FRANKLIN D. AZAR & ASSOCIATES, P.C., a Colorado Corporation; and FRANKLIN D. AZAR, Plaintiffs, v. EXECUTIVE RISK INDEMNITY, INC., a Delaware Corporation, Defendant Civil Action No. 22-cv-01381-RMR-NRN United States District Court, D. Colorado Filed May 12, 2023 Counsel Marc R. Levy, Matthew W. Hall, Ryan Earl Nichols, Levy Law, P.C., Englewood, CO, for Plaintiffs. Alec H. Boyd, Clyde & Co. LLP, San Francisco, CA, Justin T. Winquist, Clyde & Co. U.S. LLP, Denver, CO, Amy M. Samberg, Clyde & Co. U.S. LLP, Phoenix, AZ, for Defendant. Neureiter, Norman R., United States Magistrate Judge ORDER ON PLAINTIFF'S MOTION TO COMPEL (Dkt. #47) *1 This matter comes before the Court on a motion to compel filed on April 13, 2023, by Plaintiffs Franklin D. Azar & Associates and Franklin D. Azar (collectively, the “Azar Firm”). See Dkt. #47. Defendant Executive Risk Indemnity, Inc. (the “Insurer” or “Executive Risk”) filed a response on April 19, 2023. See Dkt. #50. The Court heard argument on April 21, 2023, and took the issue of whether to compel the production of allegedly attorney-client privileged communications under advisement. See Dkt. #51. Background This is an insurance bad faith lawsuit brought by a law firm, the Azar Firm, against its insurer, Executive Risk. The Insurer had issued to the Azar Firm an Employment Practices Liability Insurance Policy for Law Firms, Policy Number 8255-1026 (the “Policy”). This insurance dispute arises out of a different lawsuit between the Azar Firm and a former employee. The Azar Firm has sued the former employee. The former employee then leveled counterclaims against the Azar Firm, seeking a variety of damages. The counterclaims brought by the former employee triggered coverage under the Policy. The Insurer initially took the position that it would cover 10–20 percent of the legal costs or expenses of the underlying action, asserting that only some of the underlying legal costs were covered under the Policy. There was little additional communication before this bad faith lawsuit was filed. Since the filing of this bad faith lawsuit, communication between the Insurer and the Azar Firm has been through litigation counsel. On November 20, 2022, attorney Amy Samberg on behalf of the Insurer sent a letter to the Azar Firm's litigation counsel entitled “SETTLEMENT COMMUNICATION PROTECTED UNDER CRE 408.” Via that letter, the Insurer offered $457,596 for “the purpose of potential compromise and settlement” and that the offer was conditioned on the Azar Firm fully releasing all claims and dismissing this bad faith case. The letter also included a reservation of rights. Two weeks later, on December 14, 2022, counsel for the Insurer, Ms. Samberg, sent another letter with a check for $457,597. This letter too was stated to be a settlement communication covered under Rule 408. The letter purported to reserve all of the Insurer's rights, including reserving the Insurer's position that only expenses to defend the former employee's defamation counterclaim (roughly 10 percent of the total legal expenses incurred by the Azar Firm in the underlying case) were compensable under the Policy. It is fair to say that these two communications were somewhat contradictory and confusing, as it was not clear whether cashing of the tendered check would waive or release the Azar Firm's claims in this lawsuit. The Azar Firm, through litigation counsel, sought clarification. On January 31, 2023, new counsel for the Insurer, Alec Boyd, wrote back to the Azar Firm's counsel that “[t]his email constitutes written confirmation that the check sent previously by Chubb to your firm is firm payment of defense costs reimbursement and that your firm's cashing of the check will not effectuate a ‘full and final settlement’ of the action.” Mr. Boyd later added that the check was not intended to be a settlement, but was still “subject to a reservation of rights.” *2 The Insurer has issued an expert report citing the issuance of the check as a basis for his opinion that the Insurer acted as a reasonable and prudent insurer under the circumstances. Thus, the Azar Firm is concerned that the Insurer intends to introduce the check into evidence at trial in support of its supposed “good faith” conduct in adjusting the claim. The Instant Dispute The Azar Firm claims that it is entitled to discovery on any post-suit (this suit, as opposed to the underlying fight with the former Azar Firm employee) claims handling that occurred, including discovery about the putative “settlement” letters and the motives behind and justification for the issuance of the $457,597 check. The Azar Firm further asserts that because its communications with the Insurer were through litigation counsel, then litigation counsel was necessarily involved in post-suit claims-handling. The Azar Firm argues that under established Colorado law, as exhaustively analyzed by my colleague Judge Scott T. Varholak in the case of Menapace v. Alaska National Ins. Co., 20-cv-00053-REB-STV, 2020 WL 6119962 (D. Colo. Oct. 15, 2020), the Azar Firm is entitled to discovery about litigation counsel's purported claims handling activities and it is further entitled to pierce the attorney-client privilege to discover those activities. Citing Menapace, the Azar Firm argues that because litigation counsel here has seemingly performed functions “traditionally performed by an insurance company in its normal course of handling a claim, evidence of such activities are relevant, discoverable and admissible in bad faith actions such as this.” Dkt. #47 at 7. The Insurer, for its part, disputes that its litigation attorneys have in any way been involved in any formal “claims handling.” Per the Insurer, it is normal, once a lawsuit is filed, for communications between an insurer and its insured to be directed between counsel. That letters were sent by the Insurer's litigation counsel does not mean that litigation counsel acted as a claims-handler and is by no means a waiver of the attorney-client privilege. Indeed, the Insurer cites a letter from the Azar Firm's own counsel indicating that it would be inappropriate, once both sides had retained counsel and after suit was filed, for there to be communications by a lawyer directly with the adverse party. See Dkt. #47-8 (letter of Marc Levy of Levy Law to litigation counsel for the Insurer, which begins, “As you know, given that your client Executive Risk has retained you as its counsel, we are not permitted to communicate directly with your client. Accordingly, we are sending this claim communication in your care for your client and request you forward to the appropriate personnel in the claims department.”). The Insurer's position is that “[n]othing that Clyde and Co. [Insurer's litigation counsel] has done during this lawsuit amounts to claims handling. At all times, Clyde & Co. was litigation counsel, including in communicating with its counterparts representing [the Azar Firm.]” Dkt. #50 at 9. The Insurer has disclosed two people with knowledge of how this claim was adjusted—an adjuster and a supervisor. As of the argument date of April 21, 2023, the Azar Firm had deposed the adjuster, but not the supervisor. The Insurer represented to the Court that the supervisor will be able to answer questions about the various letters, the Insurer's intent in sending the check, and the asserted reservation of rights. The Azar Firm argues in part that it should be entitled to pierce the privilege because the Insurer should not be able to use the privilege as “both a sword and a shield” by concealing its claims handling activity and reason for its adjustment decisions, while simultaneously seeking to tell the jury that it has acted in good faith in fulfilling its obligations under the policy. A deposition of the supervisor (or perhaps a Rule 30(b)(6) deposition of the Insurer) should provide the discovery the Azar Firm seeks, without having to pierce the privilege. *3 The Court agrees with the Insurer that, at this time, there is no basis for Clyde & Co.’s communications with its litigation client, the Insurer, to be subject to discovery. The Azar Firm simply has not established a sufficient factual basis for the Court to conclude that the Insurer's litigation counsel (Clyde & Co.) was acting as a claims handler or claims adjuster in connection with this case. For this reason, the outstanding portion of Plaintiff's Motion to Compel, Dkt. #47, that seeks to pierce the attorney-client privilege is DENIED.