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### IN THE SUPREME COURT OF THE STATE OF HAWAI # I ---o0o---

LLOYD R. ANASTASI, Petitioner and Respondent/Plaintiff-Appellant,

vs. FIDELITY NATIONAL TITLE INSURANCE COMPANY, Respondent and Petitioner/Defendant-Appellee.

SCWC-30557
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (ICA NO. 30557; CIV. NO. 08-1-0718)

FEBRUARY 4, 2016 RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.

OPINION OF THE COURT BY NAKAYAMA, J. Both Plaintiff-Appellant Lloyd R. Anastasi (Anastasi) and Defendant-Appellee Fidelity National Title Insurance Company (Fidelity) have applied for a writ of certiorari from the Intermediate Court of Appeals’s (ICA) February 6, 2015 Judgment on Appeal filed pursuant to its December 30, 2014 Opinion. The ICA vacated the judgment of the Circuit Court of the First Circuit (circuit court), which was entered in favor of Fidelity Electronically Filed Supreme Court SCWC-30557 04-FEB-2016 09:16 AM*** FOR PUBLICATION IN WE ST’S HAWAI # I REPORTS AND PACIFI C REPORTER ***



### on Anastasi’s bad faith claim.

Anastasi filed a bad faith and breach of contract claim against Fidelity after Fidelity allegedly delayed in making payments to Anastasi under a title insurance policy. Anastasi had loaned $2.4 million to a third party in exchange for a mortgage on a property that was supposedly owned by that third party. Fidelity insured that the third party had good title, but it was soon discovered that the warranty deed purporting to give title to the third party was forged. When Anastasi was sued by the true owners of the property, Fidelity immediately accepted tender of the claim under a reservation of rights and retained an attorney to represent Anastasi.

Anastasi argued that Fidelity committed bad faith because Fidelity knew early on in the underlying litigation that the deed was forged but continued to litigate the lawsuit. Anastasi asserts that the lawsuit was used by Fidelity to delay paying him under the policy. The circuit court granted summary judgment in favor of Fidelity on this issue.

On appeal, Anastasi argued that there were genuine issues of material fact as to whether Fidelity committed bad faith. Anastasi also challenged a circuit court order that allowed Fidelity to withhold certain documents that Anastasi requested during discovery under attorney-client privilege and work product doctrine. The ICA remanded the discovery order to

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### the circuit court and vacated part of the circuit court’s order granting summary judgment.

For the reasons stated below, we affirm in part and vacate in part the February 6, 2015 judgment of the ICA filed pursuant to its December 30, 2014 opinion and remand to the circuit court for further proceedings consistent with this opinion.
I. BACKGROUND

Anastasi made a loan to Alajos Nagy (Nagy) in the amount of $2.4 million that was secured by a mortgage on a property located in Mokul ç # ia, O # ahu. In 2005, Anastasi had over twenty years of experience in real estate transactions and made loans to individuals as a business. Anastasi’s loans were equity loans based on the value of properties. Anastasi stated in his deposition that a business acquaintance of his, Paul Lee (Lee), first brought the Nagy loan to his attention. Anastasi did not know what Lee did on a day-to-day basis for work except that Lee referred prospective borrowers to Anastasi. Michael Talisman (Talisman) also brought the Nagy loan to Anastasi’s attention. Anastasi stated that Lee did not tell him where he procured his customers, and Anastasi could not recall any details about how Nagy, Lee, and Talisman were connected.

In March 2005, Anastasi was in communication with Lee and Talisman regarding a potential mortgage to Nagy that would be

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### secured by the property. Anastasi testified that during that month, he performed a due diligence investigation into the property. Among documents that Anastasi reviewed as part of his investigation was a document from the tax assessor’s office that indicated that the property was owned by Paul Stickney (Stickney). At that time, the property was owned by a trust, and Stickney was the trustee and Gregory Rand (Rand) was the beneficiary of the trust. Anastasi stated that it was his understanding that Lee and Talisman and Rand and Stickney were making arrangements between them and that Nagy would acquire title to the property unencumbered and be the one signing the loan documents. Anastasi was assured that he would also be issued title insurance at that time. Anastasi also reviewed an appraisal of the property done by Mark Justmann (Justmann) dated March 15, 2005. Justmann valued the property at almost $7 million, but Anastasi believed the actual value of the property was closer to $5 million.

A $2.4 million mortgage was executed by Nagy on April 25, 2005. On June 1, 2005, a warranty deed was apparently signed by Stickney and purported to deed the property from Stickney to Nagy in exchange for $10 in consideration. The warranty deed and the mortgage were recorded in the Bureau of Conveyances on June 17, 2005. Also on June 17, 2005, Fidelity issued Anastasi a title insurance policy (Policy) on the property

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### in the amount of $2.4 million.

The Policy contained a section that stated the following:

