A hotly contested issue in all bad faith cases is the proper scope of discovery that a policyholder may obtain. As I discussed in Florida Southern District Court Upholds Condominium Association’s Right To Bad Faith Discovery:
For condominium associations in particular, many times attorneys become involved in an insurance claim from the very beginning. In many instances, the independent or insurance adjuster is moved to the side early in the process and replaced by the insurer’s attorney, who ends up directing the adjustment and making the final determination of coverage.
For many years, insurers have claimed that all of the work that these attorneys performed in the adjustment of the claim was privileged because of the work product and attorney-client privilege. When insurers acted in bad faith by denying valid claims, the insurer could refuse to produce relevant documents which reflected this improper behavior during the bad faith litigation.
Fortunately, Florida courts caught on to this tactic and have stopped the insurer’s attempts to improperly hide its bad faith conduct by invoking attorney-client and work product privilege on materials in the claim file.
The Florida Supreme Court’s ruling in Allstate Indemnity Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005) set the precedent in preventing insurer’s from concealing bad faith activities with claims of privilege. Specifically, Ruiz overruled previous case law and found that work product documents created in the breach of contract action were part of the claim file and must be turned over in subsequent bad faith litigation.
While Ruiz was a great victory for policyholders, the Supreme Court’s opinion was unclear as to whether an insurer was required to turn over attorney-client privileged documents or whether the ruling applied solely to work product materials. This uncertainty resulted in a split between federal and state courts. Federal judges interpreted Ruiz to mean that the attorney-client privilege did not apply, while state District Courts of Appeal uniformly found otherwise.
After years of debate and speculation, the Florida Supreme Court has now clarified the scope of Ruiz and has announced that the attorney-client privilege remains intact. In Genovese v. Provident Life & Accident Insurance Company, the Court held:
In Ruiz, we held that in first-party bad faith actions brought pursuant to section 624.155, work product materials were discoverable. At the outset, the first sentence of our opinion in Ruiz makes it clear that the only issue involved in that case was the work product doctrine. In Ruiz, we reviewed the decision of the Fourth District Court of Appeal in Allstate Indemnity Co. v. Ruiz, 780 So. 2d 239 (Fla. 4th DCA 2001), “which expressly and directly conflict[ed] with a number of cases from other district courts with regard to issues concerning application of work product privilege to shield documents from discovery in the insurance bad faith context.” Ruiz, 899 So. 2d at 1122. In concluding that work product materials were discoverable in first-party bad faith actions, we then defined such work product as materials “contained in the underlying claim and related litigation file material that was created up to and including the date of resolution of the underlying disputed matter and pertain in any way to coverage, benefits, liability, or damages.” Id. at 1129-30. Moreover, following this description, we cited Florida Rule of Civil Procedure 1.280(b), which is the rule governing the work product doctrine. Thus, based on a reading of our language in Ruiz, it is clear that the only issue being decided in Ruiz was the discovery of work product pertaining to the underlying claim in first-party bad faith actions. However, Genovese suggests that although the facts of Ruiz only concerned the work product doctrine, we held broadly that both attorney-client communications and work product should be discoverable in first-party bad faith claims against insurers. Contrary to Genovese’s suggestion, our holding in Ruiz does not apply to attorney-client privileged communications in first-party bad faith actions.
While this ruling does not come as a great surprise to many, the Court did not conclude its opinion there. Instead, the Court specifically addressed the growing trend of insurance carriers in retaining defense attorneys to act in the capacity of an adjuster rather than as legal counsel. The Court noted:
Although we conclude that the attorney-client privilege applies, we recognize that cases may arise where an insurer has hired an attorney to both investigate the underlying claim and render legal advice. Thus, the materials requested by the opposing party may implicate both the work product doctrine and the attorney-client privilege. Where a claim of privilege is asserted, the trial court should conduct an in-camera inspection to determine whether the sought-after materials are truly protected by the attorney-client privilege. If the trial court determines that the investigation performed by the attorney resulted in the preparation of materials that are required to be disclosed pursuant to Ruiz and did not involve the rendering of legal advice, then that material is discoverable.
In his concurrence opinion, Justice Pariente further stated:
I would, however, emphasize that where an insurer utilizes an attorney to investigate or evaluate the underlying claim, these communications or materials would not be protected. Rather, the rationale of Ruiz would apply. Cases may arise where an insurer has hired an attorney to investigate or evaluate the underlying claim and to render legal advice. Thus, the underlying file materials requested by the opposing party may arguably implicate both the work product rule and the attorney-client privilege.
Accordingly, where a claim of privilege is asserted, the judge should conduct an in camera inspection to determine whether the sought-after materials are truly protected by the attorney-client privilege or whether the attorney was consulted to assist in the investigation or evaluation of the underlying claim. To the extent that the materials would implicate the work product rule and not the attorney-client privilege, the rationale of Ruiz would apply and those portions of the materials would be discoverable.
Genovese is a very important opinion for policyholders and insurers alike in many respects. It protects the sanctity of the attorney-client privilege and warns insurance companies against improper attempts to conceal evidence of bad faith conduct by retaining an attorney to perform the traditional functions of an adjuster.
While this practice happens in all types of claims, large and complex condominium claims are the most common because of the amounts involved. If your insurer retains an attorney during the claim process, the association should seriously consider retaining counsel of its own to negotiate with the insurance company’s attorney and to ensure that the association and board is protected and well informed.
