Major Decision: Miss. Sup. Ct. Rejects Privilege for Insurer’s In-House Lawyer’s Emails with Claims Adjuster

In a 7–2 decision that will raise eyebrows in the insurance and in-house communities, the Mississippi Supreme Court rejected an insurer’s privilege claim over legal advice its in-house lawyer provided its claims adjuster regarding a coverage decision. The privilege rejection came even though the insurer never disclosed the communication’s substance nor asserted an advice-of-counsel defense. The dissent proclaims that this ruling will “have a chilling effect on an insurance company’s decision to seek legal advice regarding close coverage questions.” Travelers Prop. Cas. Co. of Am. v. 100 Renaissance, LLC, 2020 WL 6342790 (Miss. Oct. 29, 2020).  You may read the majority and dissenting opinions here.

We’re Here over What?

When a hit-and-run driver demolished a flagpole—yes a flagpole—on Barksdale Management’s commercial property, Barksdale filed a claim with Travelers under its uninsured-motorist policy. The damage? A whopping $2,134.00.

The UM policy covered only damages to the insured’s automobile and its contents. And because the flagpole was neither an automobile nor kept inside an automobile, Charlene Duncan, a Travelers’ claims representative, denied coverage.

A Statutory Override(?) and Legal Advice

Rick Wise, VP and Legal Counsel for Barksdale (or an affiliate), sent Duncan an email, available here, challenging the coverage-denial decision. Citing Mississippi’s UM statute, Miss. Code § 83-11-101(2), Wise argued that the statute mandated coverage for the damaged flagpole despite the policy’s language.

Duncan read the Wise email and decided she needed a lawyer’s opinion. She emailed Travelers’ in-house lawyer, Jim Harris. Harris analyzed the issue and provided his legal advice via return email.

A few days later, Duncan sent a response letter to Wise, available here, stating that, “based on our review of the policy terms and the law,” the UM policy did not provide coverage. And citing Miss. Code § 83-11-102(a), Duncan stated that “we understand” the UM statute has a different interpretation.

So, who is “our” and “we”? Oh, and there is no subsection (a) to § 83-11-102.

A Deposition, a MSJ, and a Need for those Emails!

Barksdale filed a lawsuit asserting a coverage claim and a bad-faith claim. Travelers paid the coverage claim in full, but Barksdale pursued its bad-faith claim. Its trial counsel deposed Duncan and challenged the basis for her response letter. One colloquy went this way—

Q.  And it—in the third paragraph, it says: “As we understand the Mississippi auto liability and uninsured motorist insurance statutes…” Who is “we,” do you know?

A.  That would be Travelers.

Q.  Okay. And.. I appreciate you have no understanding of the Mississippi auto liability uninsured motorist statute, correct?

A.  Yes.

You may read more deposition excerpts here.

Travelers filed a summary-judgment motion on the bad-faith claim and Barksdale decided it needed those two Duncan–Harris emails and to depose lawyer Harris. In ruling on the motion to compel, the trial court determined that Travelers “waived the attorney-client privilege as it relates to attorney Jim Harris.” And it ordered Harris to sit for a deposition.

The Majority Decision—Waiver  

The Mississippi Supreme Court accepted Travelers’ interlocutory appeal and an amicus brief from the APCIA, available here, but denied oral argument. Although the Court ruled that the attorney–client privilege covered the Duncan–Harris communications, it also found that Travelers waived the privilege. The Court stated that a party waives the privilege by asserting an advice-of-counsel defense or otherwise placing the lawyer’s advice at issue. But here, Travelers did not assert an advice-of-counsel defense.

No matter, the Court held, because Duncan’s testimony made it clear that a lawyer—not Duncan—drafted the response letter. The Court focused on the fact that Duncan could not state the basis for the legal response in the letter. According to the Court, Duncan clearly had no personal knowledge of the legal basis for denying the claim.

There was no evidence in the record that Harris prepared Duncan’s letter—in fact she testified that she prepared the letter without assistance:

Q.  [Shows Duncan the letter] And I’m going to ask you if you recognize that?

A.  Yeah. I mean, I wrote it. Yeah, I wrote the letter.

Q.  Okay. And who assisted you in doing that?

A.  No one. I did it myself.

But the Court said that in-house lawyer Harris “most likely” drafted the letter Duncan signed. And if so, then “Harris did not act as legal counsel and give advice to Duncan to include in the denial letter. Instead, the denial letter contained Harris’s reasons to deny the claim.” The Court then looked at the unspoken motive—

Duncan’s signature was simply an effort to hide the fact that Harris, not Duncan, had the personal knowledge of Travelers’ reasons to deny the claim and to use the attorney–client privilege as a sword to prevent [Barksdale] from discovering the reasons from the person who had personal knowledge of the basis to deny the claim.

Motives aside, the Court reviewed caselaw from other jurisdictions and concluded—

If the claims handler relied substantially, if not wholly, on in-house counsel to prepare her denial letter, the reasoning of in-house counsel should be discoverable.

The Dissent—A Chilling Majority Decision

The two-judge dissent viewed the situation without inferences. It saw Duncan’s denial letter based on the policy language, the insured’s lawyer’s claim that a statute overrode the language, Duncan’s consultation with the in-house lawyer about the statute, and her response again denying coverage based on policy language and rejecting the insured’s override argument.

According to the dissent, the in-house lawyer’s role was limited to evaluating the insured’s legal arguments. Travelers did not raise an advice-of-counsel defense and did “nothing to place the attorney–client relationship at issue except to seek and rely upon legal advice from its attorney.”

The majority, the dissenters noted, effectively imposed a requirement that a claims handler must be able to explain legal arguments at a deposition in order to preserve the privilege. And this, the dissent forecasted, “is an unreasonable standard that will have deleterious and chilling effects on the exercise of the attorney–client relationship.”  And that is because—

An insurance company should be free to seek legal advice in cases where coverage is unclear without fearing that the communications necessary to obtain that advice will later become available to an insured.

But not in Mississippi, apparently.

***

Yesterday (Nov. 12), Travelers filed a petition for rehearing, available here, essentially arguing that the Dissent has the better side of this privilege-waiver argument. We shall see what happens.

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