Claims and Bad Faith Law Blog

IN BAD FAITH CASE, FORMER CLIENT SUBPOENAS FORMER DEFENSE ATTORNEYS.

Gettysburg 2022 (Matt McClain / Washington Post)

In Wiseman v. Progressive Paloverde Ins. Co., No. 8:21-cv-02743-TPB-AAS, 2023 WL 2162374, at *1 (M.D. Fla. Feb. 22, 2023) (Sansone, USMJ),  non-party witnesses contested subpoenas served upon them in a bad faith case by the plaintiff who sued their client in the underlying case.

The subpoenaed nonparties were defense attorneys in the underlying liability case.  They filed motions to quash or modify subpoenas for their depositions and for certain documents including text messages exchanged with the insured they were previously defending.  A U.S. Magistrate Judge held that attorney-client privilege did not apply under Florida law in this instance:

Florida courts have consistently held that the plaintiff in a third-party bad-faith action against an insurance company for failure to settle for policy limits is entitled to the entire litigation file of the insured's counsel from the inception of the lawsuit until the date the judgment was entered in the underlying action.  [Citations omitted.] The courts reasoned that the plaintiff stands in the same posture as the insured and is, therefore, entitled to full discovery. [Citation omitted.]  Therefore, attorney-client privilege does not preclude the requested communications.

Please read the disclaimer.  ©2023 Dennis J. Wall.  All rights reserved.

P.S. Re: Mr. Eastman's Claim of Attorney-Client Privilege.

P.S.

You Need A Client To Claim The Attorney-Client Privilege.

Please read the disclaimer.  ©2022 Dennis J. Wall.  All rights reserved.

FILE A COUNTERCLAIM, SELECT COMMITTEE, BEFORE MR. EASTMAN VOLUNTARILY DISMISSES ...

... THE LAWSUIT HE SO ERRONEOUSLY FILED.

John Eastman, Esquire was served with a subpoena to give testimony to the U.S. House Select Committee to Investigate the January 6 Attack on the Capitol. Mr. Eastman not only refused to testify, he sued the Committee along with others including the Committee Chair, in California. See Eastman v. Thompson, (C.D. Cal. No. 8:22-cv-00099 (DOC/DFM)).

(Perhaps taking a cue from ordinary civil litigation, Mr. Eastman may have thought that filing suit in California would be a burden on the defendants, who work in Washington, D.C., if they had to defend a lawsuit in California. If Eastman and his lawyers did think that, then they overlooked the fact that they were suing a Committee of the United States House of Representatives and the Chair of that Committee, a United States Representative.)

Mr. Eastman sued to quash the Committee's subpoena duly served upon him, once the process server found him. If Eastman had simply refused to testify, that would have forced the Committee to vote to hold Eastman in contempt of Congress, then obtain a vote of the entire House holding Eastman in contempt, and then make a referral to the Justice Department. So far, there is only one other time that the Justice Department has acted on a contempt of Congress referral from the Select Committee, and that is in the case of Mr. Steven Bannon. The judge set trial in that case for July.

Instead, Mr. Eastman's case is coming to a Hearing much sooner than that, and frankly his prospects look dismal. If he had only waited, perhaps he could have dragged things out for a very long time before a judge ever ruled on Mr. Eastman's objection. Mr. Eastman objects to the subpoena because he claims attorney-client privilege. His reasoning appears to be that he is an attorney and so everything that he has to say is privileged.

A problem here is that Mr. Eastman did not have a client leading up to the January 6 Attack on the Capitol. Only a client can claim the attorney-client privilege. If there is no client, there is no attorney-client privilege. You need more than an attorney, which Mr. Eastman is, an attorney. He still needs a client to raise the attorney-client privilege.

Even if you get past that obstacle, there is also the further matter of at least one exception to the attorney-client privilege even when it applies: the crime-fraud exception. We will address that more fully in another article, but suffice it to say here that the Select Committee filed papers with the Court in California that events leading up to the January 6 Attack and afterward may subject the former guy's campaign to criminal liability or liability for a fraud, and that Mr. Eastman allegedly knew this, and that Mr. Eastman allegedly participated in this plan.

In other words, Mr. Eastman's advice would have been given in connection with committing a crime or perpetrating a fraud, and in that case Mr. Eastman could not claim the attorney-client privilege even if an attorney could claim that privilege (which only a client can claim, and Mr. Eastman does not appear to contend that he was his own client in this matter).

There does not appear to be a good reason why Mr. Eastman filed this lawsuit in the first place. I just reviewed the electronic docket of Mr. Eastman's case on PACER (Public Access to [Federal] Court Electronic Records) and I did not find a Counterclaim filed by the Defendants. Without giving legal advice, I highly recommend based upon experience in civil litigation that the Defendants file a Counterclaim immediately. That should prevent Mr. Eastman from unilaterally filing a Notice of Voluntary Dismissal and getting the entire lawsuit dismissed.

That is, filing a Notice of Voluntary Dismissal if he comes to his senses.

Please read the disclaimer. ©2022 Dennis J. Wall. All rights reserved.

 

A LESSON IN LONGEVITY.

(Image courtesy of LexisNexis)

Judging from the electronic docket of the case, the parties and their lawyers in the case of Travelers Indemnity Co. of Connecticut v. Old Dominion Insurance Co. (M.D. Fla. Case No. 8:19-cv-T-30AAS) obviously want to settle.

    The docket activity since this case was filed in 2019 has involved offers of judgment/settlement, mediation, case management scheduling deadlines, and an expert witness matter.  There has not been any dispositive motion filed.  In particular, there has been no motion to dismiss.

    On September 24, 2020, the U.S. Magistrate Judge assigned to the case entered a discovery order granting in part and denying in part TIC's motion to compel production from Old Dominion.  The Westlaw publication of this order does not show that it was entered by the Magistrate Judge, but I learned who entered it when I reviewed the electronic docket of the case on PACER.  See Travelers Indem. Co. of Conn. v. Old Dominion Ins. Co., Case No. 8:19-cv-T-30AAS, 2020 WL 5701816 (M.D. Fla. Sept. 24, 2020).

