MISSOURI COURT UPHOLDS ATTORNEY-CLIENT PRIVILEGE

On Behalf of | Sep 27, 2019 | Insurance Law

In State ex rel. Shelter Mut. Ins. Co. v. Wagner, 575 S.W.3d 476 (Mo. Ct. App. 2018), transfer denied (July 31, 2018), reh’g denied (July 31, 2018), the Missouri court held that in a bad faith lawsuit arising from the failure to settle, the insured was not entitled to discovery communications between the insurance company and its attorney who was retained to advise the insurer in the underlying case.

Under the facts of this case, the insured purchased a $50,000 automobile liability policy from Shelter. The insured was then involved in a car accident. A dispute arose as to whether the insured had additional coverage under five other insurance policies that had been purchased from Shelter, insuring both the insured and the insured’s parents. Shelter retained coverage counsel to represent Shelter in the coverage dispute. Shelter also retained separate defense counsel to represent the insured in the liability action. The claimants rejected Shelter’s $50,000 policy limits settlement offer and proceeded to receive a $300,000 judgment. Shelter then paid its limit.

An equitable garnishment action was brought by the claimants against Shelter, alleging that there was coverage under the five additional Shelter policies. In that lawsuit, the insured filed a cross claim against Shelter asserting bad faith refusal to settle. The insured sought discovery of documents in Shelter’s claim file for the automobile accident. Those documents also included communications with coverage counsel. After in camera review the trial court ruled that the insured had the right to waive the attorney-client privilege as to all documents in the claim file, including documents reflecting communications between Shelter and its coverage counsel. An interlocutory writ was filed.

The Missouri Court of Appeals held that Shelter did not waive its privilege based on the testimony. Shelter did not assert the affirmative defense on advice of counsel.

The insured argued that the attorney-client privilege did not apply because coverage counsel was acting in the ordinary course of Shelter’s business of claim handling as opposed to a legal adviser. The Court rejected this claim, finding that Shelter had hired coverage counsel to represent Shelter’s interests during settlement negotiations, as opposed to assisting with the claim process. The insured also argued that all of the documents in the claim file were the insured’s property. The Court rejected this argument, noting that Missouri law did not have a statute waiving the attorney-client privilege in insurance bad faith suits.

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