4. D EFENS E ANDPROS ECUTI ON OFACTI ONS; DUTY OF IN SURED

CLAIMANT T O COO PERAT E (a) U pon w ritte n req uest by th e ins ured and s ubjec t to the o ption s con taine d in Secti on 6 of th ese C ondit ions and Stipu latio ns, t he Co mpany , at its o wn co st an d wit hout unrea sonab le de lay, shall prov ide f or th e def ense of an insur ed in liti gatio n in whichany thirdpart y ass erts a claimadve rse t o the titl e or inter est a s ins ured, but only as to thos e sta ted c auses of a ction alle ging a def ect, lien or en cumbr ance or ot her m atterinsu red a gains t by this polic y. T he Co mpanyshal l hav e the righ t to selec t cou nsel of it s cho ice ( subje ct to the right of t he in suredto o bject for r eason able cause ) to repre sent the i nsure d as to th ose state d cau ses o f act ion a nd sh all n ot be liab le fo r andwill not p ay th e fee s of any o ther couns el. The C ompan y wil l not pay a ny fe es, c osts or ex pense s inc urredby t he in suredin the d efens e of those caus es ofacti on wh ich a llege matt ers not i nsure d aga inst by th is po licy. (b) T he Co mpanyshal l hav e the righ t, at its own c ost, to in stitu te an d pro secut e anyacti on orproc eedin g or to do any o ther act w hich in it s opi nion may b e nec essar y or desir able to es tabli sh th e tit le to the estat e or inter est or th e lie n of the i nsure d mor tgage , as insur ed, o r to preve nt orredu ce lo ss ordama ge to the insur ed. The Compa ny ma y tak e anyappr opria te ac tion underthe terms of this polic y, wh etheror n ot it shal l be liabl e her eunde r, and s hall not t hereb y con cede liabi lity or wa ive a ny provi sion of th is po licy. If the C ompan y sha ll ex ercis e its right s und er th is pa ragra ph, i t sha ll do so d ilige ntly. (c) W henev er th e Company shall have brou ght a n act ion or in terpo sed a defe nse a s req uiredor p ermit ted b y the provi sions of t his p olicy , the Comp any m ay pu rsue any litig ation to f inal deter minat ion b y a c ourt of co mpete nt juris dicti on an d exp ressl y res erves the right , in its s ole discr etion , to appea l fro m anyadve rse j udgme nt ororde r. (d) I n all case s whe re th is po licy permi ts orrequ ires the C ompan y to prose cute or pr ovide for the d efens e of any actio n or proce eding , the insu red s hall secur e to the Compa ny th e rig ht to so p rosec ute o r pro vide defen se in the actio n or proce eding , andall appea ls th erein , andperm it the C ompan y to use, at it s opt ion, the n ame o f the insu red for t his p urpos e. W henev er re quest ed bythe Compa ny, t he insur ed, a t the Comp any’s expe nse, shall give the Compa ny all r eason able aid ( i) in any actio n or proce eding , sec uring evide nce, obtai ning witne sses, pros ecuti ng ordefe ndingthe actio n or proce eding , or effec ting settl ement , and(ii) in any o ther lawfu l act whic h in the o pinio n of the C ompan y may be ne cessa ry ordesi rable to e stabl ish t he ti tle t o the estat e or inter est o r the lien of t he in suredmort gage, as insur ed. If th e Company is pr ejudi ce bythe failu re ofthe


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insur ed to furn ish t he re quire d coo perat ion, the C ompan y’s oblig ation s to the i nsure d und er th e pol icy s hall termi nate, inclu ding any l iabil ity o r obl igati on to defe nd, p rosec ute, or co ntinu e anyliti gatio n, wi th re gard to th e mat ter o r matte rs re quiri ng su ch co opera tion.


### A. Stickney Lawsuit

On November 23, 2005, Stickney and Rand filed their First Amended Complaint to Quiet Title against Nagy and Anastasi, alleging that Stickney’s signature had been forged on the June 1, 2005 warranty deed. Anastasi was served with the complaint on January 5, 2006, and he tendered the claim to Fidelity. Fidelity received notice of the claim on January 6, 2006.

Elizabeth McGinnity (McGinnity), Senior Vice-President and Major Claims Counsel for Fidelity, reviewed Anastasi’s claim and determined that Fidelity should provide a defense to Anastasi under a reservation of rights. In a letter to Anastasi dated January 23, 2006, McGinnity informed Anastasi that Fidelity accepted his tender of defense and reserved all of its rights, including its right to continue its investigation of the matter and later deny coverage. McGinnity also informed Anastasi that Fidelity had retained Jade Lynne Ching (Ching) of Alston Hunt Floyd & Ing to represent him in the Stickney lawsuit.

Ching sent an introductory letter dated January 27, 2006 to Anastasi. Ching wrote that she would be acting as counsel for Anastasi, and not Fidelity, even though her fees would be paid by Fidelity. The letter also stated that because

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### Ching was serving as Anastasi’s attorney, confidential information provided to Ching by Anastasi would not be disclosed to Fidelity without Anastasi’s consent. Ching wrote that it was her practice to provide Fidelity with copies of correspondence, pleadings, discovery responses, deposition transcripts, and periodic status reports, including an assessment of the likelihood of success of the defense of a claim. Ching further
wrote that [i]t is an ticip ated that Fidel ity w ill p rovid e

recommenda tions and instr uctio ns to the law f irm r egard ing the s teps and p roced ures to be take n in defen ding or settl ing t he Cl aim. I sh all e ndeav or to keep you infor med of su ch in struc tions and obtai n you r con sent where appro priat e to the p roced ures to be take n in defen ding or settl ing t he ti tle d isput e. I n the even t of any d isput e betwe en yo u andFide lity conce rningthe prope r pro cedur es to be fo llowe d in defen ding or se ttlin g the titl e dis pute, it is ne cessa ry fo r youor y our i ndivi dual attor ney t o negot iate the m atterdire ctly with Fidel ity. This law firm reser ves t he ri ght t o wit hdrawfromyourrepr esent ation in the e vent such dispu te ca nnot be re solve d by agree ment betwe en yo u andFide lity and t he la w fir m rec eives confl ictin g ins truct ions from you a nd Fi delit y con cerni ng the p roced ures to be foll owed in de fendi ng orsett ling the Claim
. 

### On February 13, 2006, McGinnity and Ching received a letter from an attorney, Clifford Frieden (Frieden), who was retained by Fidelity to provide coverage advice and investigate the allegations made in the Stickney lawsuit. Frieden’s letter stated that he compared Stickney’s signature to the signature of the person who executed the warranty deed, and the two signatures were very different. The driver’s license number and the expiration date of the license recorded by the notary were also different from Stickney’s actual driver’s license number and
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### expiration date. Suspecting the potential involvement of Talisman, Justmann, and Nagy in the falsely executed warranty deed, Ching filed a cross-claim against Nagy and a third-party complaint against Talisman and Justmann.

On October 6, 2006, the Stickney plaintiffs filed a motion for summary judgment. Through Ching, Anastasi opposed the motion, but on April 11, 2007, the circuit court granted the plaintiffs’ motion for summary judgment.

On April 20, 2007, Ching filed a motion for reconsideration on the grant of summary judgment on Anastasi’s behalf. The circuit court denied the motion on October 23, 2007. On November 19, 2007, Ching sent an email to McGinnity informing her that the deadline to file an appeal was two days away and
that
[t]o prote ct An astas i’s a ppeal righ ts, w e sug gest a not ice

of ap peal be fi led; we ca n dis miss the a ppeal at a ny ti me. Also, sinc e the cour t den ied S tickn ey’s fee r eques t, th ere is so me ut ilityin p rocur ing a n agr eemen t fro m Sti ckneythat we wi ll no t pur sue t he ap peal so lo ng as he d oes n ot ap peal the c ourt’ s den ial o f his requ est f or fe es. 