    TIC a/k/a Travelers sued Old Dominion "for equitable subjugation or, in the alternative, equitable contribution" for failure to indemnify a common insured.  Travelers, 2020 WL 5701816, at *1.  Later in the case, the Magistrate Judge who entered the September 24 order said that "Travelers sues Old Dominion for equitable subjugation and equitable indemnity[.]"  Travelers, 2020 WL 5701816, at *4.

    I am an Insurance Coverage lawyer and I have never heard of "equitable subjugation."  Have you?  This alleged claim would later determine the outcome, as we will see below.  (The opinion cited one case, which involved equitable subrogation, so despite the words used in the Travelers case, maybe that is what was meant in this case, namely, equitable subrogation.  Again, the alleged claim determined the outcome here, see below.)

    I am also not familiar with "equitable contribution" between liability insurance carriers under Florida law, at least by that name or in the context of this case.  Unless Florida law has changed substantially, there is no cause of action between insurers for "equitable indemnity," either.  I have heard of equitable subrogation, and I have heard of contribution, and I have even heard of indemnity, but not "equitable contribution" or "equitable indemnity," either, particularly as an alternative to something called "equitable subjugation."

    If only a motion to dismiss had been filed in the case.  Perhaps this could have been cleared up by now.  On the road to settlement, perhaps this has been overlooked but since the parties and their lawyers are continuing on the road to settlement, it seems, perhaps the USMJ's two rulings on September 24 will hasten that conclusion to this matter. 

    The first ruling was to declare that the defense lawyer ("Attorney Metzger"), Old Dominion, and the insured enjoyed a "tripartite relationship."  The insured executed an assignment to Travelers and so, the court ruled, Travelers became the insured's "successor in interest" to this tripartite relationship.  "Thus, Old Dominion's attorney-client privilege objections to the production of correspondence between Old Dominion and Attorney Metzger are overruled.  Old Dominion must produce those withheld documents."  Travelers, 2020 WL 5701816, at *2.

    Second, Travelers sought to compel production also of Old Dominion's claim files in the underlying case against the common insured.  The Magistrate Judge responded to Travelers' claim that it really was like a plaintiff in a bad faith case because it had alleged "equitable subjugation claims."  Travelers, 2020 WL 5701816, at *2. 

    Old Dominion raised the qualified immunity of work product and also argued that "this is not a bad faith claim."  The Magistrate Judge held in favor of Old Dominion on this issue.  The USMJ based this outcome on the claim or cause of action alleged in this case:  "But Travelers does not assert a bad faith claim against Old Dominion; rather, Travelers asserts a claim of equitable subjugation.  Thus, the work-product doctrine applies to Old Dominion's claim file."  Travelers, 2020 WL 5701816, at *3.

    So, in the end, the lesson of this case may be that bad faith by another name does not smell like bad faith.  Or, perhaps, at least it need not be an insurmountable obstacle to settlement.

P.S. from another Insurance Coverage lawyer:  "Equitable subjugation strikes me as the quintessential oxymoron.  It sounds like a theory slaveholders might have invoked to support the trope that Blacks are better off under slavery than free."

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.   

 

DISCOVERING COVERAGE COUNSEL'S RESEARCH & ANALYSIS: COMMUNICATED, POST-SUIT, OR NOT.

(LexisNexis)

In a case in which insurance coverage was at issue, a federal court ordered production of certain documents generated by the insurance company's coverage counsel.   The documents included the lawyer's research and analysis of coverage, whether or not any of it was communicated to the carrier, and whether or not any of it was generated after the coverage lawsuit was filed.

    The case involved alleged damage to the interior of a house.  Dorn Homes, Inc. was the builder/developer but it subcontracted the actual work to others.  The carrier, United Specialty, declined coverage and the policyholder, Dorn, filed suit.  To be sure, there were stipulations and protestations concerning work product and even attorney-client privilege between the parties, but the policyholder never yielded in its assertion that it was entitled to the discovery under the Federal Rules of Civil Procedure.

    That teed up the issue for the federal judge's ruling granting Dorn's motion to compel from the carrier in United Spec. Ins. Co. v. Dorn Homes, Inc., 334 F.R.D. 542, 548 (D. Ariz. 2020) (boldface in the Court's order):

IT IS ORDERED that Defendant Dorn Homes, Inc.'s Motion to Compel Documents Withheld as Attorney Work Product (Doc. 123) is granted. Plaintiff United Specialty Insurance Company must produce, no later than January 31, 2019, all documents containing research and analysis on Desert Mountain [an Arizona State Court case relevant to the coverages claims at issue here concerning] preventative damages prepared by USIC's coverage counsel and that form the basis of USIC's advice of counsel defense, whether or not communicated by counsel to Plaintiff, and whether or not created post-lawsuit.

Discovery of "Insurance Counsel's Files" is the subject of § 12:8 in 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith (3d ed. and 2020 Supps. Thomson Reuters West). 

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

THE REAL ATTORNEY-CLIENT PRIVILEGE IN THE CLAIMS FILE.

In a bad-faith case arising out of denial of a life insurance claim, the Chief U.S. Magistrate Judge of a U.S. District Court took apart a claim of attorney-client privilege to bar discovery of a key memorandum from a claim file:

    The Court has considered the arguments by the parties and has reviewed the memorandum at issue. The memorandum is not written by an attorney and does not state that it conveys a confidential communication from Defendant’s counsel. Instead, the memorandum is written by Defendant’s Head of Claims and refers to business practices for contestable claims in states with a statute requiring that the condition that was misrepresented contributed to the loss.

Salopek v. Zurich Am. Life Ins. Co., CV No. 18-339 JAP/CG, 2019 WL 1746303, at *2 (D.N.M. April 18, 2019).

    The Court continued with regard to the attorney-client privilege claim:

Moreover, the substance of the memorandum merely advises claims handlers to refer contestable claims to a claim manager and for possible legal advice. For these reasons, the Court finds Defendant has not met its burden in proving the memorandum is privileged.

Salopek, 2019 WL 1746303, at *2.

