ALLSTATE NEW JERSEY INSURANCE COMPANY v. JOSEPH P. HUMPHREY, et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0570-07T10570-07T1

ALLSTATE NEW JERSEY

INSURANCE COMPANY,

Plaintiff-Appellant,

v.

JOSEPH P. HUMPHREY, JOHN J.

HUMPHREY, STEVEN SAROSI and

DENNIS CZARNICKI,

Defendants,

and

MICHAEL MARKOWSKI, ANTHONY

BELLINO and ASHLEY BELLINO,

Defendants-Respondents.

_________________________________________________

 

Argued January 24, 2008 - Decided

Before Judges Axelrad, Payne and

Sapp-Peterson.

On appeal from Superior Court of New Jersey,

Law Division, Ocean County, L-1894-06.

Daniel J. DiStasi argued the cause for

appellant (Green, Lundgren & Ryan, attorneys; Mr. DiStasi and Alexa J. Nasta, on the brief).

Patricia F. Burke argued the cause for respondent Michael Markowski (A. Joseph Guarino, attorney; Ms. Burke, on the brief).

Gregory P. McGuckin argued the cause for

respondents Anthony Bellino and Ashley

Bellino (Dasti, Murphy, McGuckin, Ulaky,

Cherkos & Connors, attorneys; Mr. McGuckin

joined in the brief of respondent Michael

Markowski).

PER CURIAM

On October 23, 2006, a judgment in the total amount of $5.2 million was entered in favor of Michael Markowski in a personal injury action instituted by him against Joseph Humphrey, John Humphrey, Dennis Czarnicki, Anthony Bellino, Ashley Bellino, and others arising out of an assault with a bat occurring on January 1, 2003. Liability was apportioned in the following manner: two percent to plaintiff; seventy percent to Joseph Humphrey; zero percent to John Humphrey; ten percent to Dennis Czarnicki; ten percent to Anthony Bellino; and eight percent to Ashley Bellino. A defense under a reservation of rights was provided in the liability action by Allstate New Jersey Insurance Company (Allstate) to John Humphrey, who claimed coverage under a homeowner's policy issued to his father. Similarly, a defense under a reservation of rights was provided by Allstate to the Bellinos under a policy issued to James Springer, with whom they resided.

Following a tardy and ultimately unsuccessful motion to intervene in the liability action for the purpose of obtaining a coverage determination prior to or concurrently with the liability trial, and shortly before the liability trial commenced, Allstate filed the present action against the Humphreys and the Bellinos as putative insureds and against Michael Markowski and others as interested parties, seeking a declaration that it had no duty to indemnify either the Humphreys or the Bellinos as the result of the intentional conduct exclusion contained in the applicable insurance policies. Following entry of a judgment in excess of policy limits against the Bellinos, they and Markowski filed counterclaims in the declaratory judgment action alleging bad faith on Allstate's part in failing to settle Markowski's claims against the Bellinos in the underlying liability action and thus exposing its insureds to excess liability. See Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474 (1974). They have also asserted a claim of bad faith arising from Allstate's determination, as the result of an investigation that was commenced after the jury's verdict, that the Bellinos were not entitled to coverage under the Springer policy because, although they lived together, Springer was not married to the Bellinos' mother at the time of the assault.

Despite the fact that Markowski was not insured by Allstate and is not the recipient of an assignment of the Bellinos' rights against their insurer, he has taken the lead with respect to the prosecution of the Bellinos' bad-faith claims. In that connection, during the period for discovery, Markowski demanded that Allstate produce the files that it maintained in connection with the defense of the Bellinos, who were jointly represented, and John Humphrey, who was separately represented and eventually exonerated by the jury. Additionally, Markowski demanded production of the file that Allstate maintains in connection with the present coverage action. When Allstate resisted production on the ground that disclosure of the files was protected by the attorney-client and work-product privileges, Markowski, joined by the Bellinos, moved to compel their production. In response, Allstate sought a protective order.

Prior to the hearing on the cross-motions, the Bellinos waived the attorney-client privilege as it pertained to their file, and requested that the entire file be produced. However, Allstate, claiming that their waiver was ineffective, only produced redacted copies of documents from that file. It did not create a privilege log with respect to the redacted documents in the Bellino file or with respect to any of the documents in the Humphrey or coverage files, which were withheld in their entirety.

