SEPTEMBER 2006 BAD FAITH CASES
BAD FAITH INVOLVING INSURER DEFENSE GROUP, ATTORNEY-CLIENT PRIVILEGE PROTECTED DURING JOINT DEFENSE AGREEMENT ONLY; NO MEDIATION PRIVILEGE (Philadelphia Commerce)

Plaintiff reinsurance company (ERI) contested its obligation to provide reinsurance coverage to Defendant insurer in connection with underlying lawsuits filed against the insurer. Defendant insurer counterclaimed for breach of contract and bad faith, and filed various discovery motions.

These include among others (1) the important issue of to what extent ERI could assert that the attorney-client privilege was encompassed by a joint-defense privilege; (2) whether discovery of ERI’s claims’ examiner’s handwritten notes could be had; and (3) whether counsel for ERI and another excess counsel could be deposed on the circumstances under which ERI ceased participating in a mediation.

The Philadelphia Commerce Court found that the attorney-client privilege is not waived when there is a actual joint-defense agreement to which a third person was party, and that this third person had a common interest in the defense with the party now asserting the privilege.

The Court applied the same reasoning to the work product doctrine. ERI had entered into a joint defense agreement with other insurers concerning the underlying case involving Cigna, and its communications and lawyers’ work product remained privileged for the life of that agreement; however, communications or work product shared after that agreement terminated were not protected.

Following this same logic, the claim’s examiner notes embodying privileged communications or work product during the joint defense period were precluded from discovery, but the depositions of counsel were permitted for the time after the agreement terminated (and there was no longer a common interest), when ERI chose not to participate in the mediation. Nor was ERI allowed to assert a mediation privilege, since it did not agree to participate; though the carriers that did participate may yet have that privilege.

Date of Decision: August 18, 2006

Executive Risk Indemnity Inc. v. Cigna Corporation, November Term 2004, No. 1495, 2006 Phila. Ct. Com Pl. LEXIS 328 (C.C.P. Philadelphia Aug. 18, 2006) (Bernstein, J.)

The decision in this case addressing the discoverability of reserve and/or reinsurance information is set forth in a separate summary, here.

It should be noted that Judge Mark I. Bernstein, author of this Opinion, is the author of a commentary on Pennsylvania’s Rules of Evidence.