But the Court was not finished. The Chief Magistrate Judge concluded that the memorandum in question is not only not privileged, but it is relevant:

    In addition, the Court finds the memorandum is relevant. Plaintiff’s claims involve a contestable claim and alleged misrepresentations on an insurance application. While the memorandum refers to statutes in states other than New Mexico, it also discusses Defendant’s business practices when presented with contestable claims and the effect of a misrepresentation. Therefore, is relevant to the claims and defenses in this case.

    IT IS THEREFORE ORDERED that Plaintiff’s Motion to Compel Zurich America Life Insurance Company to Produce an Unredacted Copy of a Memorandum, (Doc. 101), is GRANTED, and Defendant shall provide Plaintiff with an unredacted copy of Bates No. ZALICO_SAL0002235[.]

Salopek, 2019 WL 1746303, at *2-*3.

    So simply mentioning lawyers in a memorandum is not enough to keep the memorandum secret even in a bad-faith case. This is the universal or nearly universal rule and this decision exemplifies the rule.

Please read the disclaimer. ©2020 Dennis J. Wall. All rights reserved.

 

CHALLENGING CFPB's PROPOSED NEW RULE 11.

The Consumer Financial Protection Bureau has proposed a new "Rule 11," in its proposed new rule at 12 CFR 100618(g).  Supposedly the new rule is intended to affect debt collectors under the Fair Debt Collection Practices Act (FDCPA).

CFPB's proposed new rule is not authorized by the Fair Debt Collection Practices Act or otherwise. The proposed new Section 100618(g) regulates attorneys and not debt collectors.

The proposed rule provides immunity to debt collection attorneys, which the CFPB is not authorized to do. It does not "prescribe rules with respect to the collection of debts by debt collectors, as defined[.]" The proposed new rule relies on defining "meaningful attorney involvement case law," but that interpretation is up to judges to decide, and not to the CFPB.

Further, the CFPB's proposed new "Rule 11" in new 12 CFR 100618(g) omits relevant and important safeguards on attorney conduct prescribed by Rule 11 for all forms of attorney conduct in litigation of any kind in federal courts.

These are just some of the problems raised by this new "Rule 11."

Download CHALLENGING CFPB PROPOSED RULE 11 NEW CFR 100618(g).08.19.19.

Please Read The Disclaimer. ©2019 Dennis J. Wall.  All Rights Reserved.

WHEN EXCESS CARRIER'S LAWYER MONITORS, NOT DECIDES, COMMUNICATIONS NOT "AT ISSUE."

In West Bend Mutual Insurance Co. v. Zurich American Insurance Co.,[1]  a primary carrier, West Bend, requested voluminous documentation from what the Court called the common insured's "secondary" carrier, Zurich.  The primary carrier was the plaintiff in the lawsuit, which it filed against the secondary carrier to compel it to pay that part of an excess judgment against their common insured which was in excess of the primary carrier's limits.

The secondary carrier defended on the ground that the primary carrier handled the underlying settlement negotiations in bad faith.

The primary carrier then served a request for production of voluminous documents from the secondary carrier's files, including Zurich's communications with its monitoring counsel.

Zurich's response was to claim privilege and black out or redact most of  200 or so documents, at least at first:

There is a discovery dispute, of course—“the bane of modern litigation.”  [Citation omitted.]  West Bend asked for the documents in Zurich's [underlying] Fleck case claim file and communications with attorney, John Moroney. Zurich was monitoring the progress of the case and retained the firm of Franco & Moroney for that purpose. Zurich, as is usually the case, made sweeping claims of attorney-client privilege and work product, and produced only heavily redacted documents. The claims were exaggerated, proving once again that excessive claims of privilege are all too commonplace in modern litigation and that they are indiscriminately and improperly used “on documents that do not truly qualify for protection.”[2] 

Ordinarily, that would be the crux of the story:  unauthorized redaction and blackouts of evidence.  But that is not this story.

Zurich changed its mind and its position on blacking out evidence.  It produced much of the previously blacked out evidence, limiting its nondisclosure to about 80 of the original 200 documents:

West Bend has moved to compel production of clean documents and any withheld documents, arguing that “at issue” waiver applies. After an initial hearing on this dispute, Zurich had more than a moment of self-realization and “reconsidered many of the redactions made in its Privilege Log.” It then produced many previously withheld or redacted documents. And so, of the original 200 or so documents at issue [Dkt. # 20, at 12–38], only about 80 remain.[3]

West Bend filed a motion to compel Zurich to disclose the remaining 80 documents.  The primary carrier argued in part in part that Zurich could not claim attorney-client privilege because by its defense that West Bend had handled the underlying settlement negotiations in bad faith, and because Zurich's monitoring counsel presumably should have known of any bad faith, therefore, or so the primary carrier argued, Zurich had put its attorney-client communications "at issue" and therefore made them discoverable.

As a matter of law applied to the facts in the record of this case, the Magistrate Judge disagreed.  The Court denied West Bend's motion to compel, succinctly holding that an excess carrier which retains counsel to monitor the underlying litigation does not thereby put is communications with the monitoring counsel at issue in any later bad faith case.

As the Magistrate Judge put it in announcing his holding in this regard:

What is strikingly absent from West Bend's brief is any explanation of how Zurich and its attorney had anything to do with West Bend's decision not to settle. The settlement negotiations were between West Bend and Mr. Fleck. It was West Bend's decision not to settle. The fact that Zurich's counsel “monitored” the proceedings is meaningless unless he had some input into West Bend's decision—and there's nothing to indicate he did. And that means, West Bend hasn't established any at-issue waiver on the part of Zurich.[4]

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[1] West Bend Mut. Ins. Co. v. Zurich Am. Ins. Co., No. 17 C 2598, 2018 WL 1736153 (N.D. Ill. April 11, 2018) (Cole, USMJ).

[2] West Bend Mut. Ins. Co. v. Zurich Am. Ins. Co., No. 17 C 2598, 2018 WL 1736153, at *1 (N.D. Ill. April 11, 2018) (emphasis added).

