NOT RECOMMENDED FOR PUBLICATION
File Name: 19a0065n.06
No. 18-5440
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
SOUTH FIFTH TOWERS, LLC, ) Feb 08, 2019
) DEBORAH S. HUNT, Clerk
Plaintiff-Appellant, )
)
v. ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
ASPEN INSURANCE UK, LTD. and TENCO ) COURT FOR THE WESTERN
SERVICES, INC., ) DISTRICT OF KENTUCKY
)
Defendants-Appellees. )
)
BEFORE: BOGGS, KETHLEDGE, and STRANCH, Circuit Judges.
BOGGS, Circuit Judge. South Fifth Towers, LLC owns an apartment building in
Louisville, Kentucky. After the building suffered water damage in a rainstorm, South Fifth’s
insurance carrier, Aspen Insurance UK, Ltd., declined to cover demolition and repair costs. South
Fifth sued Aspen and Tenco Services, Inc., Aspen’s adjuster, for breach of contract (among other
claims). The district court granted Aspen and Tenco’s motion for summary judgment. Because
South Fifth waited twelve days to tell Aspen about the water damage—and during this time, started
and nearly finished demolishing the damaged areas of the building, causing substantial prejudice
from the delay—we affirm. We also affirm the district court’s order that the attorney-client and
work-product privileges shield documents that South Fifth sought in discovery.
No. 18-5440, S. Fifth Towers, LLC v. Aspen Ins. UK, Ltd., et al.
I
South Fifth owns Kentucky Towers, a high-rise apartment building in downtown
Louisville. Aspen provided South Fifth with commercial-property insurance.
Thunderstorms caused 2.69 inches of rain in Louisville on June 26, 2013. A tenant on the
ground floor of Kentucky Towers noticed water streaming down the walls of her shop. Kevin
Landrum, the building’s maintenance supervisor, came to investigate. He discovered that water
was entering the building through the ceiling of a closet on the second floor; a pipe above the closet
had separated from a roof drain. There was about an inch of standing water in the second-floor
hallways.
That same evening, Landrum told South Fifth what had happened. South Fifth contacted
its New York insurance broker either that evening or the next day. The broker, Judah Perlstein, did
not notify Aspen. Instead, Perlstein’s first move was to hire a public adjuster to inspect the damage
and write a report. It was his practice to “put a PA on almost every loss.” R. 109–7 at 2134. He did
this for several reasons: “to get our facts straight” and avoid reporting “erroneous information” to
the insurer and “to protect” his “client,” as “insurance companies are always looking for a reason
not to pay.” Ibid. Finding a public adjuster in Louisville took Perlstein until June 28.
Next, on July 2 or July 3, South Fifth hired a restoration contractor, The Drying Team. The
Drying Team sent 18 people to Louisville. They arrived from Nashville on July 8 and began
demolition the same day. They tore out “virtually all” of the second floor. R. 109–9 at 2175.
Perlstein finally told Aspen what had happened on July 8—twelve days after the storm and
the same day that The Drying Team began demolition. Aspen then sent its own adjusters
(employed by co-defendant Tenco), and they arrived on July 10. By this time, almost all of the
demolition was already done.
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South Fifth eventually claimed a loss of $1,312,091.04. By January 2015, Aspen had yet
to either decline coverage or pay up. South Fifth then sued Aspen and Tenco, alleging breach of
contract by Aspen, violations of Kentucky insurance statutes by Aspen and Tenco, and various
other claims. In September 2015, Aspen formally declined coverage. After a discovery dispute,
the district court denied in part South Fifth’s motion to compel production of certain documents.
The district court then granted Aspen and Tenco’s motion for summary judgment, holding that
South Fifth’s failure to provide timely notice of the loss and the policy’s rain limitation precluded
coverage. South Fifth timely appeals the discovery order and the order granting summary judgment
for Aspen and Tenco.
II
We begin with the discovery dispute. Aspen and Tenco withheld 27 documents prepared
by various adjusters and investigators, and South Fifth moved to compel production. A magistrate
judge reviewed the documents in camera and denied South Fifth’s motion in part, holding that the
attorney-client and work-product privileges applied to all but one of the requested documents.1
The district court affirmed the magistrate judge’s order. On appeal, South Fifth’s primary argument
is that the withheld documents are not privileged because they were prepared for a business
purpose: handling the insurance claim. South Fifth offers minimal evidence for this contention,
and its other arguments are unconvincing, so we affirm the district court’s discovery order.
1
The outlier was a September 25, 2013 report by a Tenco adjuster, which the magistrate judge held was prepared for
business reasons.
