IN THE SUPREME COURT OF FLORIDA. Case No.: SC L.T. No.: 1D AIRCRAFT HOLDINGS, LLC, Petitioner, vs. XL SPECIALTY INSURANCE COMPANY,

Transcription

1 IN THE SUPREME COURT OF FLORIDA Case No.: SC L.T. No.: 1D AIRCRAFT HOLDINGS, LLC, Petitioner, vs. XL SPECIALTY INSURANCE COMPANY, Respondent. ANSWER BRIEF OF THE RESPONDENT XL SPECIALTY INSURANCE COMPANY MESSER, CAPARELLO & SELF, P.A. Thomas M. Findley, Esq. Florida Bar No.: Robert J. Telfer III, Esq. Florida Bar No.: Centennial Place Post Office Box Tallahassee, Florida Telephone: (850) Facsimile: (850) Attorneys for Respondent XL Specialty Insurance Company

2 TABLE OF CONTENTS TABLE OF CONTENTS... i TABLE OF CITATIONS...ii, iii, iv STATEMENT OF THE CASE AND FACTS... 1 A. Factual Background... 2 PAGE NO. 1. The Trial Court s Order Compelling the Production of Attorney- Client Privileged Documents The First District s Reversal on Certiorari Review... 5 SUMMARY OF THE ARGUMENT... 6 ARGUMENT... 8 I. THE FIRST DISTRICT CORRECTLY CONCLUDED THAT RUIZ DID NOT ELIMINATE THE ATTORNEY-CLIENT PRIVILEGE IN BAD FAITH ACTIONS... 8 II. THE ATTORNEY-CLIENT PRIVILEGE IS SUBSTANTIVE LAW THAT MUST REMAIN INTACT IN BAD FAITH ACTIONS...14 CONCLUSION...27 CERTIFICATE OF SERVICE...27 CERTIFICATE OF COMPLIANCE...28 i

3 TABLE OF CITATIONS Cases Page No. 2,022 Ranch, L.L.C. v. Superior Court, 7 Cal. Rptr. 3d 197 (Cal. Ct. App. 2003)...24 Aetna Ins. Co. v. Koganovsky, 661 So. 2d 418 (Fla. 4th DCA 1995)...1, 14 Allstate Indemnity Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005)... 2, 5, 6, 7, 8,...9, 10, 11, 12, 14, 18, 19, 20, 21, 22 Boone v. Vanliner Ins. Co., 744 N.E.2d 154 (Ohio 2001)...22 Boston Old Colony Ins. Co. v. Gutierrez, 325 So. 2d 416 (Fla. 3d DCA 1976)...11 Brown v. Superior Court, 670 P. 2d 725 (Ariz. 1983)...22 Choice Restaurant Acquisition, Ltd. V. Whitley, Inc., 816 So. 2d 1165 (Fla. 4th DCA 2002)...15 Cuillo v. Cuillo, 621 So. 2d 460 (Fla. 4th DCA 1993)...16 Erie R.R. v. Thompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed (1938) Escalante v. Sentry Ins. & Mutual Co., 743 P. 2d 832 (Wash. 1987), overruled, Ellwein v. Hartford Accident Indemnity Co., 15 P. 3d 640 (Wash. 2000)...23 Fidelity & Casualty Co. of New York v. Taylor, 525 So. 2d 908 (Fla. 3d DCA 1987)...11, 12 Garvey v. National Grange Mutual Ins. Co., 167 F.R.D. 391 (E.D. Pa. 1996)...19, 20 Haskell Co. v. Georgia Pacific Corp., 684 So. 2d 297 (Fla. 5th DCA 1996) ii

4 Holliday v. Ettex, 2006 WL (D. Hawai i Aug )...20 Hutchinson v. Farm Family Casualty Ins. Co., 867 A.2d 1 (Conn. 2005)...23 IMC Chemicals, Inc. v. Niro, Inc., 2000 WL (D. Kan. July 19, 2000)...19 In Re: Amendments to the Florida Evidence Code, 825 So. 2d 339 (Fla. 2002)...18 In Re: Florida Evidence Code, 372 So. 2d 1369 (Fla. 1979)...18 In Re: Florida Evidence Code, 638 So. 2d 920 (Fla. 1993)...19 In Re: Florida Evidence Code, 675 So. 2d 584 (Fla. 1996)...18, 19 In Re: Powerhouse Licensing, LLC, 441 F.3d 467 (6th Cir. 2006)...19, 20 Kujawa v. Manhattan Nat l Life Ins. Co., 541 So. 2d 1168 (Fla. 1989) , 10, 11 Liberty Mutual Fire Ins. Co. v. Bennett, 2006 WL (Fla. 4th DCA Oct. 4, 2006)...1, 12 National Security Fire & Casualty Co. v. Dunn, 705 So. 2d 605 (Fla. 5th DCA 1997)...15 Quarles & Brady, LLP v. Birdsall, 802 So. 2d 1205 (Fla. 2d DCA 2002)...15 Silva v. Fire Ins. Exchange, 112 F.R.D. 699 (D. Mt. 1986)...22 Shafnaker v. Clayton, 680 So. 2d 1109 (Fla. 1st DCA 1996)...16 Shipes v. BIC Corp., 154 F.R.D. 301 (M.D. Ga. 1994)...20 State ex rel. Brison v. Kaufman, 583 S.E.2d 480 (W. Va. 2003)...24 Stone v. Traveler s Ins. Co., 326 So. 2d 241 (Fla. 3d DCA 1976)...11 Swidler & Berlin v. United States, 524 U.S. 399 (1998)...14 iii

