EVERESTINDEMNITYARTICLE
014
EVEREST INDEMNITY INSURANCE COMPANY V . REA
REJECTS IMPLIED WAIVER OF THE ATTORNEY-CLIENT PRIVILEGE
AUTHOR : Bill Caravetta EMAIL : wcaravetta @ jshfirm . com BIO : jshfirm . com / williamgcaravettaIII
The Arizona Court of Appeals recently rejected a plaintiff ’ s claim that the defendant insurance company impliedly waived the attorney-client privilege by simply consulting with counsel during the course of making a claims decision , and then later asserting its subjective belief in the good faith nature of that decision . Everest Indem . Ins . Co . v . Rea , 236 Ariz . 503 , 342 P . 3d 417 ( App . 2015 ). In reaching this decision , the court ruled that plaintiff had “ overread ” Mendoza v . McDonald ’ s Corp ., 222 Ariz . 139 , 213 P . 3d 288 ( App . 2009 ), to suggest that a defendant waives the attorney-client privilege simply by defending the subjective reasonableness of its actions after consulting with counsel . This argument , said the court , was “ inconsistent with [ the Arizona Supreme Court ’ s decision in ] State Farm Mut . Auto . Ins . Co . v . Lee .” Lee held that “ To waive the attorneyclient privilege , a party must make an affirmative claim that its conduct was based on its understanding of the advice of counsel – it is not enough that the party consult with counsel and receive advice .” To waive the privilege , said the Everest Court , “ something more is required ” than mere consultation with counsel before the assertion of a subjective good faith defense . The “ privilege is impliedly waived only when the litigant asserts a claim or defense that is dependent upon the advice or consultation of counsel .” The Everest Court thus clearly repudiated the overbroad theory of implied waiver that many plaintiffs espouse in typical bad faith litigation . Everest clarifies that to waive the attorney-client privilege , a defendant must affirmatively place the advice of counsel at issue .
Mendoza involved a waiver of the attorney-client privilege because the adjusters specifically relied on the advice of counsel in scheduling IME ’ s and determining the issuance of surgical authorizations . In Everest , however ,
[ T ] here has been no showing that Everest was in doubt as to any legal issue . Rather , it made decisions during the course of litigation and , of necessity , involved lawyers in that litigation . The decision Everest made to settle the case was not necessarily the product of legal advice , and Everest has not yet asserted – expressly or impliedly – that it was .
One judge dissented . Although she agreed with the majority ’ s analysis of the legal issue , she disagreed as to application of the law to the facts in the case . She believed the facts established “ the something more ” than Everest ’ s mere consultation with counsel . The dissent noted that because counsel participated in the settlement negotiations on Everest ’ s behalf , this indicated that counsel did more than provide advice ; counsel was directly involved in the relevant events . The dissent believed that counsel ’ s participation , along with Everest ’ s assertion of subjective good faith , was an affirmative interjection of counsel ’ s role in formulating and acting upon Everest ’ s subjective good faith in this litigation .
AS IT STANDS NOW , THE MAJORITY DECISION IN EVEREST IS CLEAR : NO
IMPLIED WAIVER OF THE ATTORNEY-CLIENT PRIVILEGE OCCURS WHERE ADJUSTERS
THEMSELVES MAKE THE CLAIMS DECISIONS AND DO
NOT RELY ON THE ADVICE OF COUNSEL TO FORM THEIR
SUBJECTIVE BELIEF OF THE APPROPRIATENESS OF
THEIR ACTIONS .
Insureds ’ counsel in bad faith cases might try to claim that the Everest majority misread Lee in concluding there could be no waiver of privilege until the insurer affirmatively claims its conduct was based on advice of counsel . Plaintiffs ’ counsel will likely claim that Everest is an aberration and a mistaken interpretation of Lee by a panel of a lower court . In truth , the Everest majority appropriately concluded that waiver is implied only when , after receiving advice from an attorney , a party makes an affirmative assertion that it was acting in good faith because it relied on counsel ’ s advice to inform its own evaluation and interpretation of the law . This decision does not ignore Lee , but , rather , appropriately interprets and explains Lee in the context of the facts presented .
Everest leads one to ask , what facts do constitute waiver and what facts don ’ t ? The Everest dissent thought counsel ’ s involvement with settlement negotiations was a telltale sign that Everest ’ s actions were “ inextricably intertwined ” with the advice it received from counsel . Under the dissent ’ s interpretation of Lee and its progeny , a carrier would not need to formally state that it actually relied on counsel before an implied waiver of the privilege would occur . Counsel ’ s involvement in a carrier ’ s decisions to dispute coverage , to appeal an adverse decision , or delay payment of benefits to achieve a favorable settlement would result in an implied waiver . But the Everest majority disagreed , concluding that participation by an insurer ’ s attorneys in settlement negotiations or in the decision whether to settle at all did not impliedly waive the privilege . As it stands now , the majority decision in Everest is clear : No implied waiver of the attorney-client privilege occurs where adjusters themselves make the claims decisions and do not rely on the advice of counsel to form their subjective belief of the appropriateness of their actions .