[3] West Bend Mut. Ins. Co. v. Zurich Am. Ins. Co., No. 17 C 2598, 2018 WL 1736153, at *1 (N.D. Ill. April 11, 2018).

[4] West Bend Mut. Ins. Co. v. Zurich Am. Ins. Co., No. 17 C 2598, 2018 WL 1736153, at *3 (N.D. Ill. April 11, 2018).

RELEASE THE TESTIMONY! CONCEALING EVIDENCE IS NOT JUSTICE.

The powers controlling the present Congress continue to conceal testimony given behind closed doors.  They persist in their refusal to make public the transcripts of testimony given under oath many months ago.  All despite the wishes of the witnesses that the testimony be made public, and all despite the agreement of many others who have also read the transcripts that there are no good reasons to seal them off from the public view.

An observation by a United States Magistrate Judge concerning secrecy in Court proceedings is a useful counterpoint to the Congressional powers continuing secrecy in their closed-door proceedings.  In this bad-faith case, the Court ruled that communications from a lawyer about the case at hand should be produced in the litigation in which the defendant insurance company had apparently raised the defense of that counsel's advice, as reported on Insurance Claims and Issues on Monday, January 8, 2018.

The Court observed in that case:

“Rule 26 ... is not a blanket authorization for the court to prohibit disclosure of information whenever it deems it advisable to do so, but is rather a grant of power to impose conditions on discovery in order to prevent injury, harassment, or abuse of the court's processes.” Williams v. City of Dothan, Ala., 745 F.2d 1406, 1416 (11th Cir. 1984) (quoting Bridge C.A.T. Scan Assocs. v. Technicare Corp., 710 F.2d 940, 944–45 (2d Cir. 1983)).

Hibbett Patient Care, LLC v. Pharmacists Mut. Ins. Co., No. CA 16–00231–WS–C, 2017 WL 4817992, at *1 (S.D. Ala. January 26, 2017) (Cassady, USMJ).

What's good for the goose is good for the gander, or to put another way in this particular instance, what's good for the Courts is good for the Congress.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

WHEN THE COURT MEETS THE BURDEN OF PROOF.

"Before the Court is a motion to compel production of allegedly privileged documents and submission of more complete privilege logs filed by Plaintiffs(citations to the record omitted)."  Durand v. Hanover Ins. Grp., Inc., No. 3:07-CV-00130-HBB, 2016 WL 6089739, at *1 (W.D. Ky. October 17, 2016) (Brennenstuhl, U.S.M.J.).  The defendants are the Hanover Insurance Group, Inc. and the Allmerica Financial Cash Balance Pension Fund Plan.

The plaintiffs are Ms. Jennifer A. Durand on her own behalf and on behalf of an alleged class of former employees of Hanover.  This is an ERISA class action lawsuit over Hanover's pension plan, specifically a so-called "cash-balance plan."  Such plans require "a 'fair estimate of what the participant's future interest credits actually would have been" under prevailing Sixth Circuit case law applicable to this case.   Durand v. Hanover Ins. Grp., Inc., No. 3:07-CV-00130-HBB, 2016 WL 6089739, at *2 (W.D. Ky. October 17, 2016) (emphasis by the U.S. Magistrate Judge).

The Office of the Inspector General of the U.S. Department of Labor audited the Plan for compliance with laws and regs considering a cash-balance model was involved.  The OIG concluded that the Plan may have violated ERISA.  Durand v. Hanover Ins. Grp., Inc., No. 3:07-CV-00130-HBB, 2016 WL 6089739, at *3 (W.D. Ky. October 17, 2016).

During discovery in the resulting ERISA lawsuit, the defendants withheld documents.  They asserted the attorney-client privilege in support of withholding the requested documents, while the plaintiffs-employees-pensioners argued instead that the documents are an exception to the attorney-client privilege such that were fiduciaries like the defendants seek legal advice in their role as fiduciaries then they are really acting on behalf of the beneficiaries, like the plaintiffs, who are then entitled to see the documents in question.  The Magistrate-Judge presiding over this dispute pointed out that the party asserting the attorney-client privilege in the first place bears the burden of proving it.  Durand v. Hanover Ins. Grp., Inc., No. 3:07-CV-00130-HBB, 2016 WL 6089739, at *13 (W.D. Ky. October 17, 2016).

However, the Magistrate Judge held that "the analysis does not end here" and reviewed the withheld documents in camera:

     In sum, the Court will first assess whether each document is subject to the attorney-client privilege. Next, the Court will determine who was the client at the time each document was prepared. Since Defendants are withholding the documents on claim of privilege, they bear the burden of demonstrating that each of the documents at issue are subject to the attorney-client privilege, and that they were the clients with regard to the privileged communications, not the plan beneficiaries.

Durand v. Hanover Ins. Grp., Inc., No. 3:07-CV-00130-HBB, 2016 WL 6089739, at *15 (W.D. Ky. October 17, 2016).  And that is what the Magistrate Judge proceeded to do.

This was a boon to the defendants, I have no doubt.  Many if not most judges would require the party to meet its burden of proof, not take it upon themselves to determine the outcome of the issue.  The defendants were lucky in this regard.

Eight published pages in Westlaw later, the Magistrate Judge ordered that some documents be produced, and that some other documents be partially redacted (blacked-out) and then produced.  (No documents were held appropriately withheld from all discovery entirely.)  As for privilege logs, the defendants were ordered to comply with Fed. R. Civ. P. 26(b)(5)(A), the privilege log rule they were required to comply with at the outset of the discovery dispute in the first place.

Please Read The Disclaimer. Copyright 2016 by Dennis J. Wall.  All Rights Reserved. 

 

"SUBJECTIVELY REASONABLE SETTLEMENT BEHAVIOR BASED ON COVERAGE COUNSEL" WAIVES PRIVILEGE.