### Attached to the email was a memorandum from Ching to McGinnitythat was labeled as confidential, work product, and attorneyclient communication (Ching-McGinnity Memorandum). In the memorandum, Ching gave the following conclusion: “Though we would likely succeed on appeal, it would be a pyrrhic victory since we would not be able to establish the validity of the Warranty Deed. For this reason, we do not recommend an appeal of the order

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### granting summary judgment.” McGinnity sent the following response to Ching: “Yes. File the notice. Thanks.” A notice of appeal was filed by Ching on November 21, 2007.

The Stickney plaintiffs also filed a cross-appeal challenging the circuit court’s denial of their attorneys’ fees. On February 27, 2008, the attorney for the Stickney plaintiffs sent an email to Ching stating that the plaintiffs would accept Ching’s offer to settle for $10,000 and that both parties would dismiss their appeals. The parties eventually filed a stipulation for dismissal of all claims on August 14, 2008.

On February 28, 2008, Fidelity retained Harlin Young to appraise the property as of the date of the loss in order to determine the amount of loss in accordance with the Policy’s terms. The appraisal was issued on April 30, 2008, and the value of the property was determined to be $2,750,000.
B. Instant Action

On April 8, 2008, Anastasi filed the complaint in the instant case against Fidelity, alleging breach of contract and bad faith. On August 4, 2008, Fidelity paid Anastasi $2.4 million under the Policy.

On December 9, 2008, Anastasi filed a motion to compel discovery of certain documents and responses to interrogatories that Anastasi had requested and Fidelity had withheld or objected to. Attached to the motion was a privilege log that Fidelity

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### submitted on October 10, 2008. The privilege log listed numerous documents that were not produced due to either attorney-client privilege or work product privilege. The log provided information on the number of pages in each document; the type of document withheld; who the recipient of the document was, if applicable; who the author of the document was; the date of the document; the subject of the document; and the claimed privilege for each document. McGinnity was listed as either the recipient or the author on many of the documents listed in the privilege log. Anastasi argued that McGinnity functioned as a claims adjuster in this case, and although her confidential communications with Frieden may be privileged, her internal work was not privileged.

In McGinnity’s declaration, she stated that she was an attorney and

[p]ur suant to m y rol e as MajorClai ms Co unsel , I inves tigat ed, a nalyz ed an d ren deredlega l adv ice i n conne ction withthe alleg ation s mad e aga inst the i ntere sts of ou r ins ured (“the Clai m”) i n the Stic kney lawsu it by makin g an initi al de termi natio n on wheth er th e Cla im wa s at least pote ntial ly co veredby t he Po licy, as w ell a s deter minin g wha t oth er ac tions to t ake i n res ponse to t he Claim . Th e fac t tha t an attor ney w as as signe d to perfo rm these task s was not an ac ciden t. T itle insur ance indem nifie s aga inst loss cause d by a mul titud e of poten tial probl ems t hat a ffect the title or i ntere st ofan i nsure d in real prope rty. Beca use o f thi s fac t andthe uniqu e and compl ex pr oblem s end emic to ti tle i nsura nce c laims , man y aspec ts re latin g to cover age u nder a tit le in suran ce po licy requi res b oth t he pe rform ance of a caref ul le gal a nalys is of the t itle insur ance polic y andthe appli catio n of real estat e andinsu rance cove rage law t o the uniq ue fa cts o f everycase . As a re sult, it h as be come the s tanda rd in the title insu rance indu stry to hi re cl aims attor neys as pa rt of a tit le co mpany ’s le gal d epart ment.



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### The circuit court held a hearing on Anastasi’s motion 1 

### to compel discovery on February 3, 2009, and issued an order on March 17, 2009. The circuit court held that “the Declaration of Elizabeth McGinnity establishes that she is an attorney employed by Defendant and therefore, the attorney-client privilege and work product privilege may be applicable to documents generated and/or received by her.” The court ordered Fidelity to review the withheld documents to determine if any additional documents could be produced. The circuit court also ordered Fidelity to produce any of the privileged documents it elected to continue to withhold for an in camera review.

Fidelity submitted some documents to the circuit court for in camera review. There were ten documents submitted in total, all authored or received by McGinnity (McGinnity documents). On November 5, 2009, the circuit court issued an 2 

### order stating that it had “reviewed in-camera the documents claimed by [Fidelity] as privileged and ha[d] determined that [Fidelity’s] assertion of attorney-client privilege and/or the work product doctrine is proper and that all of the documents are covered by the attorney-client privilege and/or the work product doctrine.”

The H onora ble G lenn J. Ki m pre sided
. 1
The H onora ble R om A. Trad er si gned the o rder. 2 

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### On March 19, 2010, Fidelity filed a motion for summary judgment on Anastasi’s bad faith claim. In support of the summary judgment motion, Fidelity included Ching’s deposition where she testified to the following under oath:

Q: [W]ou ld it be a fairstat ement to s ay th at it is

your view that you w ere d efend ing M r. An astas i, and y ou we re de termi ning the l egal strat egy t hat shoul d be used to de fend him? [Chin g]: That’ s cor rect. Q: And b y imp licat ion F ideli ty wa s not dire cting

you i n howto d efendMr. Anast asi. Woul d tha t be co rrect ? [Chin g]: That’ s cor rect. 

### In opposition to the motion, Anastasi asserted that Fidelity unreasonably delayed paying him under the Policy by directing Ching to continue litigation and pursue an appeal even after Fidelity learned the warranty deed was forged.

