Court Extends Attorney-Client Privilege to “Insurance File” Sought in Bad Faith Litigation 1

The USDC for the Western District of Kentucky recently held that, in third-party bad-faith litigation, Kentucky’s attorney-client privilege protects an insurer’s file from discovery.  In Shaheen v. Progressive Insurance Co., 2012 WL 3644817 (W.D. Ky. Aug. 24, 2012), the adminstrator of the Nadia Shaheen Estate filed a bad-faith lawsuit against Progressive for its alleged delay in settling an underlying wrongful death case against Progressive’s insured.  The plaintiff sought production of Progressive’s “insurance file,” but Progressive refused, arguing that it contained communications between it and its insured.

Kentucky state law was silent on whether the attorney-client privilege covers insurance files from discovery in bad-faith litigation.  In predicting how Kentucky state courts would rule, the Kentucky federal court first noted that other courts had taken three different approaches.  First, some courts permit discovery of the entire insurance file in third-party bad-faith litigation.  Other courts permit insurance companies to preclude disclosure “by rigidly applying the attorney-client privilege.”  And a third line of courts take the middle-road approach by permitting insurance companies to claim privilege, but allowing a plaintiff to overcome the privilege through a sufficient showing of need.

Kentucky recognizes an insurer-insured privilege on grounds that the insured assumes that purpose of his communications is to transmit the information to an insurer-selected attorney.  And on this basis, the federal court predicted that Kentucky law would extend the attorney-client privilege to an insurance company’s file and prohibit compelled disclosure of the file’s contents.

Good Tips for Preserving Attorney-Client Privilege During Criminal Investigations

Protecting against disclosure of privileged communications–particularly email communications–can present challenging issues for the criminally accused.  Federal and state prosecutors may, for instance, obtain emails directly from service providers or obtain emails via a search warrant before one is formally charged.  And in these situations, prohibiting prosecutors from reviewing privileged communications is problematic.

In their article, Sealing the Virtual Envelope: Protecting Attorney-Client Privileged Email in Criminal Investigations, lawyers Michele Adelman and Jennifer Behr identify and describe the salient issues and offer practical tips for protecting the privilege in the criminal-investigation setting.  The article, recently published in the Boston Bar Journal, may be accessed at this link.  Thanks to Eric Fullerton and the Boston Bar Journal for permitting access to the article.

Court Provides Guidance on Attorney-Client Privilege and Allied Litigant Doctrine 1

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.

Insurer-Insured Privilege

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.