Ohio Enforces Privileges in Suit Against Insurer

Although Discoverable in Bad Faith Case not Discoverable in Breach of Contract Suit

Bifurcation of Contract and Bad Faith Suit Protects Privileges

When an insured sues an insurer for breach of contract and bad faith the insurer will often seek an order bifurcating the two issues since, if the insurer wins on the breach of contract action there is no need for trial of the bad faith claim. Even in a case where the court orders bifurcation discovery because a serious problem.

In Stephen Loukinas, Individually and as Parent and Next Friend of his minor children,
Stephen, Jr., Bradyn, Hailey, and Austin Loukinas, Joyce Loukinas, Individually
and as Parent and Next Friend of her minor children, Stephen, Jr., Bradyn, Hailey,
and Austin Loukinas, Bradyn Loukinas, Hailey Loukinas, Austin Loukinas,
and Stephen Loukinas, Jr. v. State Farm Mutual Automobile Insurance Company, Appeal No. C-180462, 2019 Ohio 3300, Court of Appeals First Appellate District of Ohio Hamilton County, Ohio (August 16, 2019) State Farm Mutual Automobile Insurance Company (“State Farm”) appealed the trial court’s order granting in part the motion to compel discovery by the plaintiffs in their action for a declaratory judgment, breach of contract, and bad-faith handling of their uninsured-motorist claim.


Stephen Loukinas was injured in an automobile accident with an uninsured motorist on January 12, 2010. Loukinas and his wife Joyce Loukinas, individually and on behalf of their four children, initiated a declaratory judgment action against State Farm, Stephen’s automobile liability insurance carrier, upon its refusal to pay his claim for uninsured-motorist coverage and sought compensatory and punitive damages for breach of contract and for breach of the duty to act in good faith in handling their claim.

State Farm filed a motion to bifurcate the bad-faith cause of action and claim for punitive damages (what it termed the “non-contractual claims”) from the declaratory-judgment and breach-of-contract causes of action (what it termed the “contractual insurance coverage portion of the case”), and to stay all discovery regarding the bad-faith and punitive-damages claims until after the trial of the contractual-insurance-coverage claims.

State Farm filed a motion for a protective order regarding its claims file and the testimony of its claims representatives. The trial court granted State Farm’s motion to bifurcate the bad-faith claim from the underlying declaratory-judgment and breach-of-contract claims. The court found that bifurcation was appropriate because the bad-faith cause of action hinged upon “an initial determination of coverage.” The court determined that “before a jury can assess whether State Farm has unfairly evaluated Mr. Loukinas’s claim, purposely delayed processing his claim, or offered unreasonably low settlements as alleged in the bad faith cause of action,” the issue of coverage must first be adjudicated.

After an in camera review, the trial court also granted State Farm’s motion to stay discovery on the bad-faith claim pending the outcome of the underlying declaratory-judgment and breach-of-contract claims. The court recognized that State Farm’s ability to defend the underlying claims would be inhibited by a release of claims file materials containing privileged or work-product protected materials related to the bad-faith claim.

The court denied the motion to compel with respect to some of the documents identified in State Farm’s privilege log as being either “attorney-client privileged” or “work product.” However, despite its stay on discovery related to the bad-faith claim, the court ordered State Farm to immediately turn over to the plaintiffs all documents, created prior to January 4, 2013 (the filing date of the plaintiffs’ complaint), identified as work product.

The court also ordered State Farm to turn over several documents only after the adjudication of the declaratory-judgment and breach-of-contract claims, because they were “not relevant to the declaratory action,” but “may, however, cast light on the bad faith cause of action.” These included a document identified in the privilege log as “[e]valuation, work product, attorney-client privileged,” and five documents identified in the log as “[c]reated after lawsuit filed, work product, evaluation.”

With respect to the depositions of State Farm claims representatives, the court ordered that all discovery relating to the claims representatives on matters that occurred up until January 4, 2013, are not subject to work product doctrine. Finally, the court ordered that State Farm submit an amended privilege log as to items identified as having been “[c]reated after lawsuit filed,” because the items were insufficiently described for the court to assess the asserted privilege or work-product protection.

State Farm appealed the trial court’s order.


Generally, discovery orders by a trial court are neither final nor appealable. The plaintiffs argue that the court’s order does not involve a provisional remedy because State Farm has failed to establish that any of the requested documents contain privileged information. However, a party is not required to conclusively prove the existence of privileged matter as a precondition to appellate review.

In its motion for a protective order and in response to the plaintiffs’ motion to compel, State Farm asserted that it should not be ordered to disclose work product, evaluations, defense strategies, or any information protected by attorney-client privilege. Because the effect of the trial court’s order is that privileged or protected information will be disclosed, the order has determined the action with respect to the provisional remedy. ”

Bad Faith Suit Eliminates Right to Enforce Privileges

In Boone v. Vanliner, 91 Ohio St.3d 209, 213-214, 744 N.E.2d 154 (2001), the Supreme Court of Ohio held that: “[I]n an action alleging bad faith denial of insurance coverage, the insured is entitled to discover claims file materials containing attorney-client communications related to the issue of coverage that were created prior to the denial of coverage.”

Privileges Enforced for Pre-Bad-Faith Contract Actions

State Farm claimed post-Boone decisions held a trial court acted unreasonably in denying a stay of discovery with regard to attorney-client communications or work-product documents relating to a bad-faith claim, pending resolution of the underlying breach-of-contract claim, because allowing discovery to proceed on the bad-faith claim would be prejudicial to the insurer. The appellate court was persuaded of the likelihood of prejudice to an insurer resulting from the disclosure of privileged or protected materials before the resolution of the underlying claims.

Although correspondence containing an attorney’s analysis of the factual investigation of the claim and of the defenses may cast light on whether the insurer acted in bad faith in handling the claim and, thus, is discoverable for purposes of the bad-faith claim, it is also highly relevant to the insurer’s defense of the breach-of-contract and unfair-claims-practices claims. To require the insurer to divulge its otherwise privileged information prior to a resolution of those other claims would unquestionably impact the insurer’s ability to defend against them.

Plaintiffs, therefore, are not entitled to discover the materials protected by the work-product doctrine or attorney-client privilege in State Farm’s claims file for purposes of their declaratory-judgment and breach-of-contract claims.

Requiring State Farm to divulge its otherwise protected information prior to a resolution of those other claims would undoubtedly affect State Farm’s ability to defend against them, and would, as State Farm contends, render the bifurcation order “toothless.”

Accordingly, where the trial court bifurcated the bad-faith claim from the underlying claims, the court erred by compelling State Farm to disclose materials protected by the work-product doctrine or attorney-client privilege contained in its claims file and compelling the depositions of its representatives about these materials prior to the resolution of the declaratory-judgment and breach-of-contract claims.


Although the Court of Appeal protected State Farm from disclosing its privileged documents and testimony about privileged advice to its representatives, the court still opined that those privileged documents must be disclosed if State Farm loses the contract action so that the plaintiffs can use State Farm’s privileged documents to prove its claims of damages from the tort of bad faith. Although its decision was well reasoned and controlled by a state Supreme Court decision it seems to be in Ohio some litigants are less equal than others and the privileges are ignored in bad faith cases.

© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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