As discussed above, this year’s Top Ten list includes the Washington federal court’s decision in Canyon Estates Condo. Association v. Atain Specialty Ins. Co.  There the court concluded that, when outside counsel assists an adjustor, in writing a denial letter, it is not a privileged task.  As a result, there was no attorney-client privilege and an insured was entitled to obtain unredacted copies of its insurer’s claims file documents and invoices for activities performed by its outside coverage counsel.       

As I discussed above, Canyon Estates stands as a reminder that attorney-client privilege may be waived when outside counsel is engaged in investigating and evaluating or processing a claim, and not in providing the insurer with counsel whether or not coverage exists under the policy and law.

As I also discussed above, if that’s the test for maintaining attorney-client privilege, then the decision in Canyon Estates is unquestionably wrong.  There is nothing routine about drafting a denial or reservation of rights letter, which is what the court seems to be suggesting.  The task clearly involves addressing whether there is coverage under the policy.  And that is often tied to legal and case law-dictated issues that must be considered when drafting a coverage letter.

A similar issue arose this year in Travelers Property Cas. Co. v. 100 Renaissance, LLC, No. 2019-IA-586-SCT (Miss. Oct. 29, 2020). Here, the Mississippi Supreme Court addressed the issue when the disclaimer was drafted by the insurer’s in-house counsel and sent from the adjuster.  Just as in Canyon Estates, the court concluded that, on account of this method, attorney-client privilege had been waived.         

Do Canyon Estates and 100 Renaissance portend a new trend – policyholders asserting that a ghost-written letter entitles them to claims discovery that insurers usually forcefully maintain is protected by attorney-client privilege?

The story in 100 Renaissance started out seemingly simply enough.  An unidentified driver struck a flagpole owned by 100 Renaissance and caused $2,000 and change in damages.  100 Renaissance filed a claim with Travelers seeking uninsured motorist coverage.  Travelers denied coverage because the flagpole was not a covered auto.

Counsel for 100 Renaissance sent a letter to the adjuster, disputing the denial letter.  Counsel maintained that, despite what the Travelers policy may say, there is a Mississippi statute – MCA 83-11-101(2) (“Mississippi UIM Statute”) -- that mandates certain uninsured motorist coverage.  Counsel maintained that, on the basis of the Mississippi UIM Statute, coverage for the damaged flagpole was owed. 

The adjuster, who is not a lawyer, sought advice from a Travelers in-house counsel.  Following this request for assistance, the adjuster again denied the claim on the basis that the flagpole is not a covered auto. 

Coverage/bad faith litigation ensued and the adjuster’s deposition was taken.  The court set out a very lengthy excerpt from the deposition, mainly focusing on what the adjuster knew about the operation of the Mississippi UIM Statute.  The court’s conclusion: virtually nothing. 

The transcript included this exchange:

Q:  Just looking at the statute, the plain language of the statute right here, okay, [Section] 83-11-101(2), you looked at before. Is there coverage under that statute, under the plain reading of that statute?

Q: In your opinion.

A: I don’t know. I’m not an attorney. I don’t know anything about statutes. That’s what we have General Counsel for. I deal with policy language, what’s in the policy.      

Travelers chose to pay for the damage to the flagpole.  But 100 Renaissance continued with its claim for bad faith and sought production of emails between the adjuster and in-house counsel as well as a deposition of in-house counsel.  Following an in camera review, the court ordered production of the emails as well as production of in-house counsel for a deposition.  Travelers field a petition for interlocutory appeal which was granted.

The Mississippi high court concluded that Travelers had waived attorney-client privilege.  In a nutshell, its decision was based on the following, which had much to do with the fact that the second denial letter, written after in-house counsel’s involvement, was signed by the adjuster. 

As the court put it: “Generally, it may be expected that the person who signs a letter has personal knowledge of the matters set forth in the letter.”

And, as the court noted, the adjuster lacked the necessary personal knowledge: “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 [the adjuster]; but based on her deposition testimony, it clearly was prepared by someone other than [the adjuster], most likely [in-house counsel]. If so, [in-house counsel] did not act as legal counsel and give advice to [the adjuster] to include in the denial letter. Instead, the denial letter contained [in-house counsel’s] reasons to deny the claim. [The adjuster’s] signature was simply an effort to hide the fact that [in-house counsel], not [the adjuster], 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.”

Further, the court explained that “if the claims handler relied substantially, if not wholly, on in-house counsel to prepare her denial letter, the reasoning of in-house counsel should be discoverable.” (emphasis in original).

A dissenting Justice, and one joining, saw the decision as an overreach, concluding that the majority “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.”