The Texas Supreme Court recently held, in a bad faith case, that communications between an insurer’s attorney and the insured were not protected from discovery by any evidentiary privilege. And in doing so, the court distinguished and offered guidance on the attorney-client privilege and its interplay with the allied litigant doctrine, common interest doctrine, joint client privilege, and insurer-insured privilege.
In In re XL Specialty Insurance Company, 373 S.W.3d 46 (Tex. 2012), an employee of Cintas Corporation brought a workers’ compensation claim against Cintas’s insurer, XL Specialty, which was resolved after an administrative hearing. During the administrative hearing, XL Specialty’s outside counsel communicated about the case to Cintas (not its lawyer). In a subsequent bad faith case brought by the employee against XL Specialty, the employee sought to discover the lawyer’s communications with Cintas.
In a thorough opinion, the Court rejected all privilege claims and ordered production. Texas’s attorney-client privilege rule, found at Tex. R. Evid. 503, provides, in part, that the privilege protects communications “by the client or representative of the client, or the client’s lawyer or a representative of the lawyer, to a lawyer or a representative of a lawyer representing another party in a pending action and concerning a matter of common interest.”
The Court determined that this rule is appropriately termed the “allied litigant privilege” because it contains pending-action and common-interest requirements. The allied litigant privilege thus protects communications made between a client, or the client’s lawyer, to another party’s lawyer, but not to the other party itself. And because XL’s lawyer spoke with Cintas (a nonparty), and not a lawyer for Cintas, the allied litigant doctrine did not apply. The Court recognized that XL and Cintas had a shared interest in the underlying workers’ compensation claim, but held that the “rule requires that the communication be made to a lawyer or her representative representing another party in a pending action.”
The Court also rejected and distinguished other related privileges:
Joint Client Privilege
According to the Court, the joint client privilege applies when the same attorney simultaneously represents two or more clients on the same matter. And communications made to the lawyer for purpose of rendering legal advice to the clients are privileged except where a controversy erupts between the clients.
Joint Defense and Common Interest Doctrines
The Court noted that many courts and lawyers confuse these two doctrines. While both doctrines apply to communications between parties who have separate counsel, the joint defense doctrine applies only in the context of litigation when multiple parties communicate for purpose of forming a joint defense strategy. The common interest doctrine works similarly, but is broader as it applies to parties sharing a mutual interest regardless of their status in the pleadings (could be plaintiff and defendant) and regardless whether they are involved in litigation.
In interesting comments, the Court stated that Texas does not recognize an insurer-insured privilege, but stated that “under certain circumstances, communications between an insurer and insured may be shielded from discovery by the attorney-client privilege.” But because XL did not show that its lawyer’s communications with Cintas fell within Rule 503, the Court did not consider this angle.