Gillard v. Aig Ins. Co.

• Decision Date: 23 February 2011
• Docket Number: No. 10 EAP 2010,J-58-2010,10 EAP 2010
• Parties: WILLIAM GILLARD, Appellee v. AIG INSURANCE COMPANY AND AIG AND THE INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA AND KEY AUTO INSURANCE PLAN AND AIG CLAIMS SERVICES, Appellants
• Court: Pennsylvania Supreme Court

WILLIAM GILLARD, Appellee

v.AIG INSURANCE COMPANY AND AIGAND THE INSURANCE COMPANY OF THE STATE OF PENNSYLVANIAAND KEY AUTO INSURANCE PLAN AND AIG CLAIMS SERVICES, Appellants

J-58-2010

No. 10 EAP 2010

SUPREME COURT OF PENNSYLVANIA

EASTERN DISTRICT

ARGUED: September 14, 2010

DECIDED: February 23, 2011

CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, ORIE MELVIN, jj.

Appeal from the Judgment of Superior Court entered on 1/4/08 at No. 1065 EDA 2007 affirming the order entered on 4/16/07 in the Court of Common Pleas, Philadelphia County, Civil Division at No. 864, June term 2005

OPINION

MR. JUSTICE SAYLOR

In this appeal, we consider whether, and to what degree, the attorney-client privilege attaches to attorney-to-client communications.

This litigation entails a claim of bad faith arising out of insurance companies' handling of Appellee's uninsured motorist claim. During discovery, Appellee sought production of all documents from the file of the law firm representing the insurers in the underlying litigation (who are the appellants here). Appellants withheld and redacted documents created by counsel, asserting the attorney-client privilege.

In response, Appellee sought to compel production. Appellee took the position that the attorney-client privilege in Pennsylvania is very limited--according to Section 5928 of the Judicial Code--to confidential communications initiated by the client:

5928. Confidential communications to attorney

In a civil matter counsel shall not be competent or permitted to testify to confidential communications made to him by his client, nor shall the client be compelled to disclose the same, unless in either case this privilege is waived upon the trial by the client.

42 Pa.C.S. §5928.

Appellee's motion allowed, in the abstract, that certain lawyer-initiated communications might contain information originating with the client and, accordingly, may be privileged. Appellee observed, however, that Appellants had not sought such derivative protection, but rather, asserted the privilege broadly, as if it were a "two-way street." Appellee maintained that the privilege is, in fact, a "one-way street" and must be strictly contained to effectuate the will of the General Assembly and minimize interference with the truth-determining process. As further support, Appellee referenced Birth Center v. St. Paul Cos., Inc., 727 A.2d 1144, 1164 (Pa. Super. 1999) ("The attorney-client privilege... only bars discovery or testimony regarding confidential communications made by the client during the course of representation.").

For their part, Appellants highlighted the privilege's purpose to foster the free and open exchange of relevant information between the lawyer and his client.¹ Toencourage such candid disclosure, Appellants reasoned, both client-and attorney-initiated communications must enjoy protection. In this regard, Appellants referenced Maiden Creek T.V. Appliance, Inc. v. General Casualty Insurance Co., No. Civ.A. 05667, 2005 WL 1712304, at *2 (E.D. Pa. July 21, 2005) ("The attorney-client privilege protects disclosure of professional advice by an attorney to a client or of communications by a client to an attorney to enable the attorney to render sound professional advice." (citing Upjohn, 449 U.S. at 390, 101 S. Ct. at 683)). Appellants also stressed, that, under caselaw prevailing in the bad-faith litigation arena, a carrier asserting an advice-of-counsel defense waives the attorney-client privilege relative to such advice. See, e.g., Mueller v. Nationwide Mut. Ins. Co., 31 Pa. D. & C.4th 23, 3233 (C.P. Allegheny, 1996) (Wettick, J.). According to Appellants, such a waiver would be superfluous were the advice of counsel discoverable from the outset.

During in camera review proceedings in the presence of counsel, the common pleas court adopted the "one-way street" perspective. See N.T., Mar. 29, 2007, at 8 ("According to the Pennsylvania statute, the attorney-client protection only applies to communications made by the client. That's my ruling."). Further, as reflected in thefollowing interchange with defense counsel, the court repeatedly grounded its ruling on the direction of the flow of the information, not the content, suggesting that derivative protection was absent:

[Defense Counsel]: I think with that ruling, Your Honor, then that would obviate the need to go through a number of documents that are communications from attorney to client, because as I understand the ruling, is that those communications are, pursuant to the Court's ruling, not going to be within the scope of the attorney-client privilege.

THE COURT: Exactly.

Id. at 8-9. Additionally, the common pleas court couched its ruling as a "blanket" one. Id. 27.

