MAY 2015 BAD FAITH CASES – DIETZ & WATSON PART III: ATTORNEY CLIENT PRIVILEGE WAIVED IN BAD FAITH CASE WHERE IT WAS NOT TIMELY ASSERTED, AND WHERE OTHER CONDUCT CONSTITUTED WAIVER (Philadelphia Federal)

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In Dietz & Watson v. Liberty Mutual Insurance Company, Magistrate Judge Rueter continued to address the numerous discovery issues in the context of third party insurance bad faith litigation.  The first case is summarized as to mediation privileges issues here, and as to depositions of attorneys here.

The current discovery disputes involved the insured’s response to document requests, as well as the response of its former counsel to document requests.  The court had previously ordered the insured’s counsel “to review their productions and send a letter to defendants and the court confirming their complete compliance with the discovery requests.”

In response, counsel stated that it did not have to produce certain documents, based on the theory that once the underlying case settled, and new counsel was hired by the insured, the date of settlement “marked the conclusion of the underlying lawsuit and the beginning of a new representation regarding this current [breach of contract and bad faith] action.”

Any communications with new counsel were alleged to be both privileged and beyond the scope of requests for documents concerning the underlying action.

The court rejected the scope of discovery argument, i.e., that the discovery was strictly limited to what occurred in the underlying case. For example, the insurer defendants sought documents relating to “any other contemplated action(s) relating to the Underlying Lawsuit”, communications regarding the decision to file the bad faith case, and those with knowledge concerning the bad faith suit. This clearly went beyond the underlying action as such.

Thus, the more pertinent issue involved the claims related to the attorney client privilege, concerning a smaller subset of the documents requested. The insured and counsel asserted that any communications between them regarding prosecuting the bad faith action were privileged.  The insurers asserted that the attorney-client privilege was waived because the insured failed to assert it “at any time during this protracted discovery process, and/or when [the insured] disclosed other allegedly privileged documents.”  The party asserting waiver bears the burden of proof.

The court ruled in favor of waiver.

On numerous occasions the insured “intentionally waived any claim of attorney-client privilege with respect to the documents at issue”: No objections were asserted in responses to the document requests; nor was the privilege asserted in response to the motion to compel production.

Further, after the “Motion to Compel was filed, [the insured’s] Counsel produced the documents allegedly subject to the privilege, but never objected on the grounds of the attorney-client privilege as to any other documents intentionally withheld that clearly were responsive to the Requests for Production.” The court gave that counsel a final opportunity to review their production and confirm compliance with the Requests for Production, and “for the first time, identified documents that were being withheld on the grounds of scope and attorney-client privilege.” Again, however, the insured did not file a privilege log.

Further even after the court’s ruling over three months earlier, giving the insured and counsel opportunity for further review, they “never properly claimed the privilege by describing the nature of the withheld documents [on a document by document basis] as required by Fed. R. Civ. P. 26(b)(5)(A), 45(e)(2).”  The court continued on with a history that showed some allegedly privileged documents were produced, no privilege was asserted or privilege log produced, and there were no supplemental responses under Rule 26(e).

For all of the foregoing reasons, it found repeated waiver as to improperly withheld documents. The court further cited a litany of case law focused on the untimeliness of asserting the privilege.  It also found that at least some of the conduct at issue was calculated and deliberate.

Date of Decision:  May 5, 2015

Dietz & Watson v. Liberty Mut. Ins. Co., No. 14-4082, 2015 U.S. Dist. LEXIS 58827 (E.D. Pa. May 5, 2015) (Rueter, U.S.M.J.)

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