CIGNA-INA/Aetna v. Hagerman-Shambaugh

• Decision Date: 06 February 1985
• Docket Number: J,CIGNA-INA,HAGERMAN-SHAMBAUG,No. 3-884A216,3-884A216
• Citation: 473 N.E.2d 1033
• Parties: /AETNA, Defendant-Appellant, v.oint Bidders; Hagerman Construction Corporation (Plaintiffs Below); Yaste, Zent & Rye, Inc.; and Gerald A. Dahle (Defendants Below), Appellees.
• Court: Indiana Appellate Court

Page 1033

473 N.E.2d 1033

CIGNA-INA/AETNA, Defendant-Appellant, v. HAGERMAN-SHAMBAUGH, Joint Bidders; Hagerman Construction Corporation (Plaintiffs Below); Yaste, Zent &amp Rye, Inc.; and Gerald A. Dahle (Defendants Below), Appellees.

No. 3-884A216.

Court of Appeals of Indiana Third District.

Feb. 6, 1985.

Robert D. Maas, Stephen E. Arthur, Dutton, Kappes & Overman, Indianapolis, for defendant-appellant.

Edward E. Beck, Shambaugh, Kast, Beck & Williams, John F. Lyons, Barrett, Barrett & McNagny, Fort Wayne, for appellees.

GARRARD, Judge.

On June 24, 1983 Hagerman-Shambaugh, Joint Bidders and Hagerman Construction Company (Hagerman) brought suit against CIGNA-INA/Aetna (CIGNA) in a dispute arising out of an insurance policy issued by CIGNA on water pollution control plant additions Hagerman was constructing in Fort Wayne, Indiana. As part of the construction project, Hagerman installed regulator panels at existing lift stations located around the City of Fort Wayne. On or about March 13, 1982 several of the regulator panels were damaged by flood waters. Hagerman made a claim to CIGNA for $174,729.74 as the cost of repairing the damaged panels but CIGNA denied coverage. This suit followed.

On October 4, 1983 Hagerman filed its request for production of documents and things asking CIGNA to produce, inter alia, "3. All memoranda, letters, notes or documents of any nature in possession of the defendant, CIGNA-INA/Aetna as it relates to the claim filed by the plaintiffs which is the subject matter of this lawsuit." CIGNA objected to this request which it thought was unduly burdensome and barred by CIGNA's work product privilege.

After argument on Hagerman's motion to compel discovery, the trial court ordered CIGNA to comply with Hagerman's request providing that CIGNA could submit to the court for in camera inspection any document CIGNA believed to be work product.

CIGNA submitted seven documents from its claims and underwriting files for in camera inspection. The next day, the court entered the following order:

"The Court, having examined the documents in camera now finds that the documents are relevant to Plaintiff's claim for relief in that they deal with facts and communications involved in the underwriting and coverage determinations of the insurance policy in question.

The Court further finds that the documents do not fall within any attorney client privilege since no attorney is either sender or receiver of the documents in question.

The Court further finds that the documents were not prepared in contemplation of litigation to any greater extent than any loss investigation by an insurance company as an 'eye' toward litigation.

The Court further finds that, although the documents contained conclusion and opinions, such are not barred from discovery in Indiana and in the instant case are directly relevant to Plaintiff's claim for punitive damages.

It is therefore ORDERED that all of the documents submitted in camera ... shall be produced for inspection and copying ...."

CIGNA now brings this interlocutory appeal alleging error in the trial court's discovery order. We affirm.

Our resolution of this appeal depends upon the meaning of Indiana Rules of Procedure, Trial Rule 26(B) which provides:

"Unless otherwise ordered by the court in accordance with these rules, the scope of discovery is as follows:

(1) In general. Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject-matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.

* * *

* * *

(3) Trial preparation: Materials. Subject to the provisions of subdivision (B)(4) of this rule, a party may obtain discovery of documents and tangible things otherwise discoverable under subdivision (B)(1) of this rule and prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative (including his attorney, consultant, surety, indemnitor, insurer, or agent) only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of his case and that he is unable without undue hardship to obtain the substantial equivalent of the materials by other means. In ordering discovery of such materials when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation."