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A
The district court held that the attorney-client privilege protects most of the requested
documents.2 Reviewing the issue de novo, see Reed v. Baxter, 134 F.3d 351, 355 (6th Cir. 1998),
we agree.
Kentucky law governs.3 See Fed. R. Evid. 501 (“[I]n a civil case, state law governs
privilege regarding a claim or defense for which state law supplies the rule of decision.”).
Kentucky’s attorney-client privilege protects:
1. “[A] confidential communication”
2. between, as relevant here,
a. “the client or a representative of the client and the client’s lawyer or a
representative of the lawyer,” or
b. “representatives of the client or between the client and a representative of
the client”
3. “for the purpose of facilitating the rendition of professional legal services to the
client.”
Ky. R. Evid. 503(b)(1), (4). The privilege does not protect communications “made for business
reasons, not legal reasons.” Lexington Pub. Library v. Clark, 90 S.W.3d 53, 60 (Ky. 2002).
The magistrate judge analyzed each document and gave particularized reasons for applying
the privilege, and the district court endorsed the magistrate judge’s conclusions in its own thorough
opinion. Instead of challenging the document-specific analysis, South Fifth argues that when the
reports and emails were written, Aspen’s counsel was acting as a claims handler, not an attorney.
But South Fifth offers very little evidence of this. It merely points out that the documents were
2
These are: ten “periodic reports” to Aspen from its claims administrator; two reports from Tenco to Aspen’s claims
administrator and counsel; two emails from Aspen’s agent Robert Klipera to Aspen’s claims administrator, which
forwarded them to Aspen’s counsel; a chain of emails between Aspen’s counsel, fraud investigators Aspen hired, and
Aspen’s claims administrator; an email from Tenco to Aspen’s claims administrator; and a chain of emails between
Aspen’s counsel, its claims administrator, and Aspen’s agent Doug Pinelli.
3
We explain why in Section III-B below.
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prepared in 2013 and 2014, before litigation and before Aspen formally denied the claim. But this
timeline does not suggest that the documents had no legal purpose. As the district court observed,
“[e]ach time the Magistrate Judge found a document to be privileged, he cited or described
language in the document indicating that it contained confidential communications with Aspen’s
attorney regarding the impending litigation.” R. 97 at 1862 (emphasis added). South Fifth gives
us no reason to doubt this. We see no error in the district court’s analysis of the attorney-client
privilege.
B
The district court held that the work-product privilege protects all but one of the remaining
documents.4 South Fifth’s arguments on this front fare no better.
“The work-product doctrine is a procedural rule of federal law; thus, Federal Rule of Civil
Procedure 26 governs this diversity case.” In re Professionals Direct Ins. Co., 578 F.3d 432, 438
(6th Cir. 2009). The work-product privilege protects documents “prepared in anticipation of
litigation . . . by or for another party or its representative.” Fed. R. Civ. P. 26(b)(3)(A). Our test
“asks (1) whether a document was created because of a party’s subjective anticipation of litigation,
as contrasted with an ordinary business purpose, and (2) whether that subjective anticipation of
litigation was objectively reasonable.” United States v. Roxworthy, 457 F.3d 590, 594 (6th Cir.
2006). “We review a district court’s work product privilege determination for abuse of discretion.”
Id. at 592.
4
These are: a report to Tenco from HAAG Construction, which inspected the damage; five reports to Aspen from its
claims administrator; a report to Aspen from its fraud investigator; and two emails from Aspen’s agent Robert Klipera
to Aspen’s claims administrator, which forwarded them to Aspen’s counsel. As with the attorney-client-privileged
documents, the magistrate judge reviewed the reports and emails in camera and gave particularized reasons for
applying the work-product privilege, which the district court accepted.
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South Fifth has three arguments against applying the work-product privilege, none of
which persuade us that the district court abused its discretion. First, it makes the same claim it
made regarding attorney-client privilege: that the documents were prepared for business reasons.
Again, though, this is not much more than a conclusory assertion. South Fifth cites a district-court
opinion holding that certain insurance-investigation documents were prepared for business
purposes despite the involvement of counsel. St. Paul Reinsurance Co., Ltd. v. Commercial Fin.
Corp., 197 F.R.D. 620, 638 (N.D. Iowa 2000). But the Northern District of Iowa made its (fact-
intensive) privilege determination de novo; its holding does not tell us whether the district court
abused its discretion in this case. South Fifth is making a “deference mistake.” See Jonathan S.
Masur and Lisa Larrimore Ouellette, Deference Mistakes, 82 U. Chi. L. Rev. 643, 645 (2015).
