State Court Considers Possible Waiver Of Privilege Over Claims File In Workers’ Comp Case
Last week, the Supreme Court of South Dakota reversed a trial court judge who had concluded an insurer had impliedly waived the attorney-client privilege and thus had to produce all disputed documents in unredacted form. The plaintiff had brought the suit against the insurer for bad faith in resolving the plaintiff’s underlying workers’ compensation claims. The plaintiff brought a motion to compel seeking the full claim file as well as information on 199 other high-dollar claims that the insurer had handled under an initiative to deal with high-dollar claims. The Circuit Court concluded that the insurer impliedly relied on the advice of counsel in handling the plaintiff’s bad faith claim and the 199 other claims and therefore had waived the attorney-client privilege.
On appeal, the state’s Supreme Court reversed, finding that based on the record the insurer had not impliedly waived the attorney-client privilege, and that the Circuit Court erred in making this finding without conducting an in camera inspection of the claim files. The Circuit Court mistakenly relied on two theories to support its implied waiver conclusion: 1) that the insurer impliedly injected the advice of counsel into the bad faith litigation; and 2) that the insurer completely delegated its claim handling function to outside counsel. The Circuit Court, however, failed to enter any evidentiary findings in support of its legal conclusions.
The Supreme Court concluded that the insurer had not expressly relied on the advice of counsel as an essential element of its defense based on the record in the case. The plaintiff contended that the insurer injected its reliance on the advice of counsel into the bad faith litigation by embedding attorney-client privileged communications in the claim file notes and then redacting the communications. The Supreme Court reasoned, “Regardless of whether [the insurer] ’embedded and redacted’ attorney-client communications into the claim files notes as [plaintiff] suggests, this practice does not demonstrate that [the insurer] injected its reliance on the advice of counsel into the bad faith litigation.” The plaintiff could not show that the insurer had asserted the attorney-client privilege as a result of an affirmative act, such as raising an affirmative defense, and that the insurer specifically relied on that advice of counsel to support the argument that it acted in good faith. In the Supreme Court’s opinion, the Circuit Court’s failure to determine whether the insurer affirmatively interjected privileged communications into the bad faith litigation was reversible error.
The Supreme Court also concluded that the Circuit Court should have conducted an in camera review of the disputed documents before making any determination as to implied waiver. Even though the Circuit Court was provided with the claim file for the plaintiff, the Circuit Court failed to make any findings to support its conclusions after reviewing the disputed documents. The Supreme Court explained, “While we do not hold that there is a procedural requirement to conduct an in camera review before ruling on a party’s assertion of the attorney-client privilege, the present facts establish that [the insurer] satisfied its burden of triggering the Circuit Court’s obligation to conduct an in camera review of the disputed documents.”