The circuit court granted Fidelity’s motion for summary judgment on May 24, 2010. The circuit court made the following findings:
1. T he un dispu ted f acts estab lish that durin g the cour se of

the u nderl ying case, Paul Stic kney et al . v. Nagy et al ., Civil No. 05-1- 2065- 11 in the Circu it Co urt o f the Firs t Circu it, S tate of Ha wai # i (“S tickn ey Li tigat ion”) , Fid elity immed iatel y acc eptedPlai ntiffAnas tasi’ s ten der o f the defen se ofthe claim s ass ertedagai nst h im byPaul Stic kney and G regor y Ran d (“S tickn ey Pl ainti ffs”) and fullyand timel y inv estig ated Plain tiff Anast asi’s clai m. 2. I n acc ordan ce wi th th e Haw ai # i Sup reme Court ’s ho lding in Be st Pl ace, Inc. v. Pe nn Am erica n Ins . Co. , 82 Hawai # i 120, 920 P .2d 3 34 (1 996), Fide lity actedreas onabl y in its inter preta tion of th e ter ms an d pro visio ns ofthe title insur ance polic y (th e “Po licy” ) iss ued t o Pla intif f Ana stasi when it ch ose t o def end t he cl aims asser ted a gains t himin the S tickn ey Li tigat ion; parti cular ly si nce F ideli ty ha d



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been told by at torne y Jad e Chi ng th at sh e bel ievedthe claim again st Pl ainti ff An astas i was defe nsibl e bec ause, amon g otherthin gs, t he al legedforg ery o f the Warr anty Deed at issue in t he St ickne y Lit igati on mi ght h ave b een s ecure d with the c ompli city of th e Sti ckneyPlai ntiff s as well as otherpart ies i n the Stic kney Litig ation . Gi ven t hese undis putedfact s, th e Cou rt fi nds t hat F ideli ty wa s ent itled to ex ercis e its lega l andcont ractu al ri ghts underthe Polic y to defen d Pla intif f Ana stasi agai nst t he cl aims alleg ed ag ainst him in th e Sti ckneyLiti gatio n andto p ursue that defen se to a fi nal d eterm inati on. 3. W hile it is undi spute d tha t the Stic kney Plain tiffs ’ motio n forsumm ary j udgme nt wa s rul ed adverse ly to Plai ntiff Anast asi a nd th at a decis ion w as ma de to file botha mo tion for r econs idera tion of th at ru ling and a n app eal w hen t he motio n forreco nside ratio n was deni ed, t hese facts do n ot suppo rt a findi ng th at Fi delit y act ed in bad faithin i ts handl ing o f Pla intif f Ana stasi ’s cl aim.
4. P laint iff A nasta si ha s fai led t o add uce a ny ev idenc e to raise a ge nuine issu e of mater ial f act a s to wheth er Fidel ity c ontro lled and/o r dir ectedPlai ntiffAnas tasi’ s attor neys at Al ston Hunt Floyd& In g in theirdefe nse o f Plain tiff Anast asi i n the Stic kney Litig ation . Th e undis putedfact s est ablis h tha t Fid elitydefe nded the Stick ney L itiga tion undera re serva tion of ri ghts and t hat in ac corda nce w ith i ts ob ligat ions underFinl ey vs . Hom e Insur ance, 90 H awai # i 25, 957 P.2d 1145 (1998 ), ga ve Plain tiff Anast asi’s atto rneys full rein to c onduc t the defen se ofthei r cli ent a s the y dee med a pprop riate
. 5. P laint iff A nasta si ha s not addu ced a ny ev idenc e to suppo rt th e con clusi on th at Fi delit y dir ectedPlai ntiff Anast asi’s atto rneys to d elay a res oluti on ofthe Stick ney Litig ation for the p urpos e of allow ing F ideli ty to fore stall the p aymen t of benef its t o Pla intif f Ana stasi unde r the polic y. A ny de lay i n the reso lutio n of the S tickn ey Litig ation was the n atura l byp roduc t of the d efens e str ategy emplo yed b y the Alst on Hu nt Fl oyd & Ing attor neys which , as a mat ter o f law , mus t be imput ed to him. 6. F ideli ty’s decis ion t o payfor the w ork p erfor med b y two appra isers , Jam es Ha llstr om an d Ste llmac her & Sado yama, and its d ecisi on to orde r an appra isal from Harli n You ng to deter mine the a mount of t he lo ss un der t he Po licy were consi stent withand in ac corda nce w ith a reas onabl e inter preta tion of Fi delit y’s r ights unde r the Poli cy. 

### Pursuant to Hawai # i Rules of Civil Procedure Rule 54(b), the circuit court entered judgment dismissing the bad faith claim on May 24, 2010. Anastasi filed a timely notice of appeal on June 8, 2010. 13*** FOR PUBLICATION IN WE ST’S HAWAI # I REPORTS AND PACIFI C REPORTER ***



### B. ICA Proceedings

In his opening brief, Anastasi argued 1) that the circuit court erred in finding that Fidelity’s actions were reasonable as a matter of law, 2) that the circuit court erred in ruling that the actions of Ching must be imputed to Anastasi as a matter of law, 3) that the circuit court erred in holding that the McGinnity documents were covered by attorney-client privilege or the work product doctrine, 4) that the circuit court erred in restricting discovery to other claims made in Hawai # i, and 5) that the court erred in awarding costs to Fidelity. 3



### Anastasi argued that an issue of fact existed as to whether Fidelity breached the duty of good faith it owed to him because “Fidelity engaged in more than two years of fruitless litigation in a feigned attempt to cure a deed that it knew was forged.” Anastasi argued that there was evidence that showed that Fidelity believed from May 2006 that the deed was forged and that Fidelity used the litigation and appraisal clauses in the Policy to delay payment to Anastasi until August 4, 2008. Anastasi argued that there was also a question of fact as to whether Fidelity engaged in undue delay in express breach of the Policy, which required that Fidelity exercise its rights “diligently.”

Becau se on ly th e fir st an d thi rd is sues remai n bef ore u s on 3 appea l, on ly th ose i ssues will be d iscus sed h erein
. 

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### Anastasi also argued that the circuit court erred in finding that the McGinnity documents were privileged. Anastasi asserted among other things that because McGinnity served in the capacity of a claims adjuster and investigated Anastasi’s claim in the ordinary course of business, attorney-client privilege and work product doctrine should not apply.

