Insurers Beware – You Could Be Waiving Attorney-Client Privilege

If insurers aren’t careful, they could waive attorney-client privilege. The Mississippi Supreme Court recently held that if an adjuster substantially relies on in-house counsel to prepare a denial letter, the attorney-client privilege does not apply. This could make the reasoning of in-house counsel discoverable.

The Court’s Ruling

In that case, an unknown driver struck the plaintiff’s flagpole. The plaintiff filed a claim with its insurer under its automobile insurance policy. The policy included uninsured-motorist (UM) coverage. The insurer denied the claim, asserting there was no coverage because the flagpole was not a covered “auto” under the UM policy. The plaintiff disputed that position in an email. Before responding, the adjuster sought legal advice from the insurer’s in-house counsel. The adjuster then signed and sent a letter to the plaintiff’s counsel, which again denied coverage.

The plaintiff sued and the adjuster was deposed, but the adjuster could not explain the basis for the denial. The plaintiff asked the Court to order the insurer to produce emails between the adjuster and in-house counsel. The plaintiff also tried to compel the deposition of in-house counsel. The Mississippi Supreme Court agreed. It found that the attorney-client privilege did not apply because it was in-house counsel, not the adjuster, who had personal knowledge of the insurer’s reasons for denying the claim.

More specifically, the Court found that if the adjuster who authored a coverage position letter cannot speak to or explain the basis for the insurer’s coverage position, then the insurer may be deemed to have impliedly waived the attorney-client privilege. This allows the insured-claimant to see communications between the adjuster and the insurer’s lawyer and to depose that lawyer.

What This Means for Insurers

Although the scope of the ruling may turn out to be limited to the specific circumstances of that case, its importance should be noted. Insurer representatives must be able to explain the basis for the insurer’s coverage position. If they cannot do so, a Mississippi court may find that an insured-claimant is entitled to discovery from other representatives of the insurer, even legal counsel.

Please contact James Shelson or any other member of Phelps’ Litigation team if you have questions or need compliance advice and guidance.