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United States District Court, S.D. New York

October 5, 2004.


The opinion of the court was delivered by: HENRY PITMAN, Magistrate Judge


Plaintiff Travelers Casualty & Surety Company ("Travelers") seeks a protective order precluding defendants from deposing Cain & Associates Investigative Accountants, Inc. ("Cain") on the grounds that Cain is a non-testifying expert retained in anticipation of litigation and there are no exceptional circumstances justifying Cain's deposition.

Travelers commenced this action as the subrogee Barden & Robeson Corporation ("B&R"). Prior to July, 2002, a former B&R employee, Tina Ferri, embezzled several hundred thousand dollars from B&R and used those funds to pay off her personal credit card debt and for other personal obligations. Travelers was B&R's fidelity insurer, and B&R reported the embezzlement to Travelers in late July 2002. In approximately January 2003, Travelers reimbursed B&R for Ferri's defalcations and, as subrogee, commenced this action against B&R's accountant, J.D. Elliott & Co., P.C. ("Elliott"), and American Express Company ("Amex"), asserting that the misconduct and/or non-feasance of Elliott and Amex contributed to B&R's loss.

  According to the affidavit submitted by Travelers, Cain came to be involved in this case in the following manner:

5. On or about July 23, 2002, B&R reported to Travelers that it had been the victim of embezzlement by its bookkeeper, Tina Ferri.
6. In response to such claim, on or about September 20, 2002, Travelers retained Cain . . . of Cleveland, Ohio. Cain . . . was responsible for verifying the amounts and circumstances of the loss to B&R and [its] subsidiaries.
7. Cain . . . was also retained to investigate and assess possible claims by Travelers against third parties for any loss paid by Travelers to B&R and subsidiaries.
8. Claims under employee dishonesty policies always present the possibility of pursuing the defalcating employee (here Tina Ferri) herself, subject only to considerations of collectability. Claims under employee dishonesty policies often also present the possibility of pursuing other third parties, such [as] the drawee and depositary banks of the insured's forged checks, payees of the forged checks, and the insured's auditors.
9. It was Cain['s] job to evaluate and report on such third-party claims. In accordance with such responsibility, in its report to Travelers, Cain . . . analyzed and discussed the potential liability of credit card companies that had cashed the forged checks. Cain . . . also discussed the potential liability of the auditors of B&R.
10. Based on Cain['s] report and recommendations, Travelers paid the claim of B&R and then brought this action to recover the amount it had paid from defendants J.D. Elliott & Co., P.C. and American Express.
(Declaration of Gregory W. Gardiner, dated September 20, 2004 ("Gardiner Decl."), at ¶¶ 5-10). Travelers also states that it does not intend to call a representative of Cain as a witness at trial (Gardiner Decl. ¶ 11).

  Traveler's application presents the recurring issue of when does an insurance company's examination of a claim cross the line from being an investigation performed in the ordinary course of the insurer's business to work performed in anticipation of litigation. The applicable principles are set forth and discussed at length in Weber v. Paduano, 02 Civ. 3392 (GEL), 2003 WL 161340 (S.D.N.Y. Jan. 22, 2003); Mount Vernon Fire Ins. Co. v. Try 3 Bldg. Servs., Inc., 96 Civ. 5590 (MJL) (HBP), 1998 WL 729735 (S.D.N.Y. Oct. 16, 1998) and Am. Ins. Co. v. Elgot Sales Corp., 97 Civ. 1327 (RLC) (NRB), 1998 WL 647206 (S.D.N.Y. Sept. 21, 1998). Familiarity with these three decisions is assumed.