In an Arizona bad faith case, the defendant liability insurance company argued that its settlement decisions were subjectively reasonable.  In support of that argument, the liability carrier's adjuster who was handling the case" testified that although she could not recall a conversation exactly, she would of course normally talk to coverage counsel about counsel's evaluation of coverage.  She further testified that the carrier's settlement decisions "were based on a determination that there was a 80 percent chance that defendant would be able to defeat coverage based on exclusions in [the liability] policy."  Cosgrove v. National Fire & Marine Ins. Co., No. 2:14-cv-2229-HRH, 2016 WL 4578139, at *2 (D. Ariz. September 2, 2016).  When the carrier's coverage counsel told that to the adjuster, the lawyer became a witness.

The carrier impliedly waived the attorney-client privilege by arguing that its settlement behavior was subjectively reasonable because of what its coverage counsel said, namely, that there was an 80% chance of a court ruling or a jury finding no coverage.  In part pertinent to the issue of its settlement conduct, the court recognized the waiver of privilege under Arizona law:

          In sum, the court finds that defendant's affirmative act of claiming that its conduct was subjectively reasonable has put its communications with the Graif firm [its coverage counsel] at issue and that this information may be vital to plaintiff's case. Thus, defendant has impliedly waived the attorney-client privilege as to its communications with the Graif firm to the extent those communications addressed the coverage issues in the underlying case on which defendant based its settlement decisions.

Cosgrove v. National Fire & Marine Ins. Co., No. 2:14-cv-2229-HRH, 2016 WL 4578139, at *5 (D. Ariz. September 2, 2016).

It is a curiosity that this decision under Arizona law by a Federal Court in Arizona was "DATED at Anchorage, Alaska, this 2nd day of September, 2016."  Cosgrove v. National Fire & Marine Ins. Co., No. 2:14-cv-2229-HRH, 2016 WL 4578139, at *6 (D. Ariz. September 2, 2016).

Please Read The Disclaimer.  ©2016 by Dennis J. Wall.  All Rights Reserved.

Ask FOR AN IN CAMERA REVIEW AND YOU MAY OVERCOME.

Valuable lessons for all practitioners and their clients, including but not only in bad faith cases, are taught by the practice displayed in the bad-faith-in-settlement and vexatious-refusal-to-pay case of Electric Power Sys's Int'l, Inc. v. Zurich Am. Ins. Co., No. 4:15 CV 1171 CDP, 2016 WL 3997069 (E.D. Mo. July 26, 2016).

In that case a liability carrier claimed attorney-client privilege and work product on many documents in its claim file as its reasons for redacting certain documents and refusing to produce other documents during discovery.  The opposing party requested an in camera inspection of the documents.  The Court ordered many produced -- unredacted -- as a result of seeing them for herself.

No less than three lessons are clearly presented by this ruling:

First, if you want a judge to inspect disputed documents in chambers, ask for the inspection.

Second, a document, like a picture, is worth a thousand words as the saying goes.  Many documents that were once withheld from discovery see the light of day after a judge takes a look at them.

Finally, a practical lesson, not necessarily present in this case but quietly present in many cases:  A party which raises losing objections in case after case but continues to withhold documents -- and have its objections overruled yet again -- will build up a very poor track record and their reputations will precede them.

Please Read The Disclaimer.  ©by Dennis J. Wall.  All Rights Reserved.

FLORIDA INSURER SETTLED "COVERAGE" CASE, MORTGAGE SERVICER WAIVED PRIVILEGE.

In Lender Processing Services, Inc. v. Arch Insurance Co., 183 So. 3d 1052 (Fla. 1st DCA 2015), Lender Processing Services was a policyholder and a plaintiff which sued its liability carriers for alleged defense coverage for a class action against it, among other things.   Lender Processing Services was described by the court as "a provider at the time of mortgage processing, loan servicing, and default management services to the mortgage lending industry".

At least one of its carriers settled the "coverage" case with Lender Processing Services.  After that part of the case settled, the settling carrier filed a motion to enforce the settlement based on an EMail exchange with Lender Processing Service's in-house counsel.

Lender Processing Services opposed the motion, at least in part.  It contended that its in-house counsel did not have settlement authority on behalf of its officers and directors.  The settling carrier replied that having settled through its in-house counsel as outlined in the submitted E-Mails, Lender Processing Services did not have the legal right in good faith to alter the terms of the settlement with the carrier.

After injecting the issue of its in-house counsel's settlement authority or lack thereof on behalf of its officers and directors, Lender Processing Services claimed that the carrier's questions about the in-house counsel's authority were protected from revelation by the attorney-client privilege.

Both the Florida trial court and the Florida appellate court disagreed.  Both courts held that Lender Processing Services waived any attorney-client privilege by putting its communications with counsel at issue.  Lender Processing Services, Inc. v. Arch Insurance Co., 183 So. 3d 1052, 1062 (Fla. 1st DCA 2015).

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with  Supplements).  The issues addressed by the Florida courts in Lender Processing Services are addressed in particular in Volume 1, § 8:14, "Considerations applicable to discovery by insurers" including questions of attorney-client privilege.  All rights reserved.

Related articles

FLORIDA Coblentz CONSENT JUDGMENT FACT QUESTION.

INSURER PUT ATTORNEY-CLIENT PRIVILEGE AT ISSUE, NO WORK PRODUCT IMMUNITY.

   When an insurance company put “advice of counsel” at issue with respect to its settlement of the underlying case, it thereby waived the attorney-client privilege. When the insurance carrier’s officers testified about the reasons they settled the underlying case, they helped to establish the discovery exception to work product qualified immunity, all in the case of Seneca Insurance Co. v. Western Claims, Inc.,  774 F.3d 1272 (10th Cir. 2014)(applying Oklahoma law of attorney-client privilege).

   The carrier sued an adjuster for indemnity and negligence in that case.  The carrier “affirmatively put at issue its attorney’s advice by invoking ‘advice of counsel’ to support its claims in this litigation.”  Seneca Insurance Co. v. Western Claims, Inc., 774 F.3d 1272, 1277 (10th Cir. 2014).

   The carrier in that case had to prove that the underlying settlement was reasonable in order to recover on its indemnity claim against the adjuster.  The carrier alleged that it relied on the advice of counsel that the settlement was reasonable.  This allegation was a waiver of the privilege under established law.

