United States District Court, D. Arizona
Douglas L. Rayes, United States District Judge.
an in camera review of certain documents in April 2017, the
Court found that the documents properly were subject to the
attorney-client privilege and therefore denied
Plaintiff's motion to compel. (Docs. 162, 180.) Plaintiff
has moved for reconsideration of that order, and Defendant
has filed a response in opposition. (Docs. 199, 202). For
reasons stated below, the motion is granted.
contends that the recent deposition of Defendant's bad
faith expert shows that Defendant is not merely defending
this case based on the purely objective reasonableness of its
conduct, but instead asserts that its actions in
investigating, evaluating, and paying Plaintiff's claim
were subjectively reasonable and taken in good faith. (Doc.
199 at 2-4.) Plaintiff argues that Defendant has impliedly
waived the attorney-client privilege because Defendant has
placed the claims adjuster's subjective beliefs at issue
and those beliefs were informed in part by the advice of
counsel. The Court agrees.
attorney-client privilege exists "to protect not only
the giving of professional advice to those who can act on it
but also the giving of information to the lawyer to enable
him to give sound and informed advice." Upjohn Co.
v. United States, 449 U.S. 383, 390 (1981). The law is
clear that a party does not waive the attorney-client
privilege by conferring with counsel and obtaining advice, by
simply following the advice in taking action, or by relying
on the advice to evaluate its claims and defenses. State
Farm Mut. Auto. Ins. Co. v. Lee, 13 P.3d 1169, 1183
(Ariz. 2000). Nor is the privileged waived by "the mere
filing of a bad faith action, the denial of bad faith, or the
affirmative claim of good faith[.]" Id. at
cannot, however, "assert a defense based on the
contention that it acted reasonably because of what it did to
educate itself about the law, when its investigation of and
knowledge about the law included information it obtained from
its lawyer, and then use the privilege to preclude the other
party from ascertaining what it actually learned and
knew." Id. at 1177. Similarly, "when an
insurer raises a defense based on factual assertions that,
either explicitly or implicitly, incorporates the advice or
judgment of its counsel, it cannot deny an opposing party the
opportunity to discover the foundation for those assertions
in order to contest them." Mendoza v. McDonald's
Corp., 213 P.3d 288, 302 (Ariz.Ct.App. 2009) (citing
Lee, 13 P.3d at 1178). In short, an insurer "is
not allowed to assert the privilege when doing so 'places
the claimant in such position, with reference to the
evidence, that it would be unfair and inconsistent to permit
the retention of the privilege' because the
attorney-client privilege 'is not to be both a shield and
a sword.'" Id. at 304 (quoting
Lee, 13 P.3d at 1173).
case, Defendant sent Plaintiff to Dr. Zoran Maric for an
independent medical examination (IME) in November 2014. The
IME report was favorable to Plaintiff in that Dr. Maric, in
responding to specific questions posed by Defendant, opined
that based on objective medical evidence Plaintiff's
injury was the "direct result of his work activity"
on the day in question and there is no "evidence that
this was a preexisting condition." (Doc. 199-2 at 5-6.)
Defendant's expert witness, Doug McCoy - who ultimately
opines that there was no bad faith in this case -
acknowledged at his deposition that the IME report was
favorable to Plaintiff, that Defendant apparently had no
basis to dispute Dr. Maric's medical findings, and that
Defendant should not have waited several months to accept the
claim after receiving the IME report absent a good reason.
(Doc. 199-3 at 8, 17.)
however, McCoy did not know why the claims adjuster, Lynell
Brown, denied the claim after receiving the IME report on
November 5, 2014 only to approve the claim several months
later on March 25, 2015. He speculated that it was based on
"a series of emails the exact same date between her and
counsel, " but did not know what was said in the emails
because they were redacted based on the attorney-client
privilege. (Doc. 199-1 at 7.) He confirmed that although he
did not know the reason why Brown ultimately approved the
claim, he "suspect[ed] it was a discussion she had with
counsel the day she accepted it." (Id. at 9.)
support of his no bad faith opinion, McCoy testified that,
despite the IME report, Brown apparently "still had
doubts" and "additional questions" about the
specific cause of the injury and that after the retention of
counsel, who "is an arm of investigation" into the
claim, evidently "there were things that were done"
causing Brown to decide that the claim was compensable.
(Id. at 11, 13-15, 19-20.) Again, however, McCoy
could not identify what "things" were done or why
Brown's "doubts" and "additional
questions" were answered because the emails between her
and counsel were redacted. (Id. at 15-16.)
through the testimony and opinion of its bad faith expert,
has put the subjective beliefs of the claims adjuster
directly at issue, and those beliefs implicate the advice she
received from Defendant's ICA counsel, Scott Finical.
Indeed, Brown's motives and the advice of counsel appear
to be so intertwined that McCoy could not explain what
further questions Brown had, what steps she took to get them
answered, or what caused her to change her position and
ultimately approve the claim; rather, McCoy could only
speculate that those explanations lay within Brown's
redacted communications with ICA counsel.
electing to defend this case based on the subjective, not
just objective, reasonableness of its adjuster's actions,
Defendant placed at issue its "subjective beliefs and
directly implicated the advice and judgment [it] had received
from [Defendant's] ICA counsel incorporated in those
actions." Mendoza, 213 P.3d at 303. Defendant
has thus "rendered the advice and judgment its adjuster
received from its ICA counsel relevant to the case."
Id. In asserting the attorney-client privilege over
the relevant communications between Brown and ICA counsel,
Defendant has sought to shield Plaintiff from the very
evidence he would need to challenge both Brown's
subjective beliefs themselves and McCoy's expert opinion
that there was no bad faith because Brown apparently got her
additional questions answered through the advice of counsel.
See Id. at 304. It would be "unfair and
inconsistent to permit the retention of the privilege"
in this situation because the privilege "is not to be
both a shield and a sword." Id. at 304 (quoting
Lee, 13 P.3d at 1173).
summary, the Court finds that Defendant has impliedly waived
the attorney-client privilege with respect to any
communications between Brown and ICA counsel relating to the
coverage determination and the ultimate decision to approve
Plaintiff's claim. See id.; Cosgrove v.
Nat'l Fire & Marine Ins. Co., No.
2:14-cv-2229-HRH, 2016 WL 4578139, at *5 (D. Ariz. Sept. 2,
2016) ("Because defendant has raised a defense that is
highly likely to have incorporated the advice or judgment of
its coverage counsel, defendant cannot shield its
communications with [counsel]. It would be unfair not to give
plaintiff an opportunity to discover what advice [the claims
adjuster] might have received from coverage counsel.");
Miller v. York Risk Servs. Grp., No. 2:13-cv-1419
JWS, 2014 WL 4354833, at *2 (D. Ariz. Sept. 3, 2014)
("It is impossible to test the accuracy of York's
assertion that the adjusters acted reasonably . . . if a
significant factor forming a basis for their decisions - the
communications with the claims lawyers - is cloaked in
asserts that, unlike the facts in Mendoza,
Defendant's reliance on counsel's advice did not
force Plaintiff through "needless adversarial
hoops" to secure his benefits. (Doc. 202 at 5.) But even
if this were true, it does not preclude application of
Mendoza in this case. Indeed, according to
McCoy's testimony, it appears that counsel's advice
in March 2015 may have been the basis for the ultimate
approval of the claim -but only after a several month delay
that Plaintiff claims to be unreasonable and in bad faith.
Defendant notes that Brown accepted Plaintiffs claim
"based on her conclusion in March 2015 that it was more
probable that his injury was ...