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Insurance: Bad Faith/Advice of Counsel Defense/Subjective Good Faith Belief/Atty-Client Privilege

Posted by Matt Schmidt | Jan 28, 2015 | 0 Comments

Everest Indem. Ins. Co. v. Rea, 704 Ariz. Adv. Rep. 23 (App. Div. I, January 15, 2015) (J. Gemmill)

ATTORNEY CLIENT PRIVILEGED WAIVED ONLY IF DEFENDANT AFFIRMATIVELY CLAIMS ITS CONDUCT WAS IN GOOD FAITH BECAUSE IT WAS BASED UPON ADVICE OF COUNSEL

Plaintiffs were insureds under an Owner Controlled Insurance Program (OCIP) policy and sued defendant alleging it committed bad faith in exhausting liability policy limits in settlement of certain claims to the detriment of these insureds.  The defendant claimed its actions were justified by the subjective good faith belief that based upon the merits of the claims the settlement was the sound thing to do.  Defendant admitted it consulted with its attorneys during the decision-making process. The trial court ordered production of correspondence between the defendant and its attorneys finding assertion of the good faith defense constituted an implied waiver of the privilege. The defense brought this special action. The Arizona Court of Appeals accepted jurisdiction and granted defendant relief from the  production order.

The mere assertion of a subjective good faith belief in coverage without more does not constitute an implied waiver of the attorney/client privilege.  It is assumed that parties will consult with their attorneys, trading information for advice and that they will make decisions and act accordingly. However, to waive the attorney-client privilege, a party must make an affirmative claim that its conduct was based on its understanding of the advice of counsel--it is not sufficient that the party consult with counsel and receive advice. Here no such assertion is yet made by the defendant and therefore the privilege is preserved.

About the Author

Matt Schmidt

Matt graduated from the James E Rogers College of Law at the University of Arizona in passing the Arizona bar exam in 2010. Matt's primary interest in law focuses on general personal injury and insurance bad faith.

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