   The second aspect of the case was that the carrier’s own testimony further established that certain correspondence concerning the settlement was not protected from discovery as work product.  The carrier’s own officers testified that they “generally” relied on the advice of counsel rather than on their own reasons for settling the underlying case.  Seneca Insurance Co. v. Western Claims, Inc., 774 F.3d 1272, 1277 (10th Cir. 2014).  This testimony helped to build a record that there was no substantial equivalent of the evidence which could be obtained without undue hardship, and so the evidence was not protected as work product.

          Where the issue involves settling the underlying case, the law of Western Claims in Oklahoma is likely to be followed elsewhere.

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Waiver / Not: Attorney Client Privilege in Florida Bad Faith Action.

   The crucial issue of how to diagnose waiver of the Attorney-Client Privilege was treated in a recent Florida Bad Faith action:  Teachers Insurance Co. v. Loeb, 75 So. 3d 355, 2011 WL 5842796 (Fla. 1st DCA November 22, 2011), Download Teachers Insurance Co. v. Loeb (Fla. 1st DCA Case No. 1D11.3047, Opinion Filed November 22, 2011) PUBLIC ACCESS.

   In the Deposition of the Defendant Insurance Company's Corporate Representative in that case, two issues of potential waiver of the privilege were in contention.  The same test was applied to both issues.  On one issue, the deponent "disclosed confidential communications" about a certain matter and so he thereby "created a limited waiver of the attorney-client privilege as to that issue."  75 So. 3d at 356.

   On the second issue, the Corporate Representative did not "disclose any specific discussions with counsel as to this issue, and his admission that the issue was discussed with counsel is insufficient to support a waiver of the privilege."  Id.

   There you have it from the Florida Appellate Court's own brief opinion in this case.  Where there is "disclosure of confidential communications about" a matter, a witness can thereby make "a limited waiver of the attorney-client privilege as to that issue."  Where instead a witness does not "disclose any specific discussions with counsel" as to an issue, then "his admission that the issue was discussed with counsel," standing alone, "is insufficient to support a waiver of the privilege."

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First-Party Bad Faith Actions in Florida: Attorney-Client Privilege ...

 ... Exists But Often Fighting for Life; Attorney-Client Privilege Confronted With Avoidable Skirmishes Over Its Florida Existence.

   Another Pepperwood decision is upon us.  The Federal Magistrate Judge seems to be endlessly confronted in this case with discovery disputes.  This time it involves a robust set of requests for production, which are at issue in Pepperwood of Naples Condominium Ass'n v. Nationwide Mutual Fire Insurance Co., 2011 WL 4596060 (M.D. Fla. October 3, 2011)(Polster Chappell, USMJ).  Previous Pepperwood discovery decisions are explored in posts here on September 8 and September 27, 2011.

Error Perpetuated is Still Error.

   The holding in Pepperwood on this occasion involved Nationwide's assertion of the Attorney-Client Privilege against certain discovery requests propounded by its Policyholder, Pepperwood Condominium Association, in this Florida Statutory First-Party Bad Faith case.  The U.S. Magistrate Judge held in this decision that the Court would not recognize Attorney-Client Privilege "with regard to documents generated prior to the filing of this bad faith lawsuit".  However, "Nationwide may be entitled to assert the attorney-client privilege ... for documents created after this lawsuit was filed".  "Therefore, Plaintiff's Motion to Compel this request is due to be granted in part and denied in part."  Id. at *5.  [Italics in original; boldfacing added.]

   In reaching this decision, the Federal Magistrate Judge relied on the Florida Supreme Court's holding in 2005 in the case of Allstate Indemnity Co. v. Ruiz, 889 So. 2d 1121 (Fla. 2005), and on two Federal rulings which followed it:  Cozori v. State Farm Mutual Auto. Insurance Co., 233 F.R.D. 674, 676 (M.D. Fla. 2005)(Baker, USMJ) and Mayfair House Ass'n v. QBE Insurance Corp., 2010 WL 472827 *3 (S.D. Fla. February 5, 2010).

   The Court and apparently the parties in this case did not mention, let alone take account of, the Florida Supreme Court's "clarification" of Ruiz on March 17, 2011.  The change was posted here, for example, on June 2, 2011.  In the case of Genovese v. Provident Life & Accident Insurance Co.,  2011 WL 903988 (Fla. March 17, 2011), the Florida Supreme Court flat out held that "although we held in Ruiz that attorney work product in first-party bad faith actions was discoverable, this holding does not extend to attorney-client privileged communications."  Id. at *4.  [Emphasis added.]  In addition to the post here on June 2, 2011, the Genovese decision has generated extensive commentary.  E.g., Dennis J. Wall, "Discovery of Claims File Materials in Bad Faith Cases:  The Florida Experience," 33 Insurance Litigation Reporter 181 (2011):  Download Article.Discovery of Claims Files.33 ILR 181.

Clearly this particular decision in Pepperwood is not precedent in cases involving Florida or any other jurisdiction's law of Attorney-Client Privilege.  It is worth  noticing however just how after it was "clarified" that the Ruiz decision rules us from its grave, so to speak.

   The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida.  The author will be speaking.  Here is a link to the American Conference Institute Website Page which features this Conference including registration. If you or someone you know would like to attend, the ACI is offering a discount to the readers of this weblog.  If you would like to explore the ACI discount offer, contact:

Marc Gerstein
Delegate Coordinator
Office: 1-212-352-3220  x5432

[email protected]

 

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Florida First-Party Insurer Bad Faith: Attorney-Client Privilege.

   The Supreme Court of Florida has done some "receding" from its previous decisions in recent years.  In one case, the "receding" was out loud, express, and explicit.  In the other case, the "receding" was totally obvious and completely silent.

   The Court's express recession came first.  In 1989 in its decision in Kujawa v. Manhattan Nat'l Life Ins. Co., 541 So. 2d 1168, 1169 (Fla. 1989) (first-party bad faith case)(authorized password required to access this case on Westlaw), the Florida Supreme Court wrote in order to affirm certain rules of discovery.   The Florida Supreme Court affirmed application of the Attorney-Client Privilege in qualified first-party bad faith cases, among other discovery rules.

