United States District Court, S.D. New York
October 5, 2004.
TRAVELERS CASUALTY & SURETY COMPANY, Plaintiff,
J.D. ELLIOTT & CO., P.C. and AMERICAN EXPRESS COMPANY, Defendants.
The opinion of the court was delivered by: HENRY PITMAN, Magistrate Judge
MEMORANDUM OPINION AND ORDER
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
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
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
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
(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
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,
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.