Privilege Waived Due to In-House Counsel Involvement

Due to its heavy reliance on in-house counsel in formulating its coverage denial, an insurance company waived attorney-client privilege as to otherwise privileged communications. ABA Litigation Section leaders agree that the ruling serves as an important reminder of the consequences that may occur when an insurer uses the attorney-client privilege as both a sword and shield.

Adjuster Denying Claim Lacked Knowledge of Reasons for Denial

In Travelers Property Cas. Co. v. 100 Renaissance, LLC, an insured brought a bad-faith failure-to-pay action against its insurer. In its complaint, the insured alleged that an unidentified driver struck its flagpole, causing $2,134 in damage. The insurer denied the insured’s claim for damages. When the insured challenged the denial, the claims adjuster consulted with in-house counsel and responded with a letter that contained legal analysis.

During litigation, the insured moved to compel production of emails between the insurer’s claims handler and the insurer’s in-house counsel. The insurer refused to produce the requested emails, citing attorney-client privilege.

At her deposition, the claims handler testified that she did not have personal, comprehensive knowledge of several of Mississippi’s statutes governing uninsured motorist coverage, replying, “I can't interpret what the law is, regardless of how it's read. I can't interpret that. That's not what I do.”

After a hearing on the insured’s motion to compel, the trial court ordered the insurer to produce the emails for in camera review. Thereafter, the trial court found that the insurer had waived the attorney-client privilege as to its in-house counsel. The trial court ordered the insurer to produce the emails and to produce the attorney for a deposition. The insurer filed a petition for interlocutory appeal, which the Mississippi Supreme Court granted.

Attorney Involvement Waives Privilege

A divided supreme court affirmed. The majority explained that under Mississippi Rule of Evidence 502(b), a client may waive the attorney-client privilege under certain circumstances, including where the client specifically asserts reliance on an attorney’s advice as a defense or otherwise places the attorney-client relationship directly at issue.

Zeroing in on the claims handler’s deposition testimony, the supreme court concluded that the adjuster lacked personal knowledge of the contents of the denial letter and that it was likely that the in-house attorney authored the letter rather than the adjuster. It observed that the claims handler failed to explain the insurer’s decision, its rationale, or why the claim would not be covered under the Mississippi uninsured motorist statute. The majority also found the adjuster demonstrated a lack of knowledge of Mississippi uninsured motorist law. The supreme court noted that the denial letter was based almost entirely on the legal opinion of the insurer’s in-house counsel.

Accordingly, the supreme court held that the attorney-client privilege did not apply because the insurer placed its relationship with its attorney directly at issue. It explained that “[the adjuster’s] signature was simply an effort to hide the fact that [the lawyer], not [the adjuster], had the personal knowledge of Travelers’ reasons to deny the claim and to use the attorney-client privilege as a sword to prevent Renaissance from discovering the reasons from the person who had personal knowledge of the basis to deny the claim.”

Dissent Warns Decision May Have “Chilling Effect” on Attorney-Client Relationship

By contrast, the dissent would not have found a waiver of the privilege, stressing that the adjuster clearly understood the reason for denying the claim, that the insurance company had not raised an advice-of-counsel defense, and that there were alternative means for the insurer to prove its case. The dissent stated that the majority’s decision “appears to impose a requirement that in order to preserve the privilege, a claims handler must be able to explain legal arguments at her deposition—the same legal issues for which she sought advice in the first place.” It concluded that “it is an unreasonable standard that will have deleterious and chilling effects on the exercise of the attorney-client relationship” in the insurance coverage context.

Leaders Agree Attorney Involvement Complicates Matters

Litigation Section leaders agree that the court hit on an important issue: the fine line between privilege and waiver when advice of counsel is invoked in litigation. “This holding should serve as a reminder that the litigation privilege has exceptions, and should not be relied upon without appreciating the risk of waiver,” opines David Gevertz, Atlanta, GA, newsletter editor of the Section’s Employment & Labor Relations Committee. “If an attorney considers ghostwriting legal opinions during the course of litigation, they should be aware that such actions may have consequences with the court,” he continues.

“The decision serves as a reminder that where an insurer’s counsel acts as a claims adjuster or an extension of the claims adjusting process, communications are not privileged,” adds Sherilyn Pastor, New York, NY, cochair of the Section’s Trial Evidence Committee. “Insurers are in the business of insurance and required to analyze and adjust claims submitted to them; those activities cannot be hidden from a policyholder simply because an attorney is involved,” Pastor continues. “When an insurer muddles the tasks associated with its ordinary business functions with separately obtaining legal advice, the courts are apt to find that communications with an attorney are not privileged or the privilege was implicitly waived because the attorney’s role and conduct was simply an extension of the insurer’s obligation to review, adjust, and settle a claim.”