   In 2005, in another first-party bad faith case, the Florida Supreme Court wrote to recede in part from its Kujawa decision and, apparently, from the attorney-client privilege.  In Allstate Indemnity Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005)(authorized password required to access this case on Westlaw), Download Allstate Indemnity Co. v. Ruiz (Fla. Opinion Filed April 7, 2005) PUBLIC ACCESS, the Court was faced with a question of work product privilege in a first-party bad faith case.  However, the Court went ahead and also addressed generally the issue of attorney-client privilege in all kinds of Insurer Bad Faith actions including those not before it.

   In Ruiz, the Supreme Court of Florida "conclude[d] that it is necessary to recede from our decision in Kujawa because it has unnecessarily produced the application of artificial and disparate discovery rules to first- and third-party bad faith actions.... There simply is no basis upon which to distinguish between first- and third-party cases with regard to the rationale of the discoverability of the claim file type material."  Allstate Indem. Co. v. Ruiz, 899 So. 2d at 1129.

   According to the Florida Supreme Court in Ruiz, when Florida's Bad Faith Statute, brought forward to Fla. Stat. § 624.155 (2010), was enacted into law, the Florida Legislature eliminated any distinction in Florida between third-party bad faith actions and first-party bad faith actions.  Accordingly, in Ruiz the Florida Supreme Court receded in part from its decision in Kujawa:

   Today, however, we reconsider the wisdom of our decision in Kujawa and a fresh look at such decision convinces us that any distinction between first- and third-party bad faith actions with regard to discovery purposes is unjustified and without support under section 624.155 and creates an overly formalistic distinction between substantively identical claims....  [S]ection 624.155 very clearly provides first-party claimants, upon compliance with statutory requirements, the identical opportunity to pursue bad faith claims against insurers as has been the situation in connection with third-party claims for decades at common law.  The Legislature has clearly chosen to impose on insurance companies a duty to use good faith and fair dealing in processing and litigating the claims of their own insureds as insurers have had in dealing with third-party claims. Thus, there is no basis to apply different discovery rules to the substantively identical causes of action....  We conclude the claims of protection at issue in this case may only be applied consistently with the rationale we have established in identical situations in the third-party context.

 Id.  at 1128. 

   A Federal Court in Florida applied the Ruiz Court's dictum in 2010.  In The Ruiz holding was extended to compel production of other insureds' claims files in Mayfair House Association v. QBE Insurance Corp.,  2010 WL 472827 (S.D. Fla. February 5, 2010))(authorized password required to access this case on Westlaw) Download , Mayfair House Association v. QBE Insurance Corp. (S.D. Fla. Opinion Filed Feb. 5, 2010) PUBLIC ACCESS. The Federal Court held that Ruiz supported compelled production of other insureds' claims file documents.  The Federal case centered on a one-Count claim of statutory Bad Faith alleged under Section 624.155, on account of a denial of windstorm coverage for Hurricane damages.   Parenthetically, the Federal plaintiff included allegations in his claim of first-party bad faith, that the defendant insurance company violated several provisions of Florida's Unfair Claim Settlement Practices Act,  Fla. Stat. § 626.9541(1)(i).  Id. at *2.

   The Federal Court in that case was confronted with a request for production which included “the claim files of other insured condominium associations who also litigated windstorm damage claims against QBE arising out of Hurricane Wilma.”  Id.  The U.S. District Court compelled the production of other insureds' claims file documents in that case, relying largely on the supposed 'elimination' of the attorney-client privilege by the Florida Supreme Court in Ruiz, holding that "the Florida Supreme Court effectively eliminated the attorney client privilege as a discovery shield in bad faith insurance litigation between an insured and its insurance company with respect to all materials generated prior to resolution of the underlying disputed matter.”  Id. at *3.

    Earlier this year, the Florida Supreme Court clarified this area of discovery.  The Court's decision came in yet another "statutory first-party bad faith action," this one involving terminated "disability income" benefits:  Genovese v. Provident Life & Accident Ins. Co., 2011 WL 903988 (Fla. March 17, 2011))(authorized password required to access this case on Westlaw), Download Genovese v. Provident Life & Accident Insurance Co. (Fla. Opinon Filed March 17, 2011) PUBLIC ACCESS:

    Therefore, although we held in Ruiz that attorney work product in first-party bad faith actions was discoverable, this holding does not extend to attorney-client privileged communications.  Consequently, when an injured party brings a bad faith claim against its insurer, the insured may not discover those privileged communications that occurred between the insurer and its counsel during the underlying action.

    Although we conclude that the attorney-client privilege applies, we recognize that cases may arise where an insurer has hired an attorney to both investigate the claim and render legal advice.  Thus, the materials requested by the opposing party may implicate both the work product doctrine and the attorney-client privilege.  Where a claim of privilege is asserted, the trial court should conduct an in camera inspection to determine whether the sought-after materials are truly protected by the attorney-client privilege.  If the trial court determines that the investigation performed by the attorney resulted in the preparation of materials that are required to be disclosed pursuant to Ruiz and did not involve the rendering of legal advice, then that material is discoverable.

 Id. at *4.  [Italics by the Supreme Court of Florida.]  This decision was followed immediately by a Florida State intermediate appellate court in another case involving similar discovery issues.  State Farm Fla. Ins. Co. v. Puig, 2011 1008266 *2 - *3 & *2n.1 (Fla. 3d DCA March 23, 2011))(authorized password required to access this case on Westlaw), Download State Farm Florida Insurance Co. v. Puig (Fla. 3d DCA Case No. 3D10.2104, Opinion Filed March 23, 2011)(PUBLIC ACCESS, STATED NOT FINAL).

   Under the apparently now-settled view in Florida Insurance Law, followed by most if not all Courts in Florida, the attorney-client privilege still applies in first-party insurance bad faith lawsuits, just as it applies in other actions in Florida.

 In a perspective including additional research and analysis,  these issues are also the topic of  Dennis J. Wall, "Discovery of Claims File Materials in Bad Faith Cases:  The Florida Experience" 33 Insurance Litigation Reporter 181 (2011), available at no charge under the "Publications" tab on www.dennisjwall.com.

