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| By: Julie E. Maurer |
A recent Arizona Court of Appeals decision, Everest Indemnity Ins. Co. v. the Hon. John
Rea, Judge of Sup. Ct. of State of Ariz., No. 1 CA-SA 14-0094, 2015 WL
195450 (Ariz. Ct. App. Jan. 15, 2015), addresses the attorney-client privilege
at issue in bad faith cases. This fact-intensive Special Action decision
suggests that with additional factual inquiry, nothing has changed under
Arizona law, at least for now.
In the Everest
decision of January 15, 2015, the Arizona Court of Appeals examined whether an
insurer implicitly waived attorney-client privilege by asserting subjective
good faith belief as a defense. At the trial court level, the insureds brought
an action against their liability insurer alleging bad faith because Everest
entered into a settlement agreement to their detriment. The trial court ordered
Everest to produce attorney-client communications. The Court of Appeals then
accepted special action jurisdiction, and granted Everest relief from
production of the privileged documentation.
In Everest, the insureds
argued that the attorney-client privilege was waived because Everest asserted
“subjective good faith” in defending the bad faith claim—thus, Everest should
be required to produce otherwise privileged attorney-client communications.
While Everest admitted that it consulted with its counsel in assessing whether
or not to settle the underlying matter, Everest asserted that its ultimate
decision was based on its own subjective beliefs, and not the direction of
counsel.
The court in Everest
provided that the assertion of a subjective good faith defense, along with
consultation of counsel, does not, in and of itself, waive attorney-client
privilege under Arizona law. Rather, a more detailed factual inquiry and, thus,
specific admission from a defendant is required before such attorney-client
privilege will be waived: “[t]o waive the privilege something more is required.
Under Lee [State Farm Mut. Auto. Ins. Co. v. Lee, 199 Ariz. 52 (2000)], the
attorney-client privilege is impliedly waived only when the litigant asserts a
claim or defense that is dependent
upon the advice or consultation of counsel.”[1]
While the dissent to the Everest
decision asserts that the Majority “essentially enforces, to borrow from
Justice Feldman, a ‘magical admission’ standard that requires a party to
formally state it actually relied on counsel before the attorney-client
privilege can be impliedly waived,”[2]
another reading of the Everest
decision supports that the Majority merely requires a more pointed factual
inquiry by plaintiffs to waive attorney-client privilege in bad faith actions.
One thing is certain: the future appears to be uncertain in Arizona as to how long, or if, the holding of State Farm Mut. Auto. Ins. Co. v. Lee, 199 Ariz. 52 (2000) will remain.
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