In its answering brief, Fidelity argued that it could not be held liable for bad faith because its actions were based on a reasonable interpretation of the insurance contract, which expressly allows defense of the claim, retention of an appraiser, and deferral of payment until after the conclusion of litigation. Furthermore, Fidelity asserted that even if these actions could support a bad faith claim, Anastasi failed to adduce evidence suggesting a genuine issue of material fact because notwithstanding the forgery, Ching believed she could successfully defend the claim against Anastasi. Fidelity also argued that it needed Young’s appraisal because previous appraisals had failed to determine the value of the property as of the relevant date of loss, January 6, 2006 (when Anastasi tendered the claim to Fidelity).

As for the discovery issue, Fidelity argued that the circuit court did not abuse its discretion in holding that the documents were privileged because Anastasi did not provide any evidence to support his contention that McGinnity acted solely as

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### an adjuster.

On December 30, 2014, the ICA issued an opinion. Relevant to this appeal, the ICA held 1) that because McGinnity acted in a dual capacity as in-house counsel and claims adjuster, the circuit court abused its discretion in ruling that all of the McGinnity documents were covered by attorney-client privilege and/or work product doctrine, 2) that the circuit court erred in determining that Fidelity acted reasonably as a matter of law, and summary judgment should be vacated, and 3) that the circuit court did not err in determining that Fidelity did not control or direct Ching’s representation of Anastasi. Anastasi v. Fidelity Nat. Title Ins. Co., 134 Hawai # i 400, 405, 341 P.3d 1200, 1205 (App. 2014).

Both Anastasi and Fidelity filed timely applications for writ of certiorari, and this court accepted both applications on May 22, 2015. II. STANDARDS OF REVIEW
A. Discovery Rulings

The H awai # i Rul es ofCivi l Pro cedur e (HR CP)re flect a ba sic philo sophythat a pa rty t o a c ivil actio n sho uld b e ent itled to th e dis closu re ofall relev ant i nform ation in t he posse ssion of a nothe r per son p rior to tr ial, unles s the infor matio n is privi leged . Ho wever , the exte nt to whic h disco very is pe rmitt ed un der Rule 2 6 is subje ct to consi derab le la titud e andthe discr etion of t he tr ial c ourt. Thus, the exerc ise o f suc h dis creti on wi ll no t be distu rbed in th e abs ence of a clearabus e of discr etion that resu lts in su bstan tial preju dice to a party . Ac cordi ngly, the appli cable stan dard of re view on a trial cour t's r ulingon a motio n to compe l dis cover y, br ought purs uant to HR CP Ru le 26, i s abu se ofdisc retio n.



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### Hac v. Univ. of Hawai # i, 102 Hawai # i 92, 100-01, 73 P.3d 46, 54-55 (2003) (internal quotation marks, citations, brackets, and ellipsis omitted).
B. Summary Judgment

The s tanda rd ofrevi ew fo r the gran t or denia l of a mot ion for s ummar y jud gment is w ell-s ettle d. “ Unlik e oth er appel late matte rs, i n rev iewin g summary judgm ent d ecisi ons an ap pella te co urt s teps into the s hoes of th e tri al co urt and a pplie s the same lega l sta ndardas t he tr ial c ourt appli ed.” Beame r v. Nishi ki , 66 Haw. 572, 577, 670 P .2d 1264, 1270 (198 3). “[The appe llate ] cou rt re views a ci rcuit court ’s gr ant o r den ial o f summary judgm ent d e nov o.” Breme r v. Weeks , 104 Hawa i # i 43, 51, 85 P. 3d 15 0, 15 8 (20 04) (quot ing Hawai # i Cmt y. Fe d. Cr edit Unionv. Keka , 94 Hawai # i 213, 221, 11 P. 3d 1, 9 (2 000))
. [S]ummary judgm ent i s app ropri ate i f the plead ings, depo sitio ns, a nswer s to inter rogat ories , andadmi ssion s on file, toget her, with the a ffida vits, if a ny, show that there is n o gen uine issue as t o any m ateri al fa ct an d tha t the movi ng partyis e ntitl ed to judgment as a matte r of la w. Afact is m ateri al ifproo f of that fact wouldhave the effec t of estab lishi ng orrefu ting one o f the essen tial eleme nts o f a c ause of ac tion or defen se as serte d by the p artie s. T he evide nce must b e vie wed i n the ligh t mos t favor able to th e non -movi ng pa rty. In otherword s, we must viewall of th e evide nce a nd th e inf erenc es dr awn there from, in t he li ght m ost f avora ble t o the p arty oppos ing t he mo tion.
Omero d v. Heirsof Kahean anui , 116 Hawa i # i 239 , 254 -55, 172 P .3d 983, 998-9 9 (20 07) ( citat ions omitt ed) ( empha sis a dded)
. 

### Blaisdell v. Dep’t of Public Safety, 119 Hawai # i 275, 282, 196 P.3d 277, 284 (2008).
III. DISCUSSION
A. The Discovery Dispute: Work Product Doctrine

The main issue at the center of the discovery dispute

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### is whether attorney-client privilege and work product doctrine protect communications produced by an in-house attorney like McGinnity who performed duties both as an attorney and a claims adjuster for Fidelity. Neither party has challenged the ICA’s opinion as to attorney-client privilege, but Fidelity challenges the ICA’s reference to a presumption from Harper v. Auto-Owners Insurance Co., 138 F.R.D. 655, 663 (S.D. Ind. 1991), regarding the applicability of the work product doctrine. We find Fidelity’s arguments to be persuasive, and the ICA erred to the extent that it endorsed or adopted the Harper presumption as part
of our case law.