5 The Times of Trenton Publishing Corp. v. Public Utility Service Corp., 2005 WL (D. N.J. May 3, 2005)...20 United Servs. Auto. Ass n v. Crews, 614 So. 2d 1213 (Fla. 4th DCA 1993) United States Auto Ass n v. Jennings, 731 So. 2d 1258 (Fla. 1999)...13 Vest v. Travelers Ins. Co., 753 So. 2d 1270 (Fla. 2000)...3, 4 West Virginia ex rel. Allstate Inc. Co. v. Madden, 601 S.E.2d 25 (W. Va. 2004)...23 XL Specialty Ins. Co. v. Aircraft Holdings, LLC, 929 So. 2d 578 (Fla. 1st DCA 2006)...1, 4, 6, 9, 10, 11, 12, 19, 21 Young v. Progressive S.E. Ins. Co., 753 So. 2d 80 (Fla. 2000)...17 Florida Statutes Fla. Stat , 16, 17, 18, 19, 20, 21, 22, 23, 25, 26 Fla. Stat Fla. Stat , 7, 17, 19, 21, 26 Florida Constitution Art. V, 2(a), Fla. Const...18 Laws of Florida Fla. Laws, Chapter iv

6 Rules Fla. R. Civ. P (b)...11, 20 Fed. R. Evid MISCELLANEOUS Charles W. Ehrhardt, Florida Evidence, (2001. ed.) v

7 STATEMENT OF THE CASE AND FACTS Respondent XL Specialty Insurance Company ( XL ) submits that both the Initial Brief submitted by Petitioner Aircraft Holdings, LLC ( AHL ) and the briefs submitted by the amicus curiae parties in this case attempt to address issues other than the specific question certified in this case. The First District Court of Appeal certified the following question to be of great public importance: Does the Florida Supreme Court s holding in Allstate Indemnity Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005), relating to discovery of work product in first-party bad faith actions brought pursuant to section , Florida Statutes, also apply to attorney-client privileged documents in the same circumstances? XL Specialty Ins. Co. v. Aircraft Holdings, LLC, 929 So. 2d 578, 587 (Fla. 1st DCA 2006). 1 Both AHL and the amicus curiae parties ignore the fact that XL has already produced the great majority of the claims file without any objection based on the work product doctrine. They also ignore the important fact that much of the attorney client privileged information in this case was generated after the filing of the bad faith claim. The amicus brief filed by United Policyholders takes this 1 The Fourth District Court of Appeal recently certified a question nearly identical to that certified by the First District. See Liberty Mutual Fire Ins. Co. v. Bennett, 2006 WL (Fla. 4th DCA Oct. 4, 2006). The Fourth District agreed with the First District, holding that Ruiz did not abrogate the attorney-client privilege in bad faith actions. 1

8 Court even further from the facts of this case by attempting to re-frame the issue to relate to a coverage determination. United Policyholders Brief, p. 1. Here, XL did not deny coverage. The issue was instead the extent of the damage to an airplane that was admittedly covered. Thus, the issue is not nearly as broad as the Plaintiff and amici would suggest. Instead, the issue is whether, under Allstate Indemnity Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005), AHL is entitled to full discovery of all communications by attorneys representing XL, including those generated after the bad faith complaint was filed. The First District Court of Appeal correctly held that AHL was not entitled to documents protected by the attorney-client privilege. A. Factual Background XL is an insurer of a certain aircraft, Learjet model 35A, FAA registration N403FW, owned by AHL. On August 14, 2003, the aircraft landed at an airport in Cancun, Mexico, with its landing gear up. Having landed in this manner, the aircraft sustained damage, although no one was injured. 2 On April 14, 2004, AHL filed its original complaint against XL, alleging breach of contract (Count I) and a statutory cause of action for insurer bad faith 2 The First District Court of Appeal recently resolved the issue of the extent of damage to the subject aircraft, affirming the trial court s summary judgment that concluded that the damage met the insurance policy definition of total loss. The issue of total loss, and the trial court s summary judgment order on total loss, are not currently under review by this Court. 2