In its opinion under Rule of Appellate Procedure 1925, the court referenced the following decisions as supportive of its ruling: Slater v. Rimar, Inc., 462 Pa. 138, 148, 338 A.2d 584, 589 (1975) ("[T]he law wisely declares that all confidential communications and disclosures, made by a client to his legal adviser for the purpose of obtaining his professional aid or advice, shall be strictly privileged[.]" (citation and quotation marks omitted)); Commonwealth v. Maguigan, 511 Pa. 112, 131, 511 A.2d 1327, 1337 (1986) (describing the attorney-client privilege in the context of the criminal law, see 42 Pa.C.S. §5916, as "limited to confidential communications and disclosures made by the client to his legal advisor"); and In re Estate of Wood, 818 A.2d 568, 571 (Pa. Super. 2003) ("[T]he privilege applies only to confidential communications made by the client to the attorney[.]"). The court, however, appeared to moderate its focus on the direction of flow and to accept the possibility of some derivative protection. Nevertheless, it explained that Appellants had not argued that the withheld attorney communications contained information originating with the client.

Appellants filed an interlocutory appeal, invoking the collateral order doctrine. See Pa.R.A.P. 313; Ben v. Schwartz, 556 Pa. 475, 483-85, 729 A.2d 547, 551-52 (1999). The Superior Court exercised jurisdiction and affirmed in a brief memorandum opinion, relying on Nationwide Mutual Insurance Co. v. Fleming, 924 A.2d 1259, 1269 (Pa. Super. 2007) (holding that "protection is available only for confidential communications made by the client to counsel" (emphasis in original)), aff'd on other grounds by an equally divided court, ___Pa.___, 992 A.2d 65 (2010). Consistent with Fleming, the Gillard panel treated the privilege as being "strictly limited." See Gillard v. AIG Ins. Co., No. 1065 EDA 2007, slip op at 4 (Pa. Super. Jan. 4, 2008).

Like Appellee, the Superior Court did recognize Fleming's allowance for some derivative protection of attorney-to-client communications. See id. at 5-6 ("Fleming makes it clear that communications from an attorney to a client are protected... under Section 5928, but only to the extent that they reveal confidential communications previously made by the client to counsel for the purpose of obtaining legal advice." (quotation marks omitted and emphasis in original)). Nevertheless, the panel discerned no specific claim that the sought-after documents would disclose confidential communications made by Appellants to their attorneys. Thus, it held, the privilege did not apply. See id. at 6.

After the Superior Court entered its opinion in Gillard, this Court addressed Fleming in an equally divided opinion. See Fleming, __Pa. at___, 992 A.2d at 65.

Central to the argument of the Fleming appellants (also insurance companies) was that, in National Bank of West Grove v. Earle, 196 Pa. 217, 46 A. 268 (1900), this Court determined the privilege did apply to the advice of counsel. Earle explained that,

[i]f it [did] not, then a man about to become involved in complicated business affairs, whereby he would incur grave responsibilities, should run away from a lawyer rather thanconsult him. If the secrets of the professional relation can be extorted from counsel in open court, by the antagonist of his client, the client will exercise common prudence by avoiding counsel.

Id. at 221, 46 A. at 269. The Fleming appellants stressed that the statutory prescription for the privilege already was in place, via a predecessor statute, at the time of Earle's issuance. See 42 Pa.C.S. §5928, Official Comment (explaining the statute is "[s]ubstantially a reenactment of act of May 23, 1887 (P.L. 158) (No. 89), § 5(d) (28 P.S. § 321)").

The lead opinion in Fleming did not resolve the facial tension between Earle's broad perspective on the privilege and the statute's narrower focus. Rather, the lead Justices found the appellants had waived the attorney-client privilege by producing documents reflecting the same subject matter as the withheld documents. See Fleming, ___Pa. at___, 992 A.2d at 69-70 (opinion in support of affirmance).

The opinion supporting reversal differed with this finding of waiver. Furthermore, and as relevant here, the Justices favoring reversal also took a broader approach to the attorney-client privilege than that of the Superior Court. The opinion expressed agreement with amici that a "narrow approach to the attorney-client privilege rigidly centered on the identification of specific client communications" was unworkable, "in that attorney advice and client input are often inextricably intermixed." Id. at___, 992 A.2d at 71 (opinion in support of reversal). The Justices supporting this opinion also reasoned that allowing for derivative protection but closely limiting its scope would lead to uncertainty and undue precaution in lawyer-client discussions, rather than fostering the desired frankness. Their opinion concluded:

While [we] acknowledge that the core concern underlying the attorney-client privilege is the protection of client communications, due to the unavoidable intertwining of such communication and responsive advice, [we] would remainwith the pragmatic approach reflected in [Earle]. Although this

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