May 26, 2020

Withholding Claims Notes Results in Severe Sanctions

In Garcia v. Awerbach, 136 Nev. Adv. Op. 27 (May 21, 2020), the Supreme Court of Nevada reinstated a severe discovery sanction against a defendant who withheld a critical insurance claims note. In doing so, the Supreme Court sends a clear message that (a) an insurance company’s internal claims documents are discoverable and (b) refusing to disclose such documents exposes parties to severe sanctions.

In Garcia, the Plaintiff sued the Defendant for negligent entrustment and punitive damages after a collision in which the Defendant’s son was driving her car. Plaintiff sought production of Defendant’s insurance claims file regarding the collision, but Defendant redacted a claims note pertinent to a critical element in the case – whether or not she allowed her son to use her car. When the redacted portion of the claims note came to light, the Court issued a discovery sanction against Defendant establishing permissive use as a matter of law. The Court reasoned that the sanction was appropriate because  “the claims note was concealed improperly, was relevant and was willfully withheld by [Defendant].”

The district court judge subsequently recused herself from the case due to a conflict with new counsel. The new district court judge attempted to modify the discovery sanction such that the finding of permissive use as a matter of law was reduced to merely a rebuttable presumption. The district court reasoned that the sanction was too severe because it essentially established an element of Plaintiff’s claim against Defendant for punitive damages. The Nevada Supreme Court reversed the district court’s modification of the discovery sanction. The Supreme Court held that the finding of permissive use as a matter of law was appropriate and did not prevent Defendant from defending herself as it established only one element of Plaintiff’s punitive damage claim.  Because Plaintiff was still required to prove her case and the discovery sanction alone did not prevent Defendant from mounting a defense, the sanction establishing an element of the claim as a matter of law was reinstated.

Garcia serves as a warning. Withholding relevant portions of an insurance claims file – including claims notes – can expose parties to severe sanctions precipitating the loss of the case. Parties and policyholders may aggressively employ the tools Garcia provides to leverage the disclosure of insurance company documents and/or seek critical sanctions that can change the complexion of their case.