At a hearing held on the cross-motions on May 25, 2007, the motion judge ordered that, within two weeks, the "entire" Bellino file be produced to him, in unredacted form, along with a proposed privilege log, and that the Humphrey and coverage files likewise be produced for the judge's in camera review. Despite the judge's order, Allstate furnished the judge with only selected portions of the coverage file, unilaterally withholding correspondence between it, predecessor coverage counsel, and Allstate, but providing notice to the judge of the general nature of the withheld material.

At a further hearing in the matter conducted on June 29, 2007, the judge ruled that societal concerns demanded that the entire Bellino and Humphrey defense files be produced to counsel for the Bellinos and Markowski, basing his order upon the initiation of coverage litigation by Allstate, the pendency of the bad-faith claims, the inability of counsel to otherwise obtain evidence relating to Allstate's bad faith, the relevance of the materials, and the waiver of privilege given with respect to the Bellinos' file. Additionally, the judge found waiver on the part of Allstate as the result of its institution of coverage litigation that placed the contents of its communications in issue. The judge also required the production of those portions of the coverage file supplied to him by Allstate, and as a final matter, he ordered that Allstate produce the adjusters overseeing the Bellino, Humphrey and coverage files for their depositions, and that each appear with a complete and unredacted copy of the relevant claims file.

Following a third hearing on August 3, 2007, the judge entered an additional order of August 17 that provided, in relevant part,

a. Plaintiff is to provide the Court and counsel with a privilege log for all three claims files . . . within 15 days of this Order. The privilege log shall include the parties to the correspondence, the date of the correspondence and a statement regarding the subject matter of the correspondence.

b. Plaintiff is to provide Counsel with complete copies of all materials from the three files which were presented to the Court for an "in-camera" review within 15 days of . . . this Order in the same format without any redactions as provided to the Court, the Court having found the material not privileged for the reasons placed on the record on June 29, 2007 and as amplified on August 3, 2007.

c. Allstate's counsel previously redacted correspondence between his firm and the predecessor firm in the Declaratory Judgment file, Barry & Prindiville and Allstate, without providing the correspondence to the Court for an "in camera" review per the Court's order on the motion dated May 25, 2007; all information redacted by Allstate's counsel must be forwarded to the Court for an "in camera" review and any redactions in either the correspondence or diary entries be made by the Court as appropriate. Plaintiff shall set forth all correspondence and redactions in the claims file on the privilege log required to be produced in accordance with subsection (a) above. The balance of the file, as same was provided to the Court, shall be provided to counsel as set forth above. This is Ordered without prejudice and subject to further review upon motion of counsel.

d. [omitted in original.]

e. The privilege logs ordered to be provided shall list all correspondence up until 2-15-07 in the three separate files.

f. Plaintiff does not have to produce any correspondence or claims adjuster's notes in the Springer/Bellino file by and between the Allstate adjuster on that file, Sean Daly and appellate counsel William C. Carey. This is Ordered without prejudice and subject to further review upon motion of counsel.

g. Allstate shall produce the claims adjusters Sean Daly, Robert Pollack and Suzanne Bocage for depositions upon mutually convenient dates within 30 days after the production of the above files.

In accordance with the judge's order, Allstate produced to counsel for the Bellinos and Markowski copies of the Bellino and Humphrey claims files. It did not produce its own coverage file, but instead, moved on an emergent basis for leave to appeal from the judge's June 29 and August 17, 2007 orders. Although emergent relief was denied, Allstate's motion for leave to appeal was granted, and an order was entered staying any further document production and a pending arbitration. However, the depositions of Allstate's claims representatives were ordered to proceed.

At the depositions of the three claims adjusters, it was disclosed that Allstate had generated or otherwise possessed additional documents or computerized materials that had not been produced to the parties or the court and were not identified on Allstate's privilege logs. Colloquy at the depositions also disclosed considerable confusion as to which documents had been produced by Allstate, and which either had never been produced or remained with the court, subject to the existing stay. Further, substantive testimony by Robert Pollack, the adjuster on the coverage file, was limited as the result of Allstate's pending challenges to the court's discovery orders, and was not completed; the scope of the examination of the other claims adjusters may have been limited by an incomplete document production. Supplemental depositions may be required once Allstate has fulfilled its discovery obligations.

I.

On appeal, Allstate argues that all documents as to which it has asserted a privilege should be protected. In support of its position, Allstate first argues that Markowski lacks standing to assert a bad-faith claim against Allstate, since no such claim has been assigned by the Bellinos to him, and he likewise lacks standing to demand discovery from Allstate on that claim.