9 pursuant to section , Florida Statutes (Count II), in the Second Judicial Circuit in Leon County, Florida. In both the original complaint and a subsequent amended complaint, AHL alleged a bad faith count with the breach of contract count. See Tab C and Tab D to Petitioner XL Specialty s Appendix. 3 Both before and after the filing of the lawsuit, the law firm of Kern & Wooley, headquartered in California, served as general counsel for XL. Kern & Wooley rendered legal advice to XL soon after the accident, and continued to render legal advice regarding the litigation after AHL filed the bad faith lawsuit. Kern & Wooley also served as claim administrators for XL in this matter. When AHL filed the original bad faith and breach of contract lawsuit in the trial court on April 14, 2004, XL also retained the Tallahassee-based law firm of Messer, Caparello & Self, P.A. to respond to all claims in the lawsuit. Because AHL included a bad faith count in the original complaint, Messer, Caparello & Self s counsel has rendered legal advice on the bad faith count, as well as the breach of contract count, from the outset of its representation of XL. Recognizing that AHL had instituted the bad faith claim without a resolution of the underlying breach of contract claim, XL filed a motion to abate the bad faith claim on the grounds that AHL raised bad faith prematurely. See Vest v. Travelers 3 This, and all other citations to Petitioner XL Specialty s Appendix, shall mean citation to the Appendix filed by XL in conjunction with its Petition for Writ of Certiorari filed at the First District Court of Appeal, Case No. 1D

10 Ins. Co., 753 So. 2d 1270, 1274 (Fla. 2000). The trial court did not enter an order abating the bad faith count, however, until October 26, 2004, less than two months before the scheduled trial date. Subsequently, the trial court entered summary judgment in AHL s favor on the breach of contract claim. 1. The Trial Court s Order Compelling the Production of Attorney-Client Privileged Documents. After the trial court entered summary judgment on the breach of contract claim, AHL served its Fifth and Sixth Requests for Production of Documents, in which AHL sought production of documents, including many documents protected by the attorney-client privilege. See Tab I and Tab J to Petitioner XL Specialty s Appendix. XL objected, sought a protective order, produced a privilege log and provided the trial court with the privileged documents for an in camera review. See Tab B to Petitioner XL Specialty s Appendix. AHL moved to compel the documents. 4 The trial court granted AHL s motion to compel in its Order Partially Granting Plaintiff s Motion to Compel Discovery. See XL Specialty, 929 So. 2d at (Appendix). The trial court held, in pertinent part: [D]iscovery objections of attorney-client privilege and work product protection no longer apply on behalf of Defendant XL, for any 4 Prior to AHL s filing of its motion to compel, XL agreed to produce the claims file, except to the extent that the attorney-client privilege applied. Those documents had already been produced in the breach of contract litigation. The documents for which XL claimed attorney-client privilege were filed in camera. 4

11 documents and materials in the claims and litigation files through the date of the resolution of the underlying breach of contract claim in favor of Plaintiff. Accordingly, all of XL s objections on the basis of attorney-client privilege and work product protection are hereby OVERRULED.... Accordingly, the Court finds that in the case at bar, Plaintiff is entitled to discovery responses and production from Defendant XL or all materials contained in the files of XL, its counsel/third party administrators Kern & Wooley, LLP, and its Florida counsel Messer, Caparello & Self, P.A., generated up until the date that this Court granted summary judgment on January 6, 2005, including but not limited to all letters, correspondence, memoranda and s, by and between those entities. The Court further finds that there is no basis to limit the discovery responses from Defendant XL to those materials generated before April 2004 when Plaintiff s breach of contract action was filed and the notice of insurer violation was filed with the Department of Financial Services.... The Court notes that it has not conducted an in camera inspection of documents filed by the Defendant in this matter. The Court relies on Ruiz for the proposition that litigation files, as described above, are to be produced. Significantly, the trial court s order held that: (1) under Ruiz, the attorney-client privilege no longer applies in first party bad faith claims; (2) all materials contained in the files of XL and its attorneys generated up to the date the trial court entered summary judgment on the underlying breach of contract claim were to be produced; and (3) an in camera inspection was unnecessary in light of its holding. 2. The First District s Reversal on Certiorari Review. XL thereafter submitted a petition for writ of certiorari to the First District Court of Appeal for review of the trial court s nonfinal Order Partially Granting Plaintiff s Motion to Compel Discovery. The First District quashed the trial 5

12 court s order compelling discovery, holding that the trial court misapplied Ruiz in holding that attorney-client privileged communications were discoverable in first party bad faith actions. See XL Specialty, 929 So. 2d at 579. The First District also certified the above-quoted question as being of great public importance; this Court accepted review. SUMMARY OF THE ARGUMENT The First District in XL Specialty Ins. Co. v. Aircraft Holdings, LLC, 929 So. 2d 578 (Fla. 1st DCA 2006), correctly held that the trial court misapplied this Court s ruling in Allstate Indemnity Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005), by compelling production of attorney-client privileged documents. The First District noted that absent from the Ruiz Court s analysis is any mention of the attorneyclient privilege. The First District noted that Justice Wells opinion, in which he concurred and dissented in part, confirmed that the Ruiz opinion only applied to work product in a claims file pertaining to an insurance bad faith claim. In fact, the Ruiz Court receded from only a portion of its previous decision in Kujawa v. Manhattan Nat l Life Ins. Co., 541 So. 2d 1168 (Fla. 1989), as it related to the work product doctrine. The First District correctly held that the Ruiz Court left intact that portion of Kujawa, which held that the attorney-client privilege applies as an absolute immunity in an insurance bad faith action. AHL s argument that the First District s opinion opens a loophole by permitting insurance companies to 6