Next, South Fifth contends, there is insufficient evidence that Aspen reasonably anticipated
litigation when it (or its representatives) prepared the documents. South Fifth argues that the
magistrate judge and district court overrelied on a November 6, 2013 letter from South Fifth’s
counsel to Aspen’s counsel. The letter warned that “failure to attend to South Fifth’s insurance
claim would ‘lead to the conclusion that Aspen is in breach of its policy.’” R. 97 at 1858. As the
district court observed, “[g]iven that ‘breach of contract’ is a common cause of action in insurance
disputes, it was reasonable for the Magistrate Judge to find that a letter warning the opposing party
that it would be ‘in breach of its policy’ . . . created both a subjective[ ] and objectively reasonable
anticipation of litigation.” Id. at 1859. South Fifth has no response to this common-sense
conclusion.
Finally, South Fifth claims that even if the work-product privilege applies, it is entitled to
the documents under the substantial-need exception. Documents “may be discovered”
notwithstanding the work-product privilege if the party requesting them “shows that it has
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substantial need for the materials to prepare its case and cannot, without undue hardship, obtain
their substantial equivalent by other means.” Fed. R. Civ. P. 26(b)(3)(A)(ii). South Fifth must show
that it has no other way of obtaining the “information” the reports contain, not just that it has no
other way of obtaining the reports themselves. Stampley v. State Farm Fire & Cas. Co., 23 F.
App’x 467, 471 (6th Cir. 2001). It does not make this showing. South Fifth had exclusive access
to the building for almost two weeks, and after Aspen and Tenco arrived, it had equal access. There
was ample opportunity for South Fifth’s own experts to inspect the damage and draw their own
conclusions. The district court did not abuse its discretion.
III
We now turn to the summary-judgment order. The insurance policy required South Fifth
to give Aspen “prompt notice of the loss or damage,” including, “[a]s soon as possible, . . . a
description of how, when and where the loss or damage occurred.” R. 109–1 at 2009. Yet South
Fifth waited twelve days to tell Aspen about the water damage to its building—and during this
time, started and nearly finished demolition of the damaged areas. There can be no genuine dispute
that Aspen likely suffered substantial prejudice from this delay. We therefore affirm the district
court’s grant of summary judgment to Aspen and Tenco.5
A
“We review the district court’s grant of summary judgment de novo.” Donald v. Sybra,
Inc., 667 F.3d 757, 760 (6th Cir. 2012). Aspen and Tenco are entitled to summary judgment if they
can “show[ ] that there is no genuine dispute as to any material fact” and they are “entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a). A material fact is one “that might affect the
outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
5
The district court held that summary judgment for Aspen on the breach-of-contract claim compelled summary
judgment for Aspen and Tenco on all the remaining claims. South Fifth does not challenge this holding on appeal.
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(1986). A factual dispute is genuine “if the evidence is such that a reasonable jury could return a
verdict for” either party. Ibid. “The inferences to be drawn from the underlying facts must be
viewed in the light most favorable to” South Fifth, as the non-moving party. Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (cleaned up).
B
We interpret the insurance contract between South Fifth and Aspen according to state law.
See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). The policy does not have a choice-of-law
clause, and the parties dispute whether New York or Kentucky law governs. We hold that
Kentucky law controls.6
Kentucky is the forum state, so we apply its choice-of-law rules. See Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Kentucky uses § 188 of the Restatement (Second) of
Conflict of Laws “to resolve choice of law issues that arise in contract disputes.” State Farm Mut.
Auto. Ins. Co. v. Hodgkiss-Warrick, 413 S.W.3d 875, 878 (Ky. 2013). Under this approach, the
law of the state with “the most significant relationship to the transaction and the parties” controls.
Restatement (Second) of Conflict of Laws § 188(1) (1971). Kentucky also tends to “look to . . .
other Restatement provisions” to resolve choice-of-law questions. Wallace Hardware Co. v.
Abrams, 223 F.3d 382, 398 (6th Cir. 2000).
Two factors weigh in favor of applying Kentucky law. First, in most insurance cases, the
Restatement gives “[t]he location of the insured risk . . . greater weight than any other single
contact,” particularly “when the insurance covers an immovable object, such as a house.”
Restatement § 193 cmt. b; see also Hodgkiss-Warrick, 413 S.W.3d at 879 (“With respect to
6
“We review de novo the district court’s choice-of-law determination.” Newberry v. Silverman, 789 F.3d 636, 640
(6th Cir. 2015). Here, though, the district court did not make a choice-of-law determination. It noted arguments on
each side and then concluded that Aspen was entitled to summary judgment under both Kentucky and New York
law.
