On appeal from Superior Court of New Jersey, Law Division, Ocean County, L-1894-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Axelrad, Payne and Sapp-Peterson.
On October 23, 2006, a judgment in the total amount of $5.2 million was entered in favor of Michael Markowski in a personal injury action instituted by him against Joseph Humphrey, John Humphrey, Dennis Czarnicki, Anthony Bellino, Ashley Bellino, and others arising out of an assault with a bat occurring on January 1, 2003. Liability was apportioned in the following manner: two percent to plaintiff; seventy percent to Joseph Humphrey; zero percent to John Humphrey; ten percent to Dennis Czarnicki; ten percent to Anthony Bellino; and eight percent to Ashley Bellino. A defense under a reservation of rights was provided in the liability action by Allstate New Jersey Insurance Company (Allstate) to John Humphrey,*fn2 who claimed coverage under a homeowner's policy issued to his father. Similarly, a defense under a reservation of rights was provided by Allstate to the Bellinos under a policy issued to James Springer, with whom they resided.
Following a tardy and ultimately unsuccessful motion to intervene in the liability action for the purpose of obtaining a coverage determination prior to or concurrently with the liability trial, and shortly before the liability trial commenced, Allstate filed the present action against the Humphreys and the Bellinos as putative insureds and against Michael Markowski and others as interested parties, seeking a declaration that it had no duty to indemnify either the Humphreys or the Bellinos as the result of the intentional conduct exclusion contained in the applicable insurance policies.*fn3 Following entry of a judgment in excess of policy limits against the Bellinos, they and Markowski filed counterclaims in the declaratory judgment action alleging bad faith on Allstate's part in failing to settle Markowski's claims against the Bellinos in the underlying liability action and thus exposing its insureds to excess liability. See Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474 (1974). They have also asserted a claim of bad faith arising from Allstate's determination, as the result of an investigation that was commenced after the jury's verdict, that the Bellinos were not entitled to coverage under the Springer policy because, although they lived together, Springer was not married to the Bellinos' mother at the time of the assault.
Despite the fact that Markowski was not insured by Allstate and is not the recipient of an assignment of the Bellinos' rights against their insurer, he has taken the lead with respect to the prosecution of the Bellinos' bad-faith claims. In that connection, during the period for discovery, Markowski demanded that Allstate produce the files that it maintained in connection with the defense of the Bellinos, who were jointly represented, and John Humphrey, who was separately represented and eventually exonerated by the jury. Additionally, Markowski demanded production of the file that Allstate maintains in connection with the present coverage action. When Allstate resisted production on the ground that disclosure of the files was protected by the attorney-client and work-product privileges, Markowski, joined by the Bellinos, moved to compel their production. In response, Allstate sought a protective order.
Prior to the hearing on the cross-motions, the Bellinos waived the attorney-client privilege as it pertained to their file, and requested that the entire file be produced. However, Allstate, claiming that their waiver was ineffective, only produced redacted copies of documents from that file. It did not create a privilege log with respect to the redacted documents in the Bellino file or with respect to any of the documents in the Humphrey or coverage files, which were withheld in their entirety.
At a hearing held on the cross-motions on May 25, 2007, the motion judge ordered that, within two weeks, the "entire" Bellino file be produced to him, in unredacted form, along with a proposed privilege log, and that the Humphrey and coverage files likewise be produced for the judge's in camera review. Despite the judge's order, Allstate furnished the judge with only selected portions of the coverage file, unilaterally withholding correspondence between it, predecessor coverage counsel, and Allstate, but providing notice to the judge of the general nature of the withheld material.
At a further hearing in the matter conducted on June 29, 2007, the judge ruled that societal concerns demanded that the entire Bellino and Humphrey defense files be produced to counsel for the Bellinos and Markowski, basing his order upon the initiation of coverage litigation by Allstate, the pendency of the bad-faith claims, the inability of counsel to otherwise obtain evidence relating to Allstate's bad faith, the relevance of the materials, and the waiver of privilege given with respect to the Bellinos' file. Additionally, the judge found waiver on the part of Allstate as the result of its institution of coverage litigation that placed the contents of its communications in issue. The judge also required the production of those portions of the coverage file supplied to him by Allstate, and as a final matter, he ordered that Allstate produce the adjusters overseeing the Bellino, Humphrey and coverage files for their depositions, and that each appear with a complete and unredacted copy of the relevant claims file.
Following a third hearing on August 3, 2007, the judge entered an additional order of August 17 that provided, in relevant part,
a. Plaintiff is to provide the Court and counsel with a privilege log for all three claims files . . . within 15 days of this Order. The privilege log shall include the parties to the correspondence, the date of the correspondence and a statement regarding the subject matter of the correspondence.
b. Plaintiff is to provide Counsel with complete copies of all materials from the three files which were presented to the Court for an "in-camera" review within 15 days of . . . this Order in the same format without any redactions as provided to the Court, the Court having found the material not privileged for the reasons placed on the record on June 29, 2007 and as amplified on August 3, 2007.
c. Allstate's counsel previously redacted correspondence between his firm and the predecessor firm in the Declaratory Judgment file, Barry & Prindiville and Allstate, without providing the correspondence to the Court for an "in camera" review per the Court's order on the motion dated May 25, 2007; all information redacted by Allstate's counsel must be forwarded to the Court for an "in camera" review and any redactions in either the correspondence or diary entries be made by the Court as appropriate. Plaintiff shall set forth all correspondence and redactions in the claims file on the privilege log required to be produced in accordance with subsection (a) above. The balance of the ...