A recent decision in the Eastern District of Pennsylvania suggests increased hostility to the adoption of an absolute rule that insurers are co-clients with their insureds for the purposes of discovery in declaratory judgment actions.
In the case of CAMICO Mutual v. Heffler, Radetich, & Saitta, LLP, CAMICO insured the defendant accounting firm’s administration of class action settlement funds and agreed to defend same under a reservation of rights when sued for misappropriation of proceeds. However, in the midst of funding the firm’s defense, CAMICO elected to pursue a separate action for declaratory judgment stating that its coverage obligations under the policy were limited to $100,000. Litigation proceeded apace in both cases until CAMICO propounded discovery demands upon the firm seeking the production of documents created in the defense of the misappropriation action. Unsurprisingly, the firm took exception, prompting CAMICO to file the subject motion to compel.
While the firm argued that the responsive documents were insulated from disclosure by the attorney-client privilege, CAMICO countered by asserting that its common interest in the underlying defense gave rise to an exception. Applying the substantive law of Pennsylvania, Judge Jan E. DuBois of the Eastern District noted that both state and federal courts have consistently split on the issue. Specifically, Judge DuBois explained that while some courts in both jurisdictions recognize an absolute co-client relationship between insurer and insured, Pennsylvania’s appellate courts have recently endorsed a case-by-case approach that focuses on how the parties interact with the joint attorneys and each other. Adopting the second standard, Judge DuBois ultimately held that a co-client relationship did not exist because the firm independently retained defense counsel before CAMICO involved itself in the claim. As a result, CAMICO’s shared interest in the defense, without more, was insufficient to constitute a waiver of the attorney-client privilege and the motion was denied.
Although CAMICO’s consideration of the attorney-client privilege in coverage disputes is limited to those circumstances where defense counsel is independently retained, the decision illustrates a growing trend against an absolute rule in Pennsylvania. To be sure, however, the court itself recognized that its decision does not preclude the possibility of a co-client relationship in all cases.
Special thanks to law clerk Adam Gomez for his contribution to this post. For further information, please contact Paul Clark at email@example.com