13 insulate themselves from discovery by retaining legal counsel to adjust their claims is unavailing, because XL has turned over the documents in its claims files pertaining to the adjustment of the claim. The attorney-client privilege is an essential hallmark of the American system of jurisprudence. The Florida Legislature recognized its importance by enacting it as part of the Florida Evidence Code and codifying it in the Florida Statutes. It is an absolute privilege and substantive law. The privilege has specifically enumerated exceptions, none of which are applicable to this matter. Moreover, XL has not waived this privilege. Nevertheless, the Petitioner AHL now asks this Court to eradicate completely the attorney-client privilege in first party bad faith actions. Such a holding would require this Court to create a substantive exception to a statute that is substantive law. XL respectfully submits that such a judicially created exception to a statute would be unlawful. Instead, any exceptions to statutory or substantive law should be reserved for consideration of the Florida Legislature. A plain reading of Section , Florida Statutes, reveals that the Florida Legislature had no intention to eliminate the attorney-client privilege in bad faith cases. In sum, AHL s policy arguments in favor of expanding the holding of Ruiz to eradicate the attorney-client privilege are unavailing. 7

14 ARGUMENT I. THE FIRST DISTRICT CORRECTLY CONCLUDED THAT RUIZ DID NOT ELIMINATE THE ATTORNEY-CLIENT PRIVILEGE IN BAD FAITH ACTIONS. In the trial court, AHL filed its original complaint for breach of contract and bad faith simultaneously. Counsel from Kern & Wooley, as well as from Messer, Caparello & Self, provided legal advice to XL regarding both claims. In fact, Messer, Caparello & Self provided legal advice to XL only after the filing of the bad faith complaint. After the trial court entered summary judgment on the breach of contract claim, AHL sought production of all files relating to this matter, including legal advice rendered during the pendency of the bad faith claim. XL produced the claims file, but claimed privilege on those materials which it concluded were attorney-client privileged materials. XL submitted those documents to the trial court for in camera review. The trial court, without conducting any inspection of the documents, compelled the production of documents containing attorney-client communications relating to all matters, including the defense of the bad faith claim, the underlying contract claim and the time period after AHL made the bad faith claim. The First District correctly held that the trial court erroneously applied Ruiz. Although AHL argues Ruiz required production of all materials within its files without distinction for any category of privilege[,] see Initial Br. at 6, this Court 8

15 did not make any mention of the attorney-client privilege in Ruiz. In fact, the Ruiz Court framed the issue in the first sentence of its opinion: We have for review Allstate Indemnity Co. v. Ruiz, 780 So. 2d 239 (Fla. 4th DCA 2001), which directly conflicts with regard to issues concerning application of work product privilege to shield documents from discovery in the insurance bad faith context. Ruiz, 899 So. 2d at 1122 (emphasis added). The Ruiz Court further framed the issue as follows: It is our view that the conflict regarding whether the work product privilege attaches to materials created when litigation is substantial and imminent as held in Ruiz, as opposed to when legal action is merely foreseeable, as held in the conflict cases, in this context is an unnecessary and unfortunate outgrowth of the inappropriate distinctions with regard to discovery rules applicable to statutory firstparty and third-party bad faith actions.... Id. (emphasis added). Thus, as the XL Specialty court noted below, [s]ignificantly absent from the [Ruiz] Court s conflict determination is any mention of the attorney-client privilege. XL Specialty, 929 So. 2d at 582. Justice Wells opinion, in which he concurred and dissented in part (with Justice Bell concurring), confirms that the Ruiz Court limited its holding to the work product doctrine. Justice Wells stated: I emphasize that the only issue being decided in this case is the discovery of work product in the claims file pertaining to the insurance claim. Id. at 1132 (Wells, J., concurring in part and dissenting part). 9

16 The First District below, contrary to AHL s argument in its Initial Brief, did not base its decision on Justice Wells opinion. Instead, the First District correctly recognized that the Ruiz majority agreed with Justice Wells characterization. In fact, the majority stated: [O]ur determination essentially eliminates the basis of the discovery dispute and the issue below giving rise to the conflict between the decision below and the multiple decisions of other district courts of appeal pertaining to when work product privilege attaches to shield documents from production in this context. XL Specialty, 929 So. 2d at 583 (quoting Ruiz, 899 So. 2d at 1130) (emphasis in opinion). AHL next feigns that it is curious that the First District claimed that Ruiz receded only from a portion of its decision in Kujawa [5], and that this recession involved only the work product privilege. Initial Br. at 7. However, the Ruiz Court held specifically: [W]e believe that a portion of our decision in Kujawa is both legally and practically untenable.... Ruiz, 899 So.2d at 1131 (emphasis added). The First District correctly analyzed that Ruiz did not recede from that portion of Kujawa which dealt with the attorney-client privilege. In contrast to Ruiz, the Kujawa Court specifically reached the attorney-client privilege: We point out, as did the district court below, that the holding of absolute immunity from disclosure extends only to matters arising under the attorney-client privilege. Files protected by the work product immunity only may yield to inspection if an appropriate 5 Kujawa v. Manhattan Nat l Life Ins. Co., 541 So. 2d 1168 (Fla. 1989). 10