As noted by the ICA, even though HRCP Rule 26(b)(4) generally prohibits the discovery of documents prepared in anticipation of litigation or for trial, “[t]he difficulty of this issue is determining at what point work produced by an insurer’s in-house counsel acting in a dual role becomes ‘work prepared in anticipation of litigation.’” Anastasi, 124 Hawai # i at 425, 341 P.3d at 1225. The ICA held:

Inste ad, “ [i]t is we ll es tabli shed that docum ents prepa red i n the ordi nary cours e of busin ess a re no t prote cted by th e wor k-pro duct doctr ine b ecaus e the y wou ld have been creat ed re gardl ess o f the liti gatio n.” Healt h v. F/V Z OLOTO I, 22 1 F.R .D. 5 45, 5 49-50 (W.D . Was h. 20 04); Thoma s Org an Co . v. Jadra nska Slobo dna P lovidba, 5 4 F.R .D. 367, 371 ( N.D. Ill. 1972) (“[W ]e co nclud e tha t anydocu ment whichwas prepa red i n the ordi nary cours e of busin ess a nd not i n ant icipa tion of tr ial o r lit igati on is rout inely disco verab le wi thout any showi ng ofneedunde r Rul e 26( b)(1) and i s not prot ectedby Rule 2 6(b)( 3) no twith stand ing t hat it co ntain s men tal i mpres sions , con clusi ons, opini ons a nd legal theo ries. ”). “It i s pre sumedthat a do cumen t or thing



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prepa red b efore a fi nal d ecisi on wa s rea ched on an insu red’s claim , andwhic h con stitu tes p art o f the fact ual i nquir y into or ev aluat ion o f tha t cla im, w as pr epare d in the ordin ary a nd ro utine cour se ofthe insur er’s busin ess o f claimdete rmina tion and i s not workprod uct.” Har per v . Auto- Owner s Ins . Co. , 138 F.R. D. 65 5, 66 3 (S. D. In d. 19 91). “[M]a teria ls pr epare d as part of cl aims inves tigat ion a re gener ally not c onsid ered work produ ct du e to the i ndust ry’s need to in vesti gate claim s. . . . D ocume nts c reate d dur ing those proc esses are part of th e ord inarycour se ofbusi ness of in suran ce co mpani es.” Moe v. Sy s. Tr ansp. , Inc ., 27 0 F.R.D . 613 , 624 -25 ( D. Mo nt. 2 010) (bloc k quo te fo rmat and citat ion o mitte d); s ee Th omas Organ , 54 F.R.D . at 374 ( “If everytime a pa rty p repar ed a docum ent i n the ordi nary cours e of busin ess t o gui de cl aim h andli ng, t his d ocume nt was d eemedto b e pre paredin a ntici patio n of litig ation , it is di fficu lt to see what wouldbe d iscov erabl e.”).

In ci rcums tance s whe re a docum ent s erves a dual purpo se, t hat i s, wh ere i t was not prepa red exclu sivel y forliti gatio n, th en th e “be cause of” t est i s use d. D ual p urpos e doc ument s are deeme d pre paredbeca use o f lit igati on if“in light of t he na ture of th e doc ument and the factu al si tuati on in the parti cularcase , the docum ent c an be fair ly sa id to have been prepa red o r obt ainedbeca use o f the pros pect of litig ation .” I n app lyingthe “beca use o f” stand ard, court s mus t con siderthe total ity o f the c ircum stanc es an d det ermin e whe ther the “‘doc ument was creat ed be cause of a ntici pated litig ation , andwoul d not have been crea ted i n subst antia lly s imila r for m but for the p rospe ct of li tigat ion.’ ” Unite d Sta tes v . Ric hey, 632 F .3d 5 59, 5 67-68 (9thCir. 2011) (cit ation s omi tted)
. 

### Id. (emphasis added).

Turning to the facts of this case, the ICA held that based on its review of the McGinnity documents, “it is not evident that Fidelity has carried its burden of establishing that the work-product doctrine applies to preclude discovery[.]” Id. Although McGinnity testified that at the time the claim was tendered to Fidelity she anticipated that a coverage dispute might ensue between Fidelity and Anastasi, the ICA held that

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### there was no evidence on the record that documents were created because of anticipated litigation and would not have been created in substantially similar form but for the prospect of litigation. Id. at 425-26, 341 P.3d at 1225-26. After briefly addressing each document, the ICA noted that there was “nothing in the record to suggest that the circuit court considered whether the withheld documents were produced ‘because of’ anticipated litigation and would not have been created in a substantially similar form but for the prospect of litigation.” Id. at 426, 341 P.3d at 1226
.

Fidelity did not challenge the ICA’s adoption or application of the “because of” test. Fidelity challenged only the ICA’s reference to Harper emphasized above and argued that “[b]y imposing a presumption that materials prepared by an insurer before a final decision on an insured’s claim are not work product, the ICA narrowed work product protections for insurers for reasons not consistent with this Court’s case law.”

The Hawai # i work product doctrine is set forth in HRCP Rule 26: (b) D iscovery S cope and L imits
. Unl ess o therw ise l imite d by

orderof t he co urt i n acc ordan ce wi th th ese r ules, the scope of di scove ry is as f ollow s:

. . . . (4) Trial Prep arati on: Materi als. A p arty may obtai n dis cover y of docum ents, elec troni cally store d inf ormat ion, and t angib le th ings other wise disco verab le un der s ubdiv ision (b)( 1) of th is ru le an d pre paredin a ntici patio n of



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litig ation or f or tr ial b y or for a nothe r par ty or byor f or th at ot her p arty’ s rep resen tativ e (incl udingthe otherpart y’s a ttorn ey, consu ltant , sur ety, indem nitor , ins urer, or agent ) onl y upo n a s howin g tha t the part y seeki ng di scove ry ha s sub stant ial n eed o f the mater ials in th e pre parat ion o f the part y’s c ase and t hat t he pa rty i s una ble w ithou t und ue hards hip t o obt ain t he su bstan tial equiv alent of the m ateri als b y oth er me ans. In o rderi ng disco very of su ch ma teria ls wh en th e req uired showi ng ha s bee n mad e, th e cou rt sh all p rotec t again st di sclos ure o f the ment al impress ions, concl usion s, op inion s, orlega l the ories of a n attor ney o r oth er re prese ntati ve ofa pa rty conce rningthe litig ation
. 

### HRCP Rule 26(b)(4) (effective 2004-2014) (emphasis added). Thus, the relevant inquiry for determining whether a document can be protected by work product doctrine is whether the document was prepared in anticipation of litigation or trial.

Most courts have recognized that an insurance carrier’s investigation of a claim is generally performed in the ordinary course of business and not protected by work product doctrine. Christopher C. Frost et al., Shhh! Why the Attorney-Client Privilege and Work Product Doctrine May Not Protect Communications with Coverage Counsel 19 n.74 (2014). Therefore, when an attorney is performing both the role of claims adjuster and counsel, courts must determine whether work product created by such an attorney was made in anticipation of litigation. The main test adopted and employed by the ICA to answer this question was the “because of” test from United States v. Richey, 632 F.3d 559, 567-68 (9th Cir. 2011).

