William Gillard bought $200,000 in uninsured motorist coverage from AIG Insurance Company. In 1997, he was injured in a car accident, the driver of the other car had no insurance, and so Gillard filed a claim with AIG for his policy limits.
For seven years, the insurance company refused to pay his claim until, on the eve of arbitration, AIG inexplicably offered him the full policy limits. No apology. No "sorry for not paying you the money you were owed over the past seven years." It’s just how insurance companies do business.
There should be a law against that.
Thankfully, there is such a law in Pennsylvania, the unfair insurance practices act, 42 Pa.C.S.A. § 8371. As one of a thousand Pennsylvania insurance bad faith cases holds, “bad faith exists where the insurer did not have a reasonable basis for denying benefits under the policy and that the insurer knew of or recklessly disregarded its lack of reasonable basis in denying the claim." Condio v. Erie Insurance Exchange, 2006 PA Super 92 (2006).
Gillard thus sued to recover, as provided by the unfair insurance practices act, “interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%,” punitive damages, and court costs and attorneys’ fees against the insurer. It could have been a substantial sum: over $80,000 in interest, plus whatever the costs and attorney’s fees of the suit would be, and potentially punitive damages. When all was said and done, AIG could have been on the hook for over a half million dollars, possibly more.
In the course of the lawsuit, Gillard requested copies of the documents his insurance company had created while processing his claim, but insurance company again refused, citing the attorney-client privilege.
But before we go on, some background. When evaluating claims, insurance companies routinely carbon copy their lawyers on everything, and routinely involve employers in business decisions that do not really have anything to do with legal advice, so they can later claim attorney-client privilege and avoid producing the actual documents which would show their bad faith in evaluating the policyholder’s claim.
For a long time, trial courts and lower appellate courts in Pennsylvania have presumed, by carefully reading the statute which codifies attorney-client privilege, that the privilege pertains only to communications made by the client to the attorney, and does not cover communications made by the attorney back to the client except for those communications which incorporate communications by the client to the attorney.
Sound confusing? It is, but it makes some sense. "[E]xceptions to the demand for every man’s evidence are not lightly created nor expansively construed, for they are in derogation of the search for truth." Hutchison v. Luddy, 414 Pa.Super. 138, 146, 606 A.2d 905, 908 (1992). In other words, you cannot just mention something to a lawyer, or have a lawyer mention something to you, and then claim it is all privileged; the "privilege" pertains only to communications necessary to ensure a client has adequate access to an attorney and full and fair communication. Last year, Judge Mark Bernstein in the Philadelphia Court of Common Pleas had a long, scholarly analysis of the state of privilege law in the Kolar v. Preferred Unlimited case, concluding that “the statutory attorney-client privilege in Pennsylvania is extremely limited. It covers only confidential factual communications from a client to her attorney. It is extended to communications from an attorney to a client only if, and only to the extent that, those communications from the attorney reveal the client’s confidential factual communications.” That’s pretty much what everyone thought.
All of that changed this week with the Pennsylvania Supreme Court’s opinion in the Gillard v. AIG Insurance case, which held “in Pennsylvania, the attorney-client privilege operates in a two-way fashion to protect confidential client-to-attorney or attorney-to-client communications made for the purpose of obtaining or providing professional legal advice." The Supreme Court thus completely overruled the trial court’s (and Superior Court, which had affirmed without an opinion) fairly aggressive interpretation in which the privilege was exclusively a one-way street.
Frankly, it’s hard not to agree with the majority of the Pennsylvania Supreme Court as a policy matter. Putting aside the language of the statute which codifies privilege Pennsylvania (language which, as Judge Bernstein noted, and as Justices Eakin and McCaffery noted in their dissents, only mentions communications from the client to the attorney, and not vice versa), it would indeed hinder clients — including both policyholders and insurance companies, both plaintiffs and defendants — from obtaining legal advice if the attorney had to be guarded in what they actually advised the client just in case it came out later. As we discuss time and time again with our own clients, there is nothing more important than the ability of the lawyer and the client to have open and meaningful discussions about all the issues related to the case.
All that said, I wonder where this leaves Gillard and AIG, and anyone involved in a suit which implicated potentially privileged attorney-to-client communications, going forward. One could say that the old rule already protected most "attorney-to-client communications made for the purpose of obtaining or providing professional legal advice," because the old rule protected all attorney communications which incorporated the client’s confidential factual communications and, really, most legal advice necessarily incorporates those facts related by the client to the attorney.
Indeed, when this case is remanded back to the trial court, the trial court might find that the internal insurance company documents in question were not “for the purpose of obtaining or providing professional legal advice” but rather were standard business or insurance advice, and so are still not protected. Wouldn’t that be ironic?