We agree that Markowski lacks standing to assert a claim against Allstate based on its alleged bad faith refusal to settle the underlying liability action on behalf of the Bellinos within policy limits or based on its belated investigation into the Bellinos' status as insureds. A "personal injury claimant may not sue the carrier to recover the excess verdict beyond the coverage without an assignment of the claim from the insured." Murray v. Allstate Ins. Co., 209 N.J. Super. 163, 165 (App. Div. 1988). It follows that Markowski cannot require Allstate to directly produce discovery to him on the bad-faith issue. However, by this determination, we do not prohibit the Bellinos from voluntarily providing to Markowski discovery that they have obtained from Allstate. If the Bellinos decline to do so and decline to assign their rights against Allstate to Markowski, then Allstate is entitled to obtain the return of the documents and other materials produced to counsel for Markowski in discovery pursuant to the procedures set forth in Terrell v. Schweitzer-Mauduit Int'l, Inc., 352 N.J. Super. 109, 117 (App. Div. 2002). Counsel for Allstate conceded at oral argument that such relief afforded the maximum protection to it that was possible in the circumstances presented.

We regard Allstate's argument that a demand for production of documents by the Bellinos was premature because their appeal has not been resolved to have been mooted by the issuance of our decision in that appeal affirming the verdict and its apportionment among the parties. We also note the inherent conflict between Allstate's position on appeal that the discovery is premature and its position before the trial court and on appeal in the companion liability case that all discovery issues should have been resolved prior to the liability trial.

Allstate, properly, has abandoned its argument that the Bellinos should be denied access to their own claims file. See Longo v. Am. Policyholders' Ins. Co., 181 N.J. Super. 87, 92 (Law Div. 1981); N.J.R.E. 504(2). Nonetheless, Allstate continues to assert that, in respect to the Humphrey and coverage files, the motion judge abused his discretion in entering orders that had the effect of compelling production of documents protected by the work-product and attorney-client privileges.

We find no abuse of discretion by the judge in granting access by the Bellinos to materials contained in the Humphrey and coverage files that are relevant to their claims of bad faith. In light of the absence of any waiver of privilege by John Humphrey and the jury's verdict of no cause for action on claims against him, we do, however, find the judge's orders granting discovery of the Humphrey file to have been overly broad. Because the bad faith claims asserted in this matter are limited to those arising from the relationship between Allstate and the Bellinos, only documents within the Humphrey file that are relevant to the Bellinos' claims are discoverable. The remainder must be returned to Allstate in accordance with Terrell.

We agree with the motion judge that, under the standards articulated by the Supreme Court in In re Kozlov, 79 N.J. 232, 243-44 (1979), neither the work-product nor the attorney-client privilege can shield from production those documents and other materials within Allstate's possession that relate to the Bellinos' bad faith claims. They would include, but not necessarily be limited to, all evaluations of discovery taken in the matter, the liability of the parties, and the settlement and verdict values of Markowski's claims. They would include, as well, communications regarding settlement strategy and authority, communications relating to Rova Farms issues, communications relating to Allstate's claim of lack of coverage as the result of its intentional conduct exclusion and its factual support, and communications relating to Allstate's claim that the Bellinos' lacked the status of insureds under the Springer policy and its investigation of that issue.

Kozlov requires that in order to pierce a claim of attorney-client privilege there must be (1) a legitimate need by the requesting party for the evidence sought to be shielded; (2) a showing of relevance and materiality of that evidence to the issues before the court; and (3) a demonstration that the information could not be secured from any less intrusive source. Koslov, supra, 79 N.J. at 243-44. These requirements are manifestly met as the result of the Bellinos' assertions of bad faith, which can be proven, if at all, only through evidence under Allstate's control. The same rationale permits the discovery of materials for which Allstate claims protection under the work-product doctrine as set forth in R. 4:10-2(c), subject to the protections for "mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party" provided by that rule. We note in that context, however, that in order to qualify for such protections under the work-product doctrine, Allstate must demonstrate that a particular document was, in fact, "prepared in anticipation of litigation." The factual portions of such a document are, in any event, discoverable if necessity is properly demonstrated.

II.