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casualty insurance contracts in particular, a key factor is the expectation of the parties concerning
the principal location of the insured risk.”). Second, “Kentucky courts have apparently applied
Kentucky substantive law whenever possible.” Harris Corp. v. Comair, Inc., 712 F.2d 1069, 1071
(6th Cir. 1983); see also Wallace Hardware Co., 223 F.3d at 391 (approvingly quoting the district
court’s “observation that ‘Kentucky courts are egocentric concerning choice of law questions’”
and explaining that “we likewise have noted this provincial tendency in Kentucky choice-of-law
rules”).
Admittedly, the insurance policy was issued in New York, South Fifth obtained it through
a New York broker, and South Fifth is a New York citizen. However, the building’s location and
Kentucky’s strong choice-of-law bias outweigh these New York connections. Thus, we will use
Kentucky law to interpret the policy.
C
South Fifth first argues that it provided “prompt” notice, as required by the insurance
policy, because it contacted Aspen within twelve days. The policy does not define “prompt,” so we
give that term its ordinary meaning. See James Graham Brown Found., Inc. v. St. Paul Fire
& Marine Ins. Co., 814 S.W.2d 273, 279 (Ky. 1991). “Prompt” means “performed readily or
immediately,” or “given without delay.” Webster’s Third New International Dictionary
1816 (2002). Moreover, the insurance policy construed as a whole supports this definition, since
the policy also required South Fifth to give Aspen a description of the loss or damage “as soon as
possible.” R. 109–1 at 2009. South Fifth could not give Aspen a description of the loss or damage
until South Fifth had notified Aspen about the loss or damage in the first place. Thus, the policy
required South Fifth to provide notice as soon as it could.
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Here, South Fifth did not provide notice as soon as it could have—it notified Aspen eleven
days after it notified its insurance broker, Perlstein. Indeed, when Perlstein was asked about this
delay, he could not explain why Aspen had not been notified sooner. And on appeal, South Fifth
fails to explain the delay. To be sure, whether the insured party gave timely notice is typically a
question of fact left for the jury. See Falls City Plumbing Supply Co. v. Potomac Ins. Co., 237 S.W.
376, 378 (Ky. 1922). Yet, given the undisputed facts of this case, “the lapse of time [was] so long
as to be obviously [noncompliant] with the [policy].” Ibid. Hence South Fifth failed to give
“prompt” notice.
D
Late notice of a loss lifts the insurer’s coverage obligations as long as “it is reasonably
probable that the insurance carrier suffered substantial prejudice from the delay in notice.” Jones
v. Bituminous Cas. Corp., 821 S.W.2d 798, 803 (Ky. 1991). There is no genuine dispute that South
Fifth’s twelve-day delay in notice created a reasonable probability of substantial prejudice to
Aspen.
The late notice deprived Aspen of the chance to see the water damage before demolition
began. This meant that Aspen had no way of assessing how much of the demolition was necessary
or of objecting to needless or too-costly demolition before it happened. Had Aspen’s adjusters
been present when the demolition contractor first arrived at Kentucky Towers, they could have
watched and interjected as the contractor took moisture readings and mapped out which portions
of the second floor to tear out. According to Richard Michelson, South Fifth’s public adjuster,
“[i]t’s certainly helpful if the [insurance company’s] adjuster is there” for this process. R. 109–8
at 2160. Admittedly, Aspen’s adjusters and engineers were able to take their own moisture
readings once they arrived, and they could review the demolition contractor’s invoices. They could
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also inspect waterlogged rubble in dumpsters. But no matter how much they learned from these
steps, the demolition was already done, and Aspen had no chance to inspect the damage, view pre-
demolition moisture readings (which the contractor did not retain), or ask the contractor to do
anything different in such extensive—and expensive—demolition.
Even if all of the demolition was appropriate, the late notice made it impossible for Aspen
to consult and coordinate with the demolition contractor and South Fifth. Michelson, the public
adjuster, explained that it “would be . . . normal protocol” for him to keep in contact with Aspen’s
adjusters. R. 109–8 at 2158. “[A]bsolutely you want the insurance adjuster to see the loss,” in order
“to walk and scope damages and discuss action plans and get on the same page.” Id. at 2159. With
this kind of coordination, “the claim tends to go smoother.” Ibid. Scott Tarpley, who led the
demolition contractor’s team, explained that “[w]hen adjusters are available early on,” they can
discuss which tests, tools, and techniques to use. R. 109–9 at 2175. For this reason, Tarpley was
“slightly appalled that [Aspen] did not have qualified people there earlier on.” Id. at 2177.
Thus, the undisputed facts and the testimony of South Fifth’s own public adjuster and
demolition contractor show a reasonable probability of substantial prejudice to Aspen. South Fifth
offers two arguments to the contrary; neither persuades us.
