved it had provided notice to Wescott of the change in grace period terms and that the policy itself noted the lack of grace period, the court stated that it would not reform the contract to include the terms Wescott desired.

Discovery: S.D.N.Y. Nixes Attorney-Client Privilege as Sanction for Intentional Withholding of Responsive Documents from Production

In Abbott Labs. v. H&H Wholesale Servs., Inc., No. 17 CV 3095 (S.D.N.Y. Mar. 9, 2018), the US District Court for the Southern District of New York applied the crime-fraud exception to defendant H&H's otherwise privileged communications because it found H&H had intentionally withheld responsive documents from its production to plaintiff Abbott.

In response to Abbott's discovery request, H&H initially produced only 315 documents. After Abbott obtained emails that H&H did not produce despite being responsive, Abbott moved to compel production. H&H's re-production contained more than 3,500 documents. H&H blamed a technical glitch in its discovery software and its former counsel's inexperience for the deficient first production, but the court found those excuses failed to explain how certain documents were originally omitted.

Concluding that H&H's deficient production was "calculated and purposeful" and that H&H's former counsel's actions with regard to the production furthered the discovery fraud, the court applied the crime-fraud exception. The court forbade H&H from claiming attorney-client privilege or work-product immunity over communications concerning its productions, "including the planning, preparation, searching, identifying, collecting, reviewing, and delivering the documents."

White Collar: Magistrate Judge Finds "Oral Downloads" of Witness Interviews Provided to the SEC Waived Work-Product Protection

In Securities and Exchange Commission v. Herrera, No. 17-20301, 2017 WL 6041750, at *1 (S.D. Fla. Dec. 5, 2017), the Southern District of Florida held that a law firm waived work product protection by voluntarily giving the Securities and Exchange Commission (SEC) oral summaries of work-product notes and memoranda its attorneys prepared about interviews of its client's executives and employees.

In the underlying case, the SEC was the adversary to the law firm's client, cable manufacturer General Cable Corporation (GCC). GCC was cooperating with the SEC's investigation into alleged misstatements of its financials. In furtherance of its cooperation and per the SEC's request, the law firm shared its investigative findings with the SEC, including but not limited to giving the SEC "oral downloads" of witness interview notes and memoranda.

Subsequently, the SEC brought this civil enforcement action against former GCC executives, SEC v. Herrera. In the course of this litigation, the defendants filed a motion to compel the law firm to produce any notes and memoranda from the interviews it disclosed orally to the SEC. In response, the law firm contended that no waiver occurred "because it never actually produced the notes and memoranda of the witness interviews to the SEC," arguing that "there is a meaningful distinction between the actual production of a witness interview note or memo and providing the same or similar information orally." While the court acknowledged that not every situation in which work-product materials are disclosed warrants waiver, it noted that waiver of work-product protection is a question as to whom the disclosure is made, and in this case, such disclosure waived work-product protection because it was made to an adversary. Ultimately, the court held that the law firm waived work-product protection for the witnesses whose interview notes and memoranda were disclosed to its adversary, the SEC, in the "oral downloads."

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