Litigants regularly seek advice from counsel before settling or declining to settle a claim or a case. If that litigant subsequently seeks to recover the amount paid from a third party, such as an insurance company in a breach of contract action or under an indemnification agreement, is the attorney-client privilege waived? Proponents of waiver argue that access to the adversary’s work product and communications are critical to the getting to the question of reasonableness or intent of the opponent. Opponents argue that the privilege must be protected. In two decisions, one from New York and the other from Florida, the trial courts held that the privilege was waived by the act of seeking to recover on such claims, but the appellate courts reversed.
In the New York case, Deutsche Bank Trust Co. of America v. Tri-Links Investment Trust, et al., 2007 WL 1412886 (App. Div. 1st Dep’t 2007), the Appellate Division of the Supreme Court of the State of New York, First Department rejected the lower court’s conclusion that Deutsche Bank’s pursuit of the litigation had worked such a waiver. An “at issue” waiver of attorney-client privilege occurs when a party affirmatively places the subject matter of its own privileged communication at issue in the litigation, such that invasion of the privilege is required in fairness to the adversary so as to provide the opponent information vital to its defense. The Appellate Division distinguished between the existence of a privileged communication that contains information relevant to the issues in the case, which does not effect a waiver, and the invocation of a claim or defense which relies upon such privileged materials. In the latter case, selective disclosure is not permitted and will effect a waiver. If Deutche Bank, in pleading its claim, anticipated the defense that the third party settlement was unreasonable by pleading that it relied upon the advice of counsel, the outcome would have been entirely different.
In the Florida case, XL Speciality Ins. Co. v. Aircraft Holdings, LLC, 929 So.2d 578 (1st Dist. 2006), the Florida District Court of Appeal, First District granted a writ quashing an order compelling XL Speciality to produce privileged documents related to the underlying claim. The lower court ruled that because the question of whether the carrier’s refusal to pay the claim was in bad faith, the communications with its counsel and counsel’s work product were relevant to the issue of objective reasonableness. In granting the writ, the Court of Appeal held that that because the statutory cause of action for bad faith did not indicate a legislative intent to waive the attorney-client privilege, no waiver would be found by the filing of such a claim.
The teaching of these decisions is that to avoid a waiver of the privilege, a litigant must be careful not to plead or refer to the advice of counsel to advance its claim or defense.