First, South Fifth argues that its contractual duty “to protect the Covered Property from
further damage” required it to commence demolition when it did. R. 109–1 at 2009. As public
adjuster Michelson put it, “the concern is that you get microbial growth, mold . . . . The building
doesn’t get any better while it’s sitting there wet, it only gets worse and degrades.” R. 113–3 at
2611. This was all the more reason not to wait twelve days before notifying Aspen. South Fifth
knew that the damage was significant and would require extensive demolition. According to its
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insurance broker, Judah Perlstein, “[t]here was no downside” to notifying Aspen the day of the
rainfall. R. 109–7 at 2135. But South Fifth dawdled, presenting Aspen with a fait accompli.
Second, South Fifth points out that one of its expert reports called the notice timely.
Howard Wolf, “a certified master restorer and restoration consultant,” opined that South Fifth gave
notice to Aspen within “usual and customary timeframes.” R. 108–1 at 1937, 1944. But Wolf based
this opinion on a factual error. He wrote that “the public adjuster filed an official claim within five
days of the loss,” but it is undisputed that South Fifth took twelve days to notify Aspen. Id. at 1944.
Also, Wolf’s report supports the conclusion that the late notice prejudiced Aspen. Wolf explained
that “[t]ypically, owner and carrier representatives actively participate in the execution of the
[restoration] project through communication and agreement of work performed in each phase.”
Ibid. South Fifth’s late notice prevented this communication and agreement—even though “[t]his
project is a clear example of a project high in complexity and exposure to the owner and carrier.”
Ibid.
Thus, the record reveals no genuine dispute that South Fifth’s late notice created a
reasonable probability of substantial prejudice to Aspen.
E
South Fifth tries to get around this conclusion by claiming that it waited at most one day to
notify Aspen, not twelve. The argument is that South Fifth’s insurance broker, Judah Perlstein,
acted as Aspen’s agent for the purpose of receiving notices of loss. South Fifth told Perlstein about
the water damage on either the evening of the storm or the next day. But Kentucky law and
Perlstein’s testimony make clear that he was not Aspen’s agent.
The general rule in Kentucky is “that in the absence of statutory authority or some special
indicia of authority,” an insurance broker “is the agent of the insured and not of the insurer.” J.
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Inmon Ins. Agency, Inc. v. Kentucky Farm Bureau Mut. Ins. Co., 549 S.W.2d 516, 518 (Ky. Ct.
App. 1977). Consequently, “notice to this broker is not notice to the insurer.” Ibid.
South Fifth does not point to any “statutory authority or special indicia of authority”
justifying an exception to the default rule and showing Perlstein to be Aspen’s agent. Ibid. Instead,
it cites Pan-Am. Life Ins. Co. v. Roethke, 30 S.W.3d 128 (Ky. 2000). The case is inapposite. The
Roethke court relied on a (now defunct) statutory provision defining “agent” as
an individual, firm, . . . [or] corporation . . . appointed by an insurer to solicit
applications for insurance or annuity contracts or to negotiate insurance or annuity
contracts on its behalf, and if authorized to do so by the insurer, to effectuate and
countersign insurance contracts.
Id. at 131 (quoting then–Ky. Rev. Stat. § 304.9–020). Perlstein does not meet this definition of
“agent”: No evidence in the record suggests that Aspen “appointed” Perlstein to “solicit,”
“negotiate,” or “effectuate” insurance contracts.
Roethke aside, Perlstein’s testimony confirms that he was not Aspen’s agent. In his
deposition, he testified that he got a public adjuster involved because “I knew I have [a] client that
I have to protect” from the possibility of Aspen refusing to pay. R. 109–7 at 2132, 2134. He boasted
about his use of “grandstanding” and “threat[s]” to get his clients better prices or “better terms and
conditions” from insurance carriers. Id. at 2131. He admitted that he did not “know why carriers
ask or don’t ask” for certain information in coverage applications, and he said that despite decades
in the industry, carriers “surprise me every day.” R. 119–1 at 2649. These statements make clear
that Perlstein was not Aspen’s agent.
F
To summarize, the insurance policy required South Fifth to promptly notify Aspen—not
just Perlstein—of any loss. It breached the policy when it waited twelve days to give Aspen the
required notice, and this undisputedly caused Aspen substantial prejudice. This relieved Aspen of
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liability under the policy, and Aspen and Tenco are entitled to summary judgment on this basis
alone. We need not reach the district court’s alternative holding that the policy’s rain limitation
also precluded coverage.
The judgment of the district court is AFFIRMED.
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