A recent Mississippi opinion dramatically underscores the dangers of an advice-of-counsel defense. In Willis v. Allstate Ins. Co., — F.Supp.2d —, 2014 WL 1882387 (S.D.Miss., May 12, 2014), the court held that the insurer had waived both the attorney-client privilege and the work-product doctrine with respect to coverage counsel’s entire file – and not just that portion of it that the carrier was willing to produce – when its representatives testified that they relied on the attorney’s advice to deny liability. As the saying goes, in for a penny, in for a pound.
The policyholder Sandra Willis’ home was damaged by a fire on June 14, 2012, and she made a claim under her homeowner’s policy with Allstate Insurance Company. The insurer then hired an attorney, David Waldrop, to provide an opinion on coverage. Waldrop did so in a letter dated February 19, 2013, and Allstate subsequently denied liability. The insured responded by filing suit for breach of contract and bad faith.
During their 30(b)(6) depositions, the carrier’s representatives testified that Allstate’s denial was based, in part, on Waldrop’s coverage opinion, and the carrier then provided the policyholder with a copy of the February 19 letter from counsel. It withheld the balance of his file, however, and it scheduled the contents of that file on a privilege log.
The insured subsequently issued a subpoena requesting production of Waldrop’s “entire claim file of Sandra Willis, including any correspondence to and from Allstate and any reports to and from Allstate.” Allstate moved to quash, citing the attorney-client privilege and the work-product doctrine.
The Southern District of Mississippi held that Allstate had waived both.
With respect to the privilege, Allstate conceded that it had waived that with respect to the coverage opinion itself, but it argued that its waiver did not extend to or encompass the balance of Waldrop’s file. Judge Michael T. Parker disagreed, noting that in Mississippi “a waiver of the privilege is deemed to encompass all information related to that topic.” According to the court’s opinion, production of the balance of the attorney’s file was necessary because “access to additional information . . . could provide important context for understanding the coverage opinion” that Allstate had already produced. By asserting an advice-of-counsel defense, Allstate “waived the attorney-client privilege for all communications between it and . . . Waldrop regarding insurance coverage advice or opinions related to [Willis’s] claim for insurance proceeds.”
With respect to work-product, the court noted that it was Allstate that bore the burden of establishing that the documents in Waldrop’s file were prepared in anticipation of litigation as opposed to “a more or less routine investigation of a possible resistible claim.” As the judge explained, the “key question” here was when Allstate shifted from merely investigating the claim to anticipating a lawsuit over it. Judge Parker held that Allstate had not met its burden because it hadn’t “pinpointed a definite shift from acting in its ordinary course of business to acting in anticipation of litigation.” The judge also stated that the work-product doctrine – like the attorney-client privilege – could be waived, and he held that Allstate had done so by “put[ting] in issue [the] attorney’s opinion or work product.”
The court held that the insured was “entitled to all written communications (or notes describing such) between Allstate and . . . Waldrop regarding [her] claim for benefits under the Allstate policy at issue” as well as “all documents provided by Allstate (or any other person) to . . . Waldrop that were reviewed or considered in reaching his opinion.”