Magistrate denies insurance company's bid to compel discovery from putative in coverage dispute

by Ben Vernia | May 5th, 2014

On April 17, a magistrate judge in the Eastern District of California issued an order denying an insurance company’s motion to compel the former employee of an insured company to submit to a deposition and turn over a copy of a computer hard drive he had provided to the Department of Justice during an investigation. The insured company was a health care laboratory that had been the subject of a DOJ investigation, and which sought payment of attorney’s fees and costs under its director’s and officer’s insurance policy. The laboratory company had also been sued by another former employee, and had sought to depose the putative whistleblower, who had supervised the plaintiff in that case. The court in that action had ordered the deposition be conducted, but under seal (the insurance company had obtained access to that transcript when it moved to intervene in the employment case).

The insurance company sought to question the former supervisor further, but the court concluded that the balance of equities lay in favor of the supervisor. The court noted that he had acquiesced in the insurance company’s intervention in the hope of preventing duplicative discovery, and it found that the deposition testimony previously given covered the same subjects regarding which the insurance company sought to question the supervisor.

The court also denied the insurance company’s access to approximately 9.5 gigabytes of data provided by the supervisor to DOJ on a hard drive, rejecting the company’s argument that he need not review the documents prior to their production, and that he had waived any privilege he held in them by providing them to the government. The common interest of a relator and the government protects such disclosures, the court reasoned, necessitating his review of the records – a costly and time-consuming process. In addition, the timing and scope of the government’s investigation is not defined by the hard drive’s documents, the court wrote, and the insurance company could obtain those same records from the laboratory company.

The court also denied the insurer’s argument that communications the supervisor had with another company should be disclosed, writing that the insurance company had offered no basis to believe that these communications were relevant to its case against the laboratory company.

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