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How courts apply the common interest doctrine. 
June 2016  |  Bad Faith Update  |  Vol. 2 Iss. 8

Common Interest Protection

The issue of privileged and protected communications are often heavily litigated in bad faith and coverage litigation. Many times carriers seek to protect documents rightfully belonging to the insured under the fog of attorney-client privilege and work product protection. These issues were recently addressed in the August 2015 Bad Faith Update.
 
Equally important, however, are the protections that should be afforded to communications and documents exchanged between attorneys for the claimant in the liability and subsequent collection case and personal counsel for the insured.

Common Legal Interest Doctrine

As a general rule, the disclosure of attorney-client communications to a third-party results in waiver of the attorney-client privilege.
 
An exception does exist however when the communication is transmitted to a third party that shares a common interest in the outcome of the litigation. To invoke this exception, the third party to whom the communication is disclosed must share an interest in the outcome of the litigation, the communication must be for the purpose of furthering the shared interests of the parties and the communication must be made in confidence. Missouri has recognized this common-interest doctrine through various case law including Lipton Realty, Inc. v. St. Louis Housing Authority.

Application to Bad Faith/Coverage Litigation

More and more frequently, especially in bad faith litigation involving §537.065 agreements, carriers will request communications between the claimant’s attorneys and personal counsel for the insured. The reasoning behind these requests appears or is even stated to be that the carrier is exploring a “bad faith set-up” defense. The documents sought by such requests are immaterial and irrelevant as no “bad faith set-up” defense is recognized in Missouri and the tort of bad faith focuses on the actions of the carrier not on the claimant or insured (assuming the .065 agreement has been entered into in good faith and is free of fraud and collusion). In addition, once a settlement agreement is reached and the ownership and pursuit of the bad faith claim addressed, such documents may be covered by the common interest exception to the attorney-client privilege.
 
At first blush it seems illogical that two adverse parties in the underlying lawsuit could share a common interest in the outcome of a subsequent extra-contractual suit. When coverage is not disputed and the policy limits are adequate to fully indemnify any judgment, the claimant and the insured will lack an identity of interest sufficient to invoke the common interest doctrine. However, when coverage has been denied or the carrier has lost its ability to resolve a case for the policy limits, the claimant’s and the insured’s interest may become aligned in ensuring the carrier fulfills its duty under the insurance contract to provide indemnity for the claimant’s loss and to hold the carrier responsible for its other breaches of the insurance policy.
 
When these interests merge, it will often become necessary for the insured and claimant to begin exchanging documents and communications to further the resolution of the lawsuit and to hold the carrier responsible for indemnity and for failing to perform its duties under the insurance contract. Communications discussing litigation or settlement strategy as well as materials directed to both insured and claimant by their counsel should maintain either attorney work product protection or attorney-client privilege under the common interest doctrine.
 
While Missouri courts have yet to be called on to address the application of the common interest doctrine to communications between and insured’s counsel and claimant’s counsel, the prerequisites for the application of the doctrine are present when coverage is denied or the carrier has lost its chance to resolve the case for policy limits. In addition to not being calculated to lead to the discovery of relevant evidence, a request for such documents should remain privileged and not subject to disclosure.

Have Questions About a Bad Faith Situation?

Kirk Presley and his team work on bad faith cases on a routine basis. If you need help, call him at (816) 931-4611 or send him an email.

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Kirk's practice focuses on significant plaintiff’s personal injury and wrongful death claims in the areas of products and premises liability, general aviation, and insurance bad faith litigation.
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