Under the “because of” test, courts are instructed to
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### consider whether given the totality of the circumstances it can be fairly said that a document was prepared or obtained because of the prospect of litigation. This test aligns with the scope of the privilege as circumscribed in HRCP Rule 26 because the statutory privilege protects only materials prepared in anticipation of litigation or for trial.

However, the Harper presumption does not fit squarely with the privilege as laid out in HRCP Rule 26, because it focuses not on whether material was prepared in anticipation of litigation or for trial, but on whether material was prepared before or after a formal determination has been made on a claim. Nowhere in the rule is there reference to when a document is prepared. Instead, the rule clearly focuses on the purpose of the prepared material and not on when it is prepared. See Ass’n of Apartment Owners of Waikoloa Beach Villas v. Sunstone Waikoloa, LLC, 130 Hawai # i 152, 161, 307 P.3d 132, 141 (2013) (“It is apparent that the opinion letter is ‘prepared in anticipation of litigation’ because under the terms of the declaration the opinion letter is a prerequisite for litigation. Thus, the opinion letter is covered by the work-product privilege.”); Save Sunset Beach Coal. v. City & Cnty. of Honolulu, 102 Hawai # i 465, 484, 78 P.3d 1, 20 (2003) (“Although Obayashi repeatedly states that the memorandum contains ‘legal analysis, legal impressions and legal conclusions’ there is no

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### indication that it was prepared in anticipation of litigation. We must conclude then that the work-product privilege is inapplicable.”).

Moreover, HRCP Rule 26(b)(4) does not create a presumption. A presumption is defined as a “rebuttable assumption of fact . . . that the law requires to be made . . . .” Hawai # i Rules of Evidence (HRE) Rule 301(1) (emphasis added). However, there is no statute or case in Hawai # i that requires that the trier of fact assume in insurance claims cases that materials prepared before a final determination on the insured’s claim are not work product and that materials prepared after a final determination are work product. The ICA erred to the extent that it endorsed or adopted the Harper presumption that was not required by our law.

But because the circuit court must still address whether the documents meet the “because of” test, we affirm the ICA’s judgment insofar as it remanded the issue to the circuit court for further proceedings.
B. Summary Judgment on Bad Faith Claim

1. Enhanced Standard of Good Faith In Finley v. Home Insurance Co., this court adopted an enhanced standard of good faith for insurers who defend insureds under a reservation of rights. 90 Hawai # i 25, 36, 975 P.2d 1145, 1156 (1998). This standard states that
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an in suran ce co mpanymust fulf ill a n enh ancedobli gatio n to its i nsure d as part of it s dut y of good faith . Fa ilure to satis fy th is en hance d obl igati on ma y res ult i n lia bilit y of the c ompan y, orreta ined defen se co unsel , or both. This enhan ced o bliga tion is fu lfill ed bymeet ing s pecif ic crite ria. Firs t, th e company must thoro ughlyinve stiga te the c ause of th e ins ured’ s acc ident and the n ature and sever ity o f the plai ntiff ’s in jurie s. S econd , it must retai n competen t def ense couns el fo r the insu red. Both retai ned d efens e cou nsel and t he in surermust unde rstan d that only the i nsure d is the c lient
. . . . Final ly, a n insur ance compa ny mu st re frain fromenga ging in an y act ion whichwoul d dem onstr ate a grea ter c oncer n forthe insur er’s monet ary i ntere st th an fo r the insu red’s fina ncial risk
. 

### Id. at 36-37, 975 P.2d at 1156-57 (quoting Tank v. State Farm Fire & Cas. Co., 715 P.2d 1133, 1137 (1986)) (internal quotation marks omitted).

The ICA held that the grant of summary judgment in favor of Fidelity on Anastasi’s bad faith claim should be vacated because the circuit court erred in holding that Fidelity acted reasonably as a matter of law. Anastasi, 134 Hawai # i at 429, 341 P.3d at 1229
. The ICA held that viewing the evidence in the light most favorable to Anastasi (the non-moving party), there was evidence that Fidelity knew within four months of receiving the claim that the warranty deed was forged and Fidelity did not address how proving fraud or forgery in the Stickney lawsuit would have affected coverage under the Policy, it could not be said that, as a matter of law, Fidelity’s actions following its knowledge that the deed was forged were reasonable. Id. Although the Policy may have allowed Fidelity to withhold payment until after the resolution of the Stickney lawsuit, the ICA wrote

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### that the relevant question “under Best Place is whether, given the information Fidelity had, the timing when it had the information, and when it reasonably resolved the issues presented by Anastasi’s claim, was there an unreasonable delay in paying Anastasi.” Id. The ICA also held that there was a genuine issue of material fact as to whether Fidelity demonstrated a greater concern for its monetary interest than for the insured’s financial risk in violation of the enhanced standard of good faith. Id.

Fidelity challenged the ICA’s judgment, arguing 1) that Fidelity should be allowed to rely on provisions of the Policy that allow it to pursue litigation to final judgment before having to determine and pay losses, and 2) that the enhanced standard of good faith should not apply to title insurers because “Fidelity and Anastasi’s interests were unified in the underlying action,” and Anastasi was not at risk of greater personal liability. Fidelity’s arguments are not persuasive. First, Fidelity provides no support for its argument that it should not be found to have acted unreasonably or in bad faith because it was exercising its rights under the Policy. Bad faith implies unfair dealing, and insurance companies should not be allowed to hide behind policy clauses in order to delay payments. If insurance companies were held to be acting reasonably as a matter
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### of law any time they filed or defended lawsuits under a contractual right to pursue litigation, frivolous lawsuits could be used to unfairly delay payments to insureds for years. Insurance companies must act reasonably even when exercising contractual rights. See Best Place, Inc. v. Penn Am. Ins. Co., 82 Hawai # i 120, 122, 920 P.2d 334, 346 (1996) (“Without the threat of a tort action, insurance companies have little incentive to promptly pay proceeds rightfully due to their insureds, as they stand to lose very little by delaying payment.”). On remand, Fidelity will have the opportunity to present evidence as to why its actions were reasonable or in good faith, but based on the record before us, we decline to hold that Fidelity acted in good faith as a matter of law when it exercised its contractual rights.

