In Henriquez-Disla v. Allstate Property & Casualty Insurance Company, the insured brought bad faith and fraud claims against its insurers. There were two discovery issues: (1) whether certain communications in the case involving a lawyer were subject to the attorney client privilege or whether the lawyer was acting as a claims adjuster rather than a lawyer; and (2) whether there was a waiver of the attorney client privilege simply on the basis of a defense that the carrier’s personnel acted in good faith. In requiring production of certain information on the basis that the attorney was not performing the functions of an attorney, the court certified the issue for an interlocutory appeal and stayed its proceedings.
The insurer had provided redacted copies of the logs relevant to the insured’s claims, and the insured sought unredacted versions of the logs, as well as policy and procedural manuals used in the decision-making process. The court ordered the production of the policy and procedural manuals governing coverage decisions and the course of the investigation, subject to a confidentiality agreement. Further, the court conducted an in camera review and ordered partially unredacted versions of the logs produced, on the basis that those portions reflected that counsel performed the ordinary business of claims investigation and not as a lawyer. While the court reduced the number of documents to be produced on reconsideration (the original decision is discussed here), the fundamental principle distinguishing counsel’s conduct as investigator vs. lawyer remained the applicable measure.
Generally, the log entries reflecting investigation, rather than legal work, include those containing direction to conduct routine investigation whether to be done by counsel or by a claims representative, scheduling examinations under oath, and memorializing efforts to pursue subrogation. Directives to counsel as to what to pursue at the examination would be privileged. The court noted that direction to counsel to retain a cause and origin specialist to determine the cause of the fire, investigating subrogation possibilities, determining the cause of the fire, gathering background information on the claimants, and arranging for examinations under oath are ordinary business functions in claims investigation. “The fact that they were performed by an attorney at the behest of a claims adjuster does not change the character of the activity — basic claims investigation.” Although the court has considered the timing of counsel’s entry “onto the claims scene” was a factor considered in determining counsel’s role, the log entries were the primary reason the court concluded counsel acted as a claims investigator.
In addition, the court generally observed that in the redacting documents on the basis of privilege, an insurer should not take the approach that every mention of the attorney’s name should be redacted, as some matters are clearly not privileged, e.g. that an attorney had been hired. In the court’s words, the insurer should not redact by slashing with a sword where it should excise with a pen knife. The court also observed that redacting certain entries while not redacting entries of the same nature worked against protection, and that each entry needed to be analyzed specifically prior to redaction. The court stated that a “failure to analyze the specific entries at issue undermines its claim of privilege — wherein it has the burden to show that each entry meets the elements of the attorney-client privilege.”
Next, the court rejected the idea that the insurer had entirely waived the privilege by purportedly placing the advice of counsel at issue. The insurer pled as a defense that its alleged withholding of any benefits at issue was made in good faith and was reasonable. The insured asserted that because the insurer’s decision-maker stated in her affidavit that counsel was hired to render legal and coverage decisions, this placed counsel’s advice in issue.
While a party may waive the attorney client privilege by asserting an advice of counsel defense, “advice is not placed in issue merely because it is relevant. . . . A waiver can be found only where a client has made the decision and taken an affirmative step in the litigation to place the advice of attorney in issue. . . . This occurs where the client attempts to prove a claim or defense by disclosing or describing an attorney client communication. . . . .” Asserting an answer that the insurer did not act in bad faith, and stating that it acted in good faith do not create such a waiver. Nor does the assertion that an attorney was hired to render a legal opinion on coverage waive the privilege. Without actually asserting an advice of counsel defense, the mere idea that an attorney could have affected the adjuster’s mind does not create a waiver. The court rejected this “theory of wholesale waiver.”
Date of Decision: August 7, 2014
Henriquez-Disla v. Allstate Prop. & Cas. Ins. Co., CIVIL ACTION NO. 13-284, 2014 U.S. Dist. LEXIS 108820 (E.D. Pa. August 7, 2014) (Hey, U.S.M.J.)