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Discovery of Files in Florida Hurricane Bad Faith Case.

   In previous posts here, including on July 15, 2009, I examined the treatment in recent cases by lower Florida Courts of the Florida Supreme Court's decision in Allstate Indemnity Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005).  In Ruiz, the Florida Supreme Court addressed the "application of work product privilege" in Insurer Bad Faith Cases.  The Supreme Court determined, in sum and in substance, that "in connection with evaluating the obligation to process claims in good faith under section 624.155 [Florida's Bad Faith Statute]" all materials in the First-Party Insurance Company's Claims File should be produced in discovery "up to and including the date of resolution of the underlying disputed matter and pertain[ing] in any way to coverage, benefits, liability, or damages" just as in a Third-Party Bad Faith Case filed at Florida Common Law "for failure to settle third-party cases."  Id. at 1129-30.

   The Ruiz holding was extended to compel production of other insureds' claims files in Mayfair House Association v. QBE Insurance Corp.,  Download Mayfair House Ass'n v. QBE Insurance Corp. (S.D. Fla. Case No. 09.80359 Opinion Filed February 5, 2010) also published as 2010 WL 472827 (S.D. Fla. February 5, 2010)(Westlaw subscription required to access Westlaw).  In that case, a one-Count Complaint alleged statutory Bad Faith in QBE's denial of windstorm coverage for damages allegedly caused by Hurricane Wilma.  The plaintiff in that case, Mayfair, alleged that QBE violated Fla. Stat. § 624.155(1)(b) (2007), which provided then and still provides now that any person may bring a civil action against an insurer when such person is damaged by, among other things, the insurer:

Not attempting in good faith to settle claims, when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for her or his interests; ....

 Mayfair House Association v. QBE Insurance Corp., 2010 WL 472827 *1 (S.D. Fla. February 5, 2010).  Mayfair also alleged that QBE violated several provisions of Florida's Unfair Claim Settlement Practices Act, Fla. Stat. § 626.9541(1)(i).  Mayfair House Association v. QBE Insurance Corp., 2010 WL 472827 *2 (S.D. Fla. February 5, 2010).

   The plaintiff "sought production of QBE's claim file in the underlying coverage dispute with Mayfair House, together with the claim files of other insured condominium associations who also litigated windstorm damage claims against QBE arising our of Hurricane Wilma."  Mayfair House Association v. QBE Insurance Corp., 2010 WL 472827 *2 (S.D. Fla. February 5, 2010).  The U.S. District Court affirmed a Magistrate-Judge's Order compelling the production, but for different reasons, stated by the U.S. District Judge.

   The District Judge applied the Ruiz holding to mean that "the Florida Supreme Court effectively eliminated the attorney client privilege as a discovery shield in bad  faith insurance litigation between an insured and its insurance company with respect to all materials generated prior to resolution of the underlying disputed matter."  Mayfair House Association v. QBE Insurance Corp., 2010 WL 472827 *3 (S.D. Fla. February 5, 2010).

 

The holdings of many Courts which have addressed Discovery issues of this kind in Insurance Bad Faith Cases are collected and examined by Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 8:6 (Third-Party Bad Faith Cases) and § 12:6 (First-Party Bad Faith Cases) (Shepard's McGraw-Hill First Edition; West Publishing  Co. Second Edition and 2010 Supplement).

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Bank of America Answer Does Not Allege Advice of Counsel.

   Sure enough, Bank of America's Answer does not rely on a Defense of Advice of Counsel to the pending claims of Securities Fraud leveled by the Securities and Exchange Commission.  In fact, the Answer does not even allege advice of counsel at all, really.  Not so you would notice.

   BOA's Answer was filed on Friday, September 25, 2009 in the same proceeding in which the United States District Judge previously refused to approve the Consent Settlement Judgment that BOA reached with the SEC, calling it "a contrivance."   As was previously reported in this space, the Federal Judge's Order expressed concern about what apparently amounts to alleged Breaches of Fiduciary Duties among other things.  Here is a complete copy of the Bank's Answer:  Download BOA.Answer.092509 (SDNY Case No. 09 civ 6829).

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Bank of America, Attorney-Client Privilege, Logs and Press Releases.

   Bank of America has stared down the United States Congress.  BOA will not produce numbers of records subpoenaed by the House Oversight and Government Reform Committee.  Instead, BOA will provide a privilege log in an unspecified format with unstated detail.  BOA will assert Attorney-Client Privilege in refusing to produce the subject documents.  The Committee will scour BOA's Privilege Log instead "to determine which documents are critical to the Committee's ongoing investigation."  Press Release, House Committee on Oversight and Government Reform, Tuesday, September 22, 2009.

   It is unknown how anyone can determine which documents are critical to an investigation without knowing some detail about the substance that is in the documents in the first place.  Nor is there any announcement of an agreement about what the U.S. Congress and Bank of America will do if the Congress declares certain documents "critical" and BOA declares them "privileged".  The BOA privilege log may be a political cover, without being much of an aid in understanding the Bank's assertion of Attorney-Client Privilege.  Time perhaps will tell.

   Oh, one other thing in the meantime.  The Committee's rather cryptic Press Release did not contain any mention of the fact that the Bank is continuing to blame its lawyers for providing advice to BOA officials regarding disclosure and nondisclosure issues surrounding the Merrill Lynch acquisition and bonus payoff fiasco, on the one hand, while on the other hand BOA contends that it is not formally relying on a defense of advice of counsel which would subject that advice to discovery.

The House Committee's investigation of and subpoenas to Bank of America come with a context.  BOA's proposed Settlement Consent Judgment with the Securities and Exchange Commission has been rejected by the United States District Court as a "contrivance".  The SEC's Federal Court civil enforcement action concerns the same BOA-Merrill Lynch issues that are being investigated by the House Committee.  The New York State Attorney General is also reportedly investigating the same issues.  These developments have been explored in previous posts in this space and on Insurance Claims and Issues Web Log at www.insuranceclaimsissues.typepad.com most recently on September 22, 2009.

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