Secondly, this court declines to exclude title insurance companies from the enhanced standard of good faith when claims are defended under a reservation of rights. Fidelity’s and Anastasi’s interests may have been aligned in the Stickney lawsuit, but their interests were not identical. As this court has noted,
When an in surerprov ides an un condi tiona l def ense for i ts

insur ed, t he in suredand the c arrie r sha re th e sam e goa l -– minim izingor e limin atingliab ilityin t he th ird p arty actio n –- and n o con flict of i ntere st in hibit s the abil ity of on e law yer t o rep resen t bot h the insu rer a nd it s ins ured. But w here the c arrie r que stion s the avai labil ity o f cov erage and p rovid es a defen se in the thirdpart y act ion s ubjec t to a res ervat ion o f rig hts, a con flict exis ts –- beca use t he



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insur ed’s goal is co verag e, wh ich f lies in th e fac e of the insur er’s desir e to avoidits duty to in demni fy. 

### Finley, 90 Hawai # i at 30, 975 P.2d at 1150 (quotation marks and citation omitted). When any insurer, including a title insurer, defends an insured under a reservation of rights, the insurer maintains the right to evaluate and disclaim coverage. Therefore, there is inherently a potential for conflict between the insurer and the insured in such a situation, and there is nothing distinctive about title insurance that would eliminate such potential. In fact, the record in this case shows that Fidelity suspected that Talisman, Justmann, and Nagy may have been involved in falsely executing the warranty deed. Thus, Fidelity may have had an interest in delaying or prolonging resolution of the Stickney lawsuit in order to investigate their potentially nefarious involvement in the matter, which would have diverged from Anastasi’s interest in prompt payment under the Policy. We do not express any opinion as to whether Fidelity’s actions constituted bad faith. However, we find that there is a genuine issue of material fact as to whether Fidelity met the enhanced standard of good faith. Thus, we affirm the ICA’s judgment on this issue.

2. Whether Fidelity Induced Ching to Violate HRPC After holding that summary judgment on Anastasi’s bad

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### faith claim was not appropriate, the ICA affirmed the circuit court’s finding that “Anastasi failed to show any genuine issue of material fact that Ching breached her ethical duties to him or that Fidelity induced any such breaches.” Anastasi, 134 Hawai # i at 431, 341 P.3d at 1231. The ICA held that the four pieces of evidence relied on by Anastasi to argue that Fidelity improperly controlled Ching’s actions in the Stickney lawsuit did not suggest that Ching was actually constrained in exercising her professional judgment. Id. at 430-31, 341 P.3d at 1230-31. The four pieces of evidence were a statement from Fidelity’s claims handbook, the introductory letter Ching sent to Anastasi, the Ching-McGinnity Memorandum, and the emails between Ching and McGinnity wherein McGinnity directed Ching to file the notice of appeal. Anastasi argues that the ICA gravely erred by failing to hold Fidelity to an enhanced standard of good faith in analyzing Fidelity’s interactions with Ching and by viewing the evidence regarding Ching’s inducement by Fidelity unfavorably to Anastasi, the non-moving party. This court has held that “where an insurer is required to provide a defense for its insured, it would be a breach of the duty of good faith to induce retained counsel to provide a defense which did not meet the professional standard set forth by the [Hawai # i Rules of Professional Conduct].” Finley, 90 Hawai # i at 36, 975 P.2d at 1156. And HRPC
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### requires that attorneys who accept payment for a defense of the insured (1) c onsul t wit h the clie nt as to t he “m eans by wh ich t he

objec tives [of the r epres entat ion] are t o be pursu ed”; (2) not a llow the i nsure r to inter fere with the a ttorn ey’s “inde pende nce o f pro fessi onal judgm ent o r wit h the clie ntlawye r rel ation ship” ; and(3) not a llow the i nsure r “to direc t or regul ate t he la wyer’ s pro fessi onal judgm ent i n rende ring such legal serv ices. ” 

### Id. at 33, 975 P.2d at 1153 (quoting HRPC Rules 1.2; 1.8(f); 5.4(c)). Viewing the evidence in the light most favorable to Anastasi, the evidence is sufficient to raise a genuine question as to whether Ching allowed Fidelity to direct or regulate her professional judgment. Fidelity’s Claims Handbook expressly states, “If the outcome of a suit is unfavorable to the insured, the insurer may determine, in its sole discretion, whether or not to appeal. . . . The insurer will generally insist upon the right to select counsel of its own choosing because it is in control of the litigation.” Ching also stated in her letter to Anastasi that it was “anticipated that Fidelity will provide recommendations and instructions to the law firm regarding the steps and procedures to be taken in defending or settling the Claim.” The Ching-McGinnity Memorandum and the emails between Ching and McGinnity could also support a conclusion that Ching was deferring to McGinnity on the issue of whether to file an appeal.

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### The ICA referred to Ching’s deposition where she stated that she did not allow Fidelity to direct her in how to defend Anastasi. Anastasi, 134 Hawai # i at 430, 341 P.3d at 1230. And while it may ultimately be determined that Ching did not breach her duties, the evidence put forth by Anastasi is sufficient to raise a question of fact. Therefore, the ICA erred in holding that Anastasi failed to show any genuine issue of material fact that Fidelity induced Ching to breach her ethical duties to Anastasi. The ICA’s judgment in this regard is vacated and remanded to the circuit court for further proceedings.
IV. CONCLUSION For the reasons stated above, we affirm in part and vacate in part the ICA’s February 6, 2015 judgment on appeal, and accordingly vacate the circuit court’s judgment and remand to the circuit court for further proceedings consistent with this opinion. Philip J. Leas, John P. Duchemin and Trisha H.S.T. Akagi for petitioner and respondent Lloyd R. Anastasi Edmund K. Saffery, Thomas Benedict and Dawn T. Sugihara for respondent and petitioner Fidelity National Title Insurance Company Wayne Nasser and Benjamin M. Creps for amicus curiaeHawaii Land Title Association /s/ Mark E. Recktenwald /s/ Paula A. Nakayama /s/ Sabrina S. McKenna /s/ Richard W. Pollack /s/ Michael D. Wilson

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