The trial court concluded that the documents were relevant and were no more prepared in anticipation of litigation than any insurance company's loss investigation. Our review of that conclusion is hampered somewhat by the dearth of Indiana cases interpreting the language of the rule. ¹ However, the current version of TR 26(B), amended January 1, 1982, parallels Federal Rule of Civil Procedure 26(b). See 2 Harvey, Indiana Practice, Rules of Procedure Annotated, 86 (1984 Supp.) We therefore look to federal court interpretations of the rule to aid our own.

We begin our discussion of the discoverability of the documents by considering whether the documents were "relevant to the subject-matter" of the action. TR 26(B)(1). Our review of the trial court's conclusion that the documents are relevant is limited. A trial court is vested with discretion in its rulings on discovery issues. Costanzi v. Ryan (1978), 175 Ind.App. 257, 370 N.E.2d 1333. We will reverse for an abuse of discretion only if the trial court reached an erroneous conclusion which is clearly against the logic and effect of the facts of the case. Condon v. Patel (1984), Ind.App., 459 N.E.2d 1205.

Six of the documents in question are items of interoffice correspondence generated by CIGNA representatives. The other document is a transcription of a telephone conversation between two CIGNA representatives. All of the documents were generated between the dates Hagerman filed its claim and CIGNA denied it. Most of the documents contain opinions and recommendations as to whether coverage extends to Hagerman's claim.

CIGNA devotes much of its brief to argument that the documents sought by Hagerman would not provide a basis for proving Hagerman's claim against CIGNA. However, relevancy for the purposes of discovery is not the same as relevancy at trial. Westhemeco, Ltd. v. New Hampshire Insurance Co. (D.C.N.Y.1979), 82 F.R.D. 702. A document is relevant to discovery if there is the possibility the information sought may be relevant to the subject matter of the action. Id. at 709. Given that the purpose of discovery rules is to allow liberal discovery procedures, Front v. Lane (1982), Ind.App., 443 N.E.2d 95, we cannot say the court was compelled to find the documents sought by Hagerman had no possible relevance to the subject matter of the claim.

The court also found the documents relevant as to Hagerman's claim for punitive damages. In Atlanta Coca-Cola Bottling Company v. Transamerica Insurance Company (N.D.Ga.1972), 61 F.R.D. 115, the insured sought the identity of documents prepared by the insurer in its investigation of the insured's claim. The district court, in ordering the insurer to comply with the request, concluded:

"The information sought will to some degree demonstrate the thoroughness with which defendant investigated and considered plaintiff's claim and thus is relevant to the question of the good or bad faith of defendant in denying the claim."

61 F.R.D. at 117.

CIGNA takes issue with the view expressed above which appears to allow free discovery of an insurer's investigation file merely upon allegations sufficient to support a punitive damage claim, assuming there is no work product immunity, discussed infra. CIGNA argues that such a rule will discourage insurers from conducting full and open investigations of claims for fear that any expression of uncertainty as to coverage will later provide support for those allegations of bad faith.

We believe the cases refute this argument since they demonstrate our resolve to deny awards of punitive damages against insurers who in good faith pay only the amount required under the policy. Vernon Fire & Casualty Insurance Company v. Sharp (1976), 264 Ind. 599, 349 N.E.2d 173. See also Travelers Indemnity Company v. Armstrong (1982), Ind., 442 N.E.2d 349 (requiring proof by clear and convincing evidence when punitive damages are sought); Continental Casualty Company v. Novy (1982), Ind.App., 437 N.E.2d 1338 (lack of diligent investigation alone is not sufficient to support award of punitive damages).

Good faith expressions of uncertainty as to coverage do not provide the basis for punitive damage awards against insurers; bad faith denials of claims may. We do not share CIGNA's fear that an insurer will forgo good faith investigation of a claim, fearing disclosure, when to do so might provide the very inference of bad faith necessary to support an award of punitive damages. The court did not abuse its discretion.

Having determined relevance, the court was next required to determine whether TR 26(B)(3) precluded discovery of any of the documents. "[T]he focus of any inquiry into whether the work product immunity applies is whether the materials were prepared 'in anticipation of litigation.' " Scott Paper Co. v. Ceilcote Co., Inc., No. 83-0192P (D.C.Me. Nov. 27, 1984). See also APL Corporation v. Aetna Casualty & Surety Company (D.Md.1980), 91 F.R.D. 10; Thomas Organ Company v....