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In Anastasi v. Fidelity National Title Insurance Co., 2016 WL 462380 (Haw. Feb. 4, 2016), the Supreme Court of Hawaii ruled that issues of fact precluded summary judgment on an insurer bad faith claim, and that application of the work-product doctrine to documents prepared by a dual capacity in-house attorney/claims adjuster turns on whether the documents were prepared “because of” litigation.

Anastasi sued Fidelity for bad faith and breach of contract after Fidelity allegedly delayed payments under a title insurance policy.  In particular, Anastasi alleged that Fidelity knew early on that the deed to the property was forged, but continued to litigate the issue in order to delay payment.  A trial court granted Fidelity’s summary judgment motion on the bad faith claim, finding that its actions were reasonable as a matter of law.  The trial court also ruled that Fidelity was entitled to withhold certain documents as protected by the attorney-client privilege and the work-product doctrine.  An intermediate appellate court vacated the bad faith ruling, finding that issues of fact existed as to whether Fidelity acted reasonably.  The appellate court also ruled that the trial court abused its discretion in ruling that certain documents, which were prepared by an individual that acted in a dual capacity as in-house counsel and claims adjuster, were protected by the work-product doctrine or by attorney-client privilege.  The Hawaii Supreme Court affirmed in part and vacated in part.

With respect to the bad faith claim, the Hawaii Supreme Court agreed that issues of fact precluded summary judgment.  Viewing the evidence in the light most favorable to Anastasi, the court held that a question existed as to whether Fidelity acted reasonably given the information it had as to the underlying forgery and the time at which it obtained that information.  The court rejected Fidelity’s arguments that (1) it should not be found to have acted in bad faith, because it was exercising its rights under the policy; and (2) the enhanced standard of good faith under Hawaii law should not apply to title insurers.

As to the discovery ruling, the Hawaii Supreme Court held that the relevant inquiry for determining if a document is protected by the work-product doctrine is whether the document was prepared in anticipation of litigation.  Where, as here, an attorney performs both legal duties and claims adjusting, the test is whether materials were created “because of” litigation.  The Hawaii Supreme Court ruled that the appellate court erred in focusing on whether the materials were prepared before or after a formal determination had been made on the claim.  The court stated that “the rule clearly focuses on the purpose of the prepared material and not on when it is prepared.”  Similarly, it found error in the appellate court’s use of a presumption that materials prepared before a final determination on the insured’s claim are not work product.  The court remanded the discovery matter to the trial court for a determination of work-product protection based on the “because of” litigation test.