Flagpoles And Privilege Waiver

The Mississippi Supreme Court has held that an insurer had waived attorney-client privilege in communications with in-house counsel. 

This is an interlocutory appeal of a bad-faith failure-to-pay claim. The trial court found that the insurance company waived the attorney-client privilege and was required to produce written communications between its in-house counsel and its claims handler and to produce its in-house counsel for a deposition. We agree and affirm.

The claim involved damage over $2,000 caused to a flagpole by an unidentified driver

Travelers denied Renaissance’s claim. Travelers’ claims handler, Charlene Duncan, determined there was no coverage under the UM policy because the flagpole was not a covered “auto.”

Editor's note: This position makes a certain amount of intuitive sense, as the dissent notes. 

Renaissance's counsel made an argument for coverage

On February 19, 2016, Renaissance’s attorney, Rick Wise, sent an email to Duncan that set forth Renaissance’s legal arguments as to why coverage should be afforded under Mississippi’s UM statute.

...Before responding, Duncan sought legal advice from Travelers’ then in-house counsel, Jim Harris. Duncan is not an attorney. Duncan sent a letter, dated March 2, 2016, that again advised Renaissance that its claim was denied under its UM policy because the policy required damage to a covered auto.

In the ensuing litigation

Renaissance took Duncan’s deposition and asked that she explain both the denial letter and the reasons Travelers denied the claim.

That litigation

Renaissance commenced this claim on August 25, 2016. In the complaint, Renaissance asserted a claim for coverage under the UM policy and a claim for bad-faith denial of the claim. In an effort to resolve the matter, Travelers paid the full amount for damage to the flagpole. Renaissance, however, continued to litigate its bad-faith claim.

As to the advice

After in camera review, the trial court found that “Travelers ha[d] waived the attorney-client privilege as it relates to attorney Jim Harris.” The trial court ordered Travelers to produce the emails and to produce Harris for a deposition. Travelers filed a petition for interlocutory appeal, which this Court granted.

Here

Travelers sent the denial letter to Renaissance in an effort to explain its arguable and legitimate basis to deny the claim. The letter was signed by Duncan; but based on her deposition testimony, it clearly was prepared by someone other than
Duncan, most likely Harris. If so, 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. 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 Renaissance from discovering the reasons from the person who had personal knowledge of the basis to deny the claim.

..Renaissance is entitled to depose the individual with personal knowledge of the basis for the denial of coverage as set forth in the denial letter. That person is Harris.

There is a dissent from Justice Ishee joined by Justice Coleman 

The majority concludes that the legal arguments contained in Duncan’s denial letter were probably the product of her consultation with Harris. That is almost certainly the case, but the majority then goes on to conclude that since Duncan, the claims handler, could not explain the legal arguments, the letter “clearly was prepared by someone other than Duncan, most likely Harris” and that “Duncan’s signature was simply an effort to hide the fact that Harris, not Duncan, had personal knowledge of Travelers’ reasons to deny the claim.” Maj. Op. ¶ 18. Thus, the majority reasons, Travelers has waived the attorney-client privilege, and Renaissance is entitled to depose the attorney, Harris, and to discovery of the correspondences between the claims handler and the attorney.

With all due respect to the majority, I disagree with its underlying premise. Duncan clearly understood the reason for denying the claim, which was the same reason stated in her initial denial letter: the express language of the policy precluded coverage. Duncan faltered only when asked to respond to Renaissance’s legal arguments concerning questions of statutory interpretation that might have overridden the express policy language. The majority thus appears to impose a requirement that in order to preserve the privilege, a claims handler must be able to explain legal arguments at her deposition—the same legal issues for which she sought advice in the first place. I can find no authority to support this proposition, and I fear it is an unreasonable standard that will have deleterious and chilling effects on the exercise of the attorney-client relationship. “[A]n 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 who is dissatisfied with a decision to deny coverage.” Aetna Cas. & Sur. Co. v. Superior Ct., 200 Cal. Rptr. 471, 475 (Cal. Ct. App. 1984).

Dissent concludes

The underlying facts of the claim here were not disputed: an unidentified motorist struck and damaged Renaissance’s flagpole. Travelers’ attorney’s participation was limited to evaluating legal arguments presented by Renaissance’s attorney in a demand letter after the initial denial of coverage. The communications between Travelers’ claim handler and its attorney are protected by the attorney-client privilege, and I cannot find the privilege to have been waived by the mere involvement of the attorney in evaluating the legal arguments  presented in Renaissance’s demand letter. I respectfully dissent.