August 21, 2019

Tenth Circuit: Privilege Cannot Be Used as Both Sword and Shield

The Tenth Circuit Court of Appeals issued its opinion in Seneca Insurance Co., Inc. v. Western Claims, Inc. on Monday, December 22, 2014.

Seneca hired Western Claims to investigate an insured’s claim for wind and hail damage to buildings. Western’s adjuster investigated and found some damage but determined the buildings had not suffered hail damage to the roof. Later, the insured asked Seneca to reopen its claim based on an estimate from its roofing contractor that it had suffered hail damage to the roof. Eventually, the insured sued Seneca, Western, and the adjuster in Oklahoma state court, claiming all three had mishandled its claims, and sued Seneca for breach of insurance contract, bad faith, and fraud.

During the litigation, Seneca’s claims examiner prepared a large loss report and distributed it to several Seneca executives. Seneca also sought advice from two attorneys in separate firms regarding the lawsuit. The attorneys advised Seneca regarding its potential bad faith liability and recommended settling the lawsuit for $1 million and then suing Western and the adjuster to recover. Seneca followed this advice. In discovery, Seneca disclosed that it had settled the litigation “on advice of counsel.” Western Claims filed a motion to compel documents Seneca relied on in settling the litigation. Seneca objected to the motion and again at trial, claiming the attorney-client privilege and work product doctrine, but the district court found Seneca had put the documents in issue. At trial, several Seneca executives testified that they agreed upon the $1 million settlement “on advice of counsel.”

At the close of Seneca’s case-in-chief, the district court granted Western Claims’s motion for judgment as a matter of law regarding Seneca’s equitable indemnity claim, but allowed the negligence claim to be submitted to the jury, where Western Claims ultimately prevailed. Seneca appealed the district court’s decision to allow Western Claims to discover the correspondence from its attorneys. Western Claims cross-appealed the district court’s denial of its motion for judgment as a matter of law as to the negligence claim.

Seneca argued the district court erred in concluding it waived its right to claim attorney-client privilege and work product protection regarding the correspondence from its attorneys. The Tenth Circuit evaluated whether some “affirmative act” by Seneca waived the privilege. It found that, when Seneca claimed it relied on “advice of counsel” for the settlement amount, it put that advice at issue and thus waived privilege. Seneca claimed that the information was available in other sources, but the Tenth Circuit disagreed, finding that Seneca expressly relied on “advice of counsel” and could not use the advice both as a sword and a shield.

The district court’s judgment was affirmed.

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