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Montoya v. Loya Insurance Co.

United States District Court, D. New Mexico

February 4, 2019

NICOLITA MONTOYA, Plaintiff,
v.
LOYA INSURANCE COMPANY, a foreign corporation during business in New Mexico, Defendant.

          MEMORANDUM OPINION AND ORDER

         THIS MATTER comes before the Court on Defendant Loya Insurance Company's Motion for Protective Order (Doc. 37), filed November 16, 2018. Having reviewed the submissions of the parties and the relevant law, the Court will grant Defendant's Motion for Protective Order in part.

         I. BACKGROUND

         On October 3, 2016, Plaintiff Nicolita Montoya was involved in a motor vehicle accident with an unknown driver. Following the accident, Plaintiff made a claim with Defendant Loya Insurance Company (“Loya”) for uninsured motorist (“UM”) coverage. Loya assigned Plaintiff 100 percent fault for the accident. See Doc. 37-1 at 2. Another claim was opened for this same accident, but under the wrong policy, creating some confusion between Plaintiff and Loya. Loya denied coverage on that claim as being outside the policy period.

         On February 22, 2017, Plaintiff filed suit for UM benefits and punitive damages (“the underlying lawsuit”) in state court. Doc. 37-2. The case proceeded to trial, and on January 25, 2018, the jury found the UM driver to be 100 percent at fault and awarded damages to Plaintiff. Plaintiff filed the current lawsuit in state court on May 17, 2018, alleging insurance breach of contract, bad faith, negligence, and unfair practices for Loya's failure to pay the claim, including paying the jury verdict, and for Loya's handling of the claim through the underlying lawsuit. Loya removed the case to this federal district court on June 25, 2018 based upon diversity of citizenship. It was only on or about June 29, 2018 - after removal - that Loya paid the jury verdict's award to Plaintiff. In the instant motion, Loya seeks a protective order to prohibit discovery of Loya employees' conduct and communications during the underlying lawsuit, arguing such information is protected by work product and attorney-client privilege. Loya also seeks to shield the production of materials related to a presentation on bad faith by current defense counsel to Loya adjusters as protected by attorney-client privilege.

         II. LEGAL STANDARD

         Federal Rule of Civil Procedure 26(b)(1) allows discovery of “any nonprivileged matter that is relevant to any party's claim or defenses and proportional to the needs of the case . . . .” Yet, a court may “for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense, ” including “forbidding the disclosure or discovery” or “forbidding inquiry into certain matters, or limiting the scope of disclosure or discovery to certain matters.” Fed.R.Civ.P. 26(c)(1). “The good cause standard of Rule 26(c) is highly flexible, having been designed to accommodate all relevant interests as they arise.” Rohrbough v. Harris, 549 F.3d 1313, 1321 (10th Cir. 2008) (quotations omitted). The burden is on the party seeking the protective order to show good cause exists for one. Sedillo Elec. v. Colo. Cas. Ins. Co., No. CIV 15-1172 RB/WPL, 2017 WL 3600729, at *1 (D.N.M. Mar. 9, 2017) (quotation omitted).

         In this diversity case, state law governs attorney-client privilege. Valencia v. Colo. Cas. Ins. Co., No. CIV 06-1259 JB/RHS, 2007 WL 5685148, at *6 (D.N.M. Dec. 6, 2007). Under New Mexico law, the elements of attorney-client privilege are: “(1) a communication (2) made in confidence (3) between privileged persons (4) for the purpose of facilitating the attorney's rendition of professional legal services to the client.” Santa Fe Pac. Gold Corp. v. United Nuclear Corp., 2007-NMCA-133, ¶ 14, 175 P.3d 309 (citing Rule 11-503(A)(4) NMRA). Specifically, “[i]n order to be covered by the attorney-client privilege, a communication between a lawyer and client must relate to legal advice or strategy sought by the client.” Am. Auto Ins. Co. v. First Mercury Ins. Co., No. 13-CV-0439 MCA/LF, 2016 WL 7395219, at *2 (D.N.M. Oct. 22, 2016) (citing United States v. Johnston, 146 F.3d 785, 794 (10th Cir. 1998)). There is no blanket privilege covering all attorney-client communications; rather, “[t]he party asserting privilege must show that each document or communication qualifies for privilege.” Id. (citing Santa Fe Pac. Gold Corp., 2007-NMCA-133, ¶ 25).

         The work-product privilege, on the other hand, protects “documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representatives unless the materials are otherwise discoverable and the party seeking the materials shows substantial need.” Id. at *3 (citing Fed.R.Civ.P. 26(b)(3)). “But even if a court orders discovery of such materials, the court ‘must protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of a party's attorney or other representative concerning the litigation.'” Id. (citing Fed. R. Civ.

         P. 26(b)(3)(B)). The work-product doctrine does not protect facts contained within a work product or facts about the creation of a work product. Id. Rather, it is “intended only to guard against divulging the attorney's strategies and legal impressions . . . .” Id.

         III. ANALYSIS

         a. Conduct and Communications During the Underlying Lawsuit

         Plaintiff seeks to depose Loya litigation adjusters and employees involved in the litigation of the underlying lawsuit. Specifically, Plaintiff seeks to depose Vice President of Claims Ed Meza, a Loya employee who attended the underlying trial, and Loya litigation adjusters Genaro Rojas and Jose Balanos. Plaintiff also seeks production of written reports by Loya's UM counsel, Mr. Grossman. Loya responds that the handling of Plaintiff's claim during the underlying lawsuit is protected from disclosure by the work product doctrine and attorney-client privilege.

         Loya first argues that discovery of its employees' conduct during the underlying UM lawsuit is irrelevant and disproportionate to the needs of the current bad faith lawsuit. The Tenth Circuit has explained that “[i]n general, an insurer's litigation tactics and strategy in defending a claim are not relevant to the insurer's decision to deny coverage.” Timberlake Constr. Co. v. U.S. Fid. & Guar. Co., 71 F.3d 335, 340 (10th Cir. 1995) (citation omitted). As such, “once litigation has commenced, the actions taken in its defense are not . . . probative of whether [an insurer] in bad faith denied the contractual lawsuit.” Id. However, the court in Timberlake further held that in some rare cases, evidence of an insurer's litigation conduct may be admissible to show bad faith. Id. at 341. Similarly, Judge Lynch surmised that New Mexico courts would allow evidence of litigation conduct “to be admissible as evidence of bad faith in rare cases involving extraordinary facts.” Sinclair v. Zurich Am. Ins. Co., 129 F.Supp.3d 1252, 1258 (D.N.M. 2015).

         Here, as explained in Timberlake, litigation conduct by Loya adjusters and employees during the underlying litigation is not relevant to whether Loya acted in bad faith by failing to pay Plaintiff's claim. While Plaintiff also alleges Loya acted in bad faith in its handling of the underlying lawsuit, “[a]llowing litigation conduct to serve as evidence of bad faith would undermine an insurer's right to contest questionable claims and to defend itself against such claims.” Timberlake Constr. Co., 71 F.3d at 341. Further, there is no evidence that this is a rare case or that an extraordinary circumstance exists to make the conduct of Loya employees during the underlying lawsuit ...


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