Our review of this matter suggests the need to restate the "basic principles" governing assertions of privilege in the context of document discovery that we articulated in Seacoast Builders Corp. v. Rutgers, 358 N.J. Super. 524 (App. Div. 2003). There, we stated:

Our discovery rules must "be construed liberally in favor of broad pretrial discovery." Payton[ v. N.J. Turnpike Auth.], 148 N.J. [524,] 535 [(1997).] Relevant documents are presumptively discoverable, but can be withheld by a demonstration of privilege. However, the "need for secrecy must be demonstrated with specificity as to each document. Broad allegations of harm, unsubstantiated by specific examples or articulated reasoning, are insufficient." Id. at 559. The one seeking "to overcome the strong presumption of access must establish by a preponderance of the evidence that the interest in secrecy outweighs the presumption." Hammock [by Hammock v. Hoffmann-LaRoche, Inc.], 142 N.J. [356], 381 [(1995)].

[Seacoast, supra,, 358 N.J. Super. at 541 (citations omitted; emphasis original).]

The record available to us reflects that Allstate's document production has been conducted in a fashion that fails to comply with the principles we have set forth, as well as with customary discovery procedures, designed to ensure the timely production of documents that are both identified and complete. In this regard, it appears that the documents produced by Allstate have not all been sequentially numbered by Bates stamp or other device in a fashion that would insure accountability for their production and receipt. This must occur, even if it requires re-producing documents that have been previously supplied in order to establish a coherent and consistent record. While, on occasion, documents responsive to a demand are not located until after an initial production has taken place, here, the inference is strong that a good faith effort to locate responsive documents was not made by Allstate at the outset, and may still not have been made. Experience suggests, for instance, that considerably more analysis of discovery produced in the underlying liability trial should have been provided by the parties' defense attorneys, that analyses of liability and damages are unaccountably missing, and that crucial communications regarding settlement value and authority are absent. Even a "no pay" position requires evaluation and authorization. Allstate must promptly conduct a complete and thorough review of its files, and supplement its document production accordingly.

Finally, we regard Allstate's privilege logs as inadequate to perform the function that they are designed to serve. At a minimum, the log must state for any document deemed privileged, its date, author, recipients, a description of its contents sufficient to apprise defense counsel of its potential relevance to the litigation, any privilege cited, and a specific statement as to why the document as a whole, or a part thereof, is deemed privileged. As Seacoast Builders reminds us, it is Allstate's burden to overcome the strong presumption of access that exists in this case, and that burden cannot be met with bland document descriptions and blanket assertions of privilege.

We therefore remand this matter for further proceedings in light of this opinion. A new and complete document production by Allstate in accordance with the procedures set forth is required within a time period to be set by the trial judge. If Allstate seeks to assert either the work-product or attorney-client privilege with respect to any individual document or part thereof, the basis for the assertion of that privilege must be set forth in a privilege log that conforms in all respects to the requirements that we have set forth. Defense counsel may then challenge Allstate's assertion of privilege, with a determination of its challenge made by the motion judge in accordance with the in camera procedures that he has adopted to date.

Remanded for further proceedings in light of this opinion.

 

The spelling "Humphreys" appears in many documents in the record, though the spelling "Humphrey" appears correct.

Joseph Humphrey, the person who repeatedly struck Markowski with the bat, causing closed-head brain and other injuries, did not seek coverage.

The complaint of plaintiff Markowski alleged both negligent and intentional conduct by defendants, including the Bellinos. Allstate agreed to provide them a conditional defense to the negligence counts only, while specifically reserving the right to disclaim coverage under the intentional act exclusion of the policy and the right to assert any other coverage defense that might arise.

On appeal, Allstate states that "supplemental privilege logs are in process of being prepared as a result of additional documentation which was identified during the course of the depositions of Ms. Bocage and Mr. Pollack. Due to the late completion of these depositions, this information is not available at the time that this brief is submitted."

We could, for instance, foresee the existence of documents in the Humphrey file that compared the potential liability of parties, that discussed the jury verdict value of the case, or that discussed settlement, settlement values, or settlement strategies in a fashion relevant to the Bellinos' present claim. The file might also contain communications between the adjusters on the Humphrey and Bellino files.

We leave the ultimate issue of relevance to the sound discretion of the motion judge.

The mere designation of a document as "correspondence" does not meet this requirement, because it does not sufficiently apprise counsel of its content to permit a challenge premised upon relevance and the absence of a valid privilege.

(continued)

(continued)

17

A-0570-07T1

 

February 14, 2008