17 showing under rule 1.280(b)(2), Florida Rules of Civil Procedure, can be made. Even this rule, however, precludes discovery of attorneyclient matters. Kujawa, 541 So. 2d at 1169 (emphasis added). Following the directive of the Supreme Court of Florida, the First District in the case at bar held: Because the Court in Kujawa held that the attorney-client privilege applies to discovery in a bad faith action, and is not eliminated, and the Court in Ruiz did not recede from that portion of the opinion, we continue to apply the portion of Kujawa relating to attorney-client privilege as controlling precedent. XL Specialty, 929 So. 2d at 583. AHL concedes that the factual scenario presented to the Ruiz court was apparently limited to work product issues and did not involve issues related to the attorney-client privilege. Initial Br. at 8; see also Florida Justice Ass n Amicus Br. at 4. This essentially concedes that Ruiz could not have addressed the application of the attorney-client privilege. Moreover, to the extent the other cases relied on by AHL, Stone v. Traveler s Ins. Co., 326 So. 2d 241 (Fla. 3d DCA 1976), Boston Old Colony Ins. Co. v. Gutierrez, 325 So. 2d 416 (Fla. 3d DCA 1976) and Fidelity & Casualty Co. of New York v. Taylor, 525 So. 2d 908 (Fla. 3d DCA 1987), had been overruled by Kujawa on the work product issue, the Ruiz Court could only have revived these decisions to the extent they addressed work product. 11

18 In addition to the First District s opinion that the attorney-client privilege continues to apply in bad faith cases, the Fourth District recently reached the same conclusion. In Liberty Mutual Fire Ins. Co. v. Bennett, 2006 WL at *1 (Fla. 4th DCA Oct. 4, 2006), the Fourth District held, in line with the XL Specialty court below, the attorney client privilege was not abrogated in Ruiz. This Court should note that a unique issue, not previously addressed by this Court, is also presented in the case at bar. In this case, the Petitioner AHL is seeking attorney-client privileged information relating to the time period after the bad faith suit was filed. The Ruiz Court implicitly addressed this issue in favor of insurers by limiting its holding as follows: all files pertaining to the underlying dispute which produced the alleged the bad faith are discoverable as in traditional common law third-party bad faith cases for failure to settle third-party claims. Ruiz, 899 So. 2d at 1122 (emphasis added). Neither Ruiz, Taylor, nor any other cases cited by AHL, hold that documents created after the filing of the bad faith must be produced. The Ruiz Court further held: [W]e caution that where the coverage and bad faith actions are initiated simultaneously, the courts should employ existing tools, such as the abatement of actions and in-camera inspection, to ensure full and fair discovery in both causes of action. Ruiz, 899 So. 2d at Unfortunately, the abatement of the bad faith count in this case did not come until just before the trial date. This Court previously held in 12

19 United States Auto Ass n v. Jennings, 731 So. 2d 1258, 1260 (Fla. 1999), that in a third-party bad faith action, proper discovery does not include any attorney-client communication or work-product material which pertains to the insurer s defense of itself in the bad-faith action. Thus, the First District properly held that trial court erred in compelling the production of attorney-client materials relating to the time period after the bad faith count was filed. 6 Even the amicus brief of the Florida Justice Association contradicts the Plaintiff on this point. Florida Justice Association Brief, p. 12 ( In fact, those communications addressing the insurer s defense of the insurance bad faith case remain confidential )(citing Jennings). In this case, the trial court ordered the wholesale production of all attorneyclient documents, including those created after the bad faith case was instituted, without conducting an in camera inspection of the documents listed in XL s privilege log. Therefore, there is no record from which AHL or amici can construct its argument of a loophole in the system or a cloaking of claims through an abuse of the attorney-client privilege in the claims handling process. In this case, XL produced its claim file, including all materials that it deemed to relate to the adjustment of the claim. XL held back, however, on those documents that it deemed in good faith constituted attorney-client privileged information. XL 6 AHL s Initial Brief contains no argument on the specific issue of whether the First District erred in holding that attorney-client documents should be produced even for that time period after the bad faith suit was filed. 13

