South Dakota Supreme Court Rules in Favor of MLR Client on Attorney-Client Privilege

Yesterday, Maloney Lauersdorf Reiner’s client received a favorable South Dakota Supreme Court ruling for its client in Andrews v. Twin City Fire Ins. Co., 2015 S.D. 24 (2015).  MLR attorneys F.J. Maloney and Nick Thede, along with local counsel Jason Smiley of Gunderson Palmer Nelson Ashmore, LLP of Rapid City, South Dakota, petitioned the Court for intermediate review of the trial court’s ruling regarding the waiver of the attorney-client privilege.  The Supreme Court accepted the petition for review and briefing and oral argument were completed late last year.  This latest opinion is now a controlling precedent on the applicability of the attorney-client privilege in South Dakota.

The case concerns a worker’s compensation insured alleging, among other things, that the insurance company acted in bad faith while handling the claim.  As part of the bad faith litigation, the insured sought discovery of wholly unredacted copies of the insurance company’s claim file for the insured.  Additionally, the insured sought production of unredacted claim files for 199 other worker’s compensation claimants, personnel files, and privilege logs from various other states around the country.  The basis of the insured’s position was that the insurance company had impliedly waived the protection of the attorney-client privilege by systematically injecting the advice of counsel into each claims file.  The insurance company objected and argued that there was no implied waiver of the privilege and, even so, the court must conduct an in camera inspection of the materials to determine the extent of any waiver, if any.  The trial court agreed with the insured, finding that the insurance company impliedly waived the attorney-client privilege and ordered the insurer to produce all of the disputed documents in unredacted form.  The trial court did not conduct an in camera inspection prior to making its finding and, instead, relied on cases cited by the insured in finding there was a general waiver of the privilege.  The insurance company petitioned for intermediate review, and the Supreme Court reversed.

The Court first addressed production of the claimant’s own claim file.  In concluded that the trial court erred in ordering production of an unredacted version of the file, the Court found that it must first be established that the insurance company “injected, by affirmative act, its reliance upon the advice of counsel into the bad faith litigation.”  The Court also concluded that even if the trial court determined there was an implied waiver of the attorney-client privilege, then it must conduct an in camera inspection of the disputed materials and make findings regarding the assertion of waiver.  As for the argument that the insurance company completely delegated its claim handling function, the Court found that a trial court must base its decision on a review of the materials and conclusion that the insurance company unequivocally delegated its claims handling function to the attorney and relied exclusively on the advice provided by the attorney to conduct the investigation and adjustment of the claim.

With respect to the 199 other claim files, the Supreme Court concluded that the trial court must first consider whether the materials are relevant to the bad faith claim asserted in this case.  If they are relevant, the trial court must conduct an in camera review of the materials to determine whether there has been a waiver.  That review must be conducted in accordance with its findings regarding the insured’s own claim file.

Finally, because many of the other claim files addressed claims from other states, the Court considered the issue of what state law applies when determining whether the insurance company waived the protection of the attorney-client privilege.  The court noted that South Dakota follows the “most significant relationship” rule to determine the law applicable to an assertion of privilege.  Under that rule, the Court concluded that the “most significant relationship” test generally requires application of the law of the state where the communication took place.

The attorneys at Maloney Lauersdorf Reiner regularly represent clients in bad faith litigation and appeals in the Pacific Northwest and throughout the country.  Please contact us with any questions or concerns regarding this case or any other matter you see address in the Insurance Coverage Blog.

UPDATE: The publication Insurance Law360 wrote on the decision in an article dated May 1, 2015.

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