  Since Travelers bears the burden of establishing the applicability of work product protection, it bears the consequences of all deficiencies in the record. In addition, since Travelers is seeking to bar Cain's deposition in its entirety, Traveler's motion must be denied unless Travelers has sustained its burden with respect to all testimony Cain could possibly give. See Inv. Props. Int'l, Ltd. v. IOS, Ltd., 459 F.2d 705, 708 (2d Cir. 1972) ("[A]n order to vacate a notice of taking [a deposition] is generally regarded as both unusual and unfavorable. . . ."); accord Speadmark, Inc. v. Federated Dep't Stores, Inc., 176 F.R.D. 116, 118 (S.D.N.Y. 1997); Naftchi v. New York Univ. Med. Ctr., 172 F.R.D. 130, 132 (S.D.N.Y. 1997); Arkwright Mut. Ins. Co. v. Nat'l Union Fire Ins. Co., 90 Civ. 7811 (KC), 1993 WL 34678 at *2 (S.D.N.Y. Feb. 4, 1993); Polycast Tech. Corp. v. Uniroyal, Inc., 87 Civ. 3297 (CSH), 1990 WL 138968 at *3 (S.D.N.Y. Sept. 20, 1990).

  There is no "bright line" test for determining when an insurance company's investigative work passes from work in the ordinary course of the insurance company's business to work performed in anticipation of litigation. Certainly the line cannot be drawn to include all post-claim work; mechanically drawing the line at the date of the claim would afford work product protection to all of an insurance company's post-claim work, a result that is unreasonable on its face.

  In this case, several factors demonstrate that Travelers has not sustained its burden with respect to all testimony Cain could possibly give:

— It appears that Cain was retained before any decision was made concerning whether Travelers would reimburse B&R. Thus, at the time Cain was retained, there was no reason to expect litigation from either B&R or against potential sources of reimbursement.
— It does not appear that any party had actually threatened litigation at the time Cain was initially retained, and Travelers does not identify any contemporary documentary evidence confirming, or even suggesting, that litigation was on the horizon as of September 20, 2002.
— Travelers describes its initial retention of Cain as being for the purpose of "verifying the amounts and circumstances" of B&R's loss (Gardiner Decl. ¶ 6); these were clearly functions that Travelers would have had to perform in the ordinary course of its work as an insurer.
  — Travelers, not counsel, retained Cain, and Travelers offers no information suggesting that litigation counsel had even been consulted before Cain was retained. In light of the foregoing, I conclude that Cain was initially retained in the ordinary course of Travelers' business and that a protective order entirely precluding Cain's deposition is, therefore, inappropriate.

  My conclusion that Travelers is not entitled to a protective order precluding Cain's deposition in its entirety does not mean, however, that Elliott and Amex have unlimited license to question Cain concerning any aspect of its work for Travelers. It does appear that at some point Cain's work either shifted from ordinary claim processing work to work performed in anticipation of litigation or that Cain was performing ordinary claim processing work and trial preparation work simultaneously. Based on the limited information currently before me, it is impossible to determine either when that shift occurred or when Cain undertook trial preparation work.*fn1 Accordingly, I express no opinion at this time concerning what questions are appropriate and what questions are inappropriate. Finally, Amex, in response to Travelers' motion, seeks to compel Travelers to produce a number of documents withheld on the ground that they constitute trial preparation material. Amex's application is defective because Amex does not explain with particularity why each document it seeks is not protected by the work product doctrine. Although Travelers, as the party asserting work product protection bears the ultimate burden of proof, Amex must initially identify with specificity the bases for its challenge. ECDC Environmental, L.C. v. New York Marine & Gen. Ins. Co., 96 Civ. 6033 (BSJ) (HBP), 1998 WL 614478 at *3-*4 (S.D.N.Y. June 4, 1998). Amex's application to compel is, therefore, denied without prejudice.

  To the extent Travelers seeks new relief in reply, its application is procedurally defective. See, e. g., Booking v. Gen. Star Mgmt. Co., 254 F.3d 414, 418 (2d Cir. 2001).

  Accordingly, for all the foregoing reasons, Travelers application for a protective order precluding Cain's deposition in its entirety is denied. Amex's application to compel the production of documents withheld by Travelers is denied without prejudice to renewal.


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