20 submitted these documents to the trial court with a privilege log so that the trial court could make its own determination. Yet, the trial court did not even look at the documents. This Court in Ruiz required the use of an in camera inspection, even in reference to the work product doctrine. Other district courts of appeal have held that a trial court s decision to compel attorney-client privileged documents without first conducting an in camera inspection is error. See Aetna Ins. Co. v. Koganovsky, 661 So. 2d 418 (Fla. 4th DCA 1995); United Servs. Auto. Ass n v. Crews, 614 So. 2d 1213 (Fla. 4th DCA 1993). The trial court erred in overruling all objections based on attorney-client privilege without even conducting an in camera inspection of the documents submitted. II. THE ATTORNEY-CLIENT PRIVILEGE IS SUBSTANTIVE LAW THAT MUST REMAIN INTACT IN BAD FAITH ACTIONS. The attorney-client privilege is one of the oldest recognized privileges for confidential communications. Swidler & Berlin v. United States, 524 U.S. 399 (1998). It is intended to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and the administration of justice. Id. at 403. The Florida Legislature enacted Section , Florida Statutes, in 1976, and thus codified the attorney-client privilege in the Florida Statutes. See Ch , 1, Laws of Fla. This section generally provides that neither an attorney nor 14

21 a client may be compelled to divulge confidential communications between a lawyer and client which were made during the rendition of legal services. See Charles W. Ehrhardt, Florida Evidence, at 361 (2005 ed.). Any argument that the attorney-client privilege should be abrogated in bad faith cases because attorney communications might constitute evidence of bad faith must fail. There is simply no exception to the attorney-client privilege based on need or hardship. Unlike the work product privilege, which is a qualified privilege that permits a litigant to discover work product material upon a showing of need and undue hardship, the attorney-client privilege is absolute. See National Security Fire & Casualty Co. v. Dunn, 705 So. 2d 605, 608 (Fla. 5th DCA 1997). See also Quarles & Brady, LLP v. Birdsall, 802 So. 2d 1205, 1206 (Fla. 2d DCA 2002) (holding that undue hardship is not an exception [to the attorney-client privilege]... nor is disclosure permitted because the opposing party claims that the privileged information is necessary to prove their case.... ); Choice Restaurant Acquisition, Ltd. v. Whitley, Inc., 816 So.2d 1165, 1167 (Fla. 4 th DCA 2002)( a court cannot justify finding waiver of the privilege merely because the information sought is needed by the opposing party to provide information helpful to cross examination or for the defense of a cause of action. ) AHL s argument that such information could be helpful in proving a bad faith case or in cross-examining representatives of the insurer does not fall within any exception to the attorney-client privilege. 15

22 The fact that privileged communications occur regarding a specific transaction that is later litigated does not eliminate the privilege even if there is a possibility that the credibility of a party could be impeached by such communications. Shafnaker v. Clayton, 680 So.2d 1109, 1111 (Fla. 1 st DCA 1996); Cuillo v. Cuillo, 621 So.2d 460, 462 (Fla. 4 th DCA 1993). In other words, Florida courts have consistently held that the extent of the need for evidence is irrelevant to the consideration of the attorney-client privilege. Surely, a prosecutor would make the same argument that it would be excellent proof of guilt if the prosecutor could obtain admissions of guilt by a criminal defendant to his lawyer. Yet, an exception based on need in such a context would be absurd. Similarly, in civil cases, including bad faith cases, there is simply no case law supporting the concept that the plaintiff s need for evidence can be sufficient to override the attorney-client privilege of the defendant. Section (4) contains only the following exceptions: (4) There is no lawyer-client privilege under this section when: (a) The services of the lawyer were sought or obtained to enable or aid anyone to commit of plan to commit what the client knew was a crime or fraud. (b) A communication is relevant to an issue between parties who claim through the same deceased client. (c) A communication is relevant to an issue of breach of duty by the lawyer to his client or by the client to his lawyer, arising from the lawyer-client relationship. (d) A communication is relevant to an issue concerning the intention or competence of a client executing an attested document to 16

23 which the lawyer is an attesting witness, or concerning the execution or attestation of the document. (e) A communication is relevant to a matter of common interest between two or more clients, or their successors in interest, if the communication was made by any of them to a lawyer retained or consulted in common when offered in a civil action between the clients or their successors in interest. The substantive law provides unequivocally that attorney-client privileged communications are not discoverable unless one of the above-cited statutory exceptions to the privilege applies. See The Haskell Co. v. Georgia Pacific Corp., 684 So. 2d 297, 298 (Fla. 5th DCA 1996). See also Young v. Progressive S.E. Ins. Co., 753 So. 2d 80, 85 (Fla. 2000) (applying expression unius est exclusion alterius, the mention of one thing implies the exclusion of another, to a list of statutory exclusions). AHL has never asserted that any of the enumerated exceptions to the attorney-client privilege apply in this case. 7 It should also be noted that XL has not waived the attorney-client privilege in any way. See Fla. Stat For example, XL did not assert an advice of counsel affirmative defense to the breach of contract or bad faith claims. In fact, AHL has never argued that XL waived its attorney-client privilege. 7 AHL argues that a number of recognized exceptions to the attorney client privilege exist, but were not required to be codified by Sections or , Florida Statutes. Initial Br. at 20-21; see also UPH Amicus Br. at 9, n.2. However, none of the examples provided by AHL are exceptions to the attorneyclient privilege, but rather are scenarios where the attorney-client privilege never applied in the first place. In the instant matter, the attorney-client privilege does apply. 17

24 Instead, AHL asks this Court to eradicate the attorney-client privilege in first party bad faith claims. Not only is such an argument incorrect under Ruiz, to rule in AHL s favor would require this Court to create a judicially created exception to the statutory embodiment of the attorney-client privilege in Section Respectfully, this Court lacks the authority to create such an exception. It is true that this Court has jurisdiction to adopt rules of practice and procedure under Article V, Section 2(a) of the Florida Constitution. In In re Florida Evidence Code, 372 So. 2d 1369 (Fla. 1979), this Court held as follows: The Florida Evidence Code was adopted unanimously by the legislature in the 1976 regular session.... It is generally recognized that the present rules of evidence are derived from multiple sources, specifically, case opinions from this Court, the rules of this Court, and statutes enacted by the legislature. Rules of evidence may in some instances be substantive law and, therefore, the sole responsibility of the legislature. In other instances, evidentiary rules may be procedural and the responsibility of this Court. To avoid multiple appeals and confusion in the operation of the courts caused by assertions that portions of the evidence code are procedural and, therefore, unconstitutional because they had not been adopted by this Court under its rule-making authority, the Court hereby adopts temporarily the provisions of the evidence code... to the extent that they are procedural.... In subsequent years, this Court has adopted amendments to the Florida Evidence Code only to the extent they concern court procedure. See In re Amendments to the Florida Evidence Code, 825 So. 2d 339, 340 (Fla. 2002); In re Florida 18

25 Evidence Code, 675 So. 2d 584 (Fla. 1996); In re Florida Evidence Code, 638 So. 2d 920 (Fla. 1993). Any substantive change to the Florida Evidence Code, however, must be made by the Florida Legislature. The creation of an exception to the attorneyclient privilege would be a substantive change to a substantive law. The Ruiz Court was not authorized to make such a change to this substantive law. AHL implicitly argues that Section substantively eliminated the attorney-client privilege under Section See XL Specialty, 929 So. 2d at As held by the First District, however, there is simply no intent expressed or implied by the Legislature in enacting Section that would suggest any effort to provide for a new exception to Section or to require a consideration of attorney advice in determining whether bad faith has occurred. Bolstering the conclusion that Section is substantive are federal cases applying the attorney-client privilege in diversity cases, pursuant to Federal Rule of Evidence 501 and the Erie doctrine. 8 Those cases unequivocally hold that federal courts sitting in diversity jurisdiction must apply a state s substantive law with regard to attorney-client privilege. See, e.g., In re Powerhouse Licensing, LLC, 441 F.3d 467, 472 (6th Cir. 2006); IMC Chemicals, Inc. v. Niro, Inc., 2000 WL at *7 (D. Kan. July 19, 2000) Garvey v. National Grange Mutual Ins. 8 Erie R.R. v. Thompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed (1938). 19

26 Co., 167 F.R.D. 391, 394 (E.D. Pa. 1996); Shipes v. BIC Corp., 154 F.R.D. 301, 304 (M.D. Ga. 1994). In contrast, a federal court sitting in diversity applies the Federal Rules of Civil Procedure when considering the work product doctrine, as it is considered a procedural immunity. See, e.g., Holliday v. Ettex, 2006 WL at *5 (D. Hawai i Aug. 10, 2006); In re Powerhouse, 441 F.3d at 472; The Times of Trenton Publishing Corp. v. Public Utility Service Corp., 2005 WL at *3 (D. N.J. May 3, 2005). The work product immunity is found in the Florida Rules of Civil Procedure, see Rule 1.280(b)(3), and by its very nature, is a rule of court procedure that is promulgated by this Court. Thus, it was entirely within this Court s authority to determine that work product immunity did not apply to the insurance claims files in Ruiz, a holding that XL does not dispute. However, XL respectfully submits that it would be beyond the authority of this Court to create a substantive exception to Section Also significant to this analysis (as argued above) is that the attorney-client privilege is an absolute privilege. The work product privilege, in contrast, is a qualified privilege that permits a litigant to discover work product material upon a showing of need and undue hardship; no such qualification applies to the attorneyclient privilege. Yet, AHL s argument for attorney-client documents, under Ruiz, 20

27 essentially mirrors a work product argument; for example, AHL cites the following passage from Ruiz as authority for discovery of attorney-client documents, [H]ow is one to ever determine whether an insurance company has processed, analyzed, or litigated a claim in a fair, forthright, and good faith manner if access is totally denied to the underlying file materials that reflect how the matter was processed and contain the direct evidence of whether the claim was processed in good or bad faith? Initial Br. at 19 (quoting Ruiz, 899 So. 2d ). Such an argument, as this Court already decided in Ruiz, entitles a litigant to work product documents; however, an argument involving need and undue hardship has never been the basis for ordering disclosure of attorney-client privileged communications. A review of Section , Florida Statutes, in conjunction with Section , also indicates that the attorney-client privilege has not been eliminated in first-party bad faith actions. As correctly analyzed by the First District below, AHL s arguments would require this Court to interpret Section to substantively include as part of the bad faith claim how an insurance company, as a client to a lawyer, reacted to its lawyer s advice on the initial claim and in conducting litigation on a breach of contract claim. XL Specialty, 929 So. 2d at 584. The First District correctly found that there is no mention within Section that bad faith includes how the insurance company reacted to advice of counsel, with respect to the claim or in a breach of contract action, in a first-party action. Id. at

28 The First District then held that the express provisions of Section applied in this matter, and the attorney-client privilege was not eliminated by a plain reading of the statutes. Such an analysis is correct, and further supports the proposition that the Ruiz Court did not, and could not have, held that attorneyclient privileged communications were discoverable in first-party bad faith actions. AHL finally analyzes a number of cases from other jurisdictions, which AHL concedes are distinct from the justification for full and fair discovery as it is articulated in Ruiz.... Initial Br. at 24. Brown v. Superior Court, 670 P. 2d 725 (Ariz. 1983), a case relied on by AHL, does not even address the attorney-client privilege, as the Arizona Supreme Court explicitly held : [The insurer] does not raise the issue of attorney-client privilege, and we do not address that question. Further, we have no way of determining whether any material in the file is within the privilege. Brown, 670 P.2d at 735 n.7. In fact, the Brown decision involves an analysis of whether work product documents are discoverable, an issue that XL does not protest in light of Ruiz. The Silva case held that attorney-client documents in a claims file were eligible for a protective order. See Silva v. Fire Ins. Exchange, 112 F.R.D. 699, (D. Mt. 1986). The Ohio Supreme Court held in Boone v. Vanliner Ins. Co., 744 N.E.2d 154, 158 (Ohio 2001) that only those insurance file materials containing attorney-client communications related to the issue of coverage created 22

29 prior to the denial of coverage were discoverable; AHL asks this Court for a much broader rule of discovery. Escalante v. Sentry Ins. & Mutual Co., 743 P. 2d 832, (Wash. 1987), overruled, Ellwein v. Hartford Accident & Indemnity Co., 15 P. 3d 640 (Wash. 2000), involves application of the crime fraud exception, which is a well-recognized exception to the attorney client privilege and which AHL never raised below, because it was inapplicable. 9 XL has located numerous decisions from appellate courts of other states that hold that the attorney-client privilege applies in first-party bad faith actions and protects privileged documents and communications. For example, in Hutchinson v. Farm Family Casualty Ins. Co., 867 A.2d 1, 10 (Conn. 2005), the Connecticut Supreme Court held that in a first party bad faith lawsuit, the principle that the attorney-client privilege does not bar disclosure by a fiduciary to its principal of privileged materials relating to their common interests has no application here. In West Virginia ex rel. Allstate Ins. Co. v. Madden, 601 S.E.2d 25, 34 (W. Va. 2004), the West Virginia Supreme Court of Appeals held that, [w]here the interests of an insured and his or her insurance company are in conflict with regard to a claim 9 Amicus Curiae Florida Justice Association argues [m]uch like the fraud/crime exception to the attorney client privilege, courts require disclosure of any attorney client communications that relate to the insurer s conduct toward its insured. Florida Justice Ass n Amicus Br. at 9. Amicus offers no authority for this statement. The crime-fraud exception, which is codified in Section (4)(a), has never been raised in this proceeding, and there is no basis for its application in this case. 23

30 for underinsured motorist coverage and the insurance company is represented by counsel, the bringing of a related first-party bad faith action by the insured does not automatically result in a waiver of the insurance company s attorney-client privilege concerning the underinsurance claim. (citing State ex rel. Brison v. Kaufman, 583 S.E.2d 480 (W. Va. 2003)). Also, in 2,022 Ranch, L.L.C. v. Superior Court, 7 Cal. Rptr. 3d 197, 213 (Cal. Ct. App. 2003), the California Court of Appeal held, in a first party bad faith claim, that those communications reflecting the requesting of, or rendering of, legal advice are protected by the attorney-client privilege, and only the attorney s legal impressions, conclusions, opinions, or legal research or theories are subject to the attorney work product privilege. The policy reasons advanced by AHL for this Court to abolish the attorneyclient privilege for insurance companies are also unavailing. If an insurance company s relationship to an insured justifies a judicially created exception to the attorney-client privilege, then the exception can logically be expanded to a myriad of other situations where a defendant had a similar relationship to a plaintiff. Ultimately, the issue of whether an insured-insurer relationship is special does not resolve the question of whether the attorney-client privilege continues to apply. It is not helpful to cite to instances in which attorney-client privileged material was required to be disclosed in third party bad faith cases. In such 24

31 instances, the plaintiff stood in the shoes of the insured and was therefore able to obtain materials from the attorney who was retained to represent the insured. Surely, an insured can obtain materials from his or her own lawyer. In fact, there is an express exception in section (4)(e) that applies to such situations involving a matter of common interest between two or more clients. This exception could apply to third party bad faith cases where the attorney hired by the insurance company represented both the insured and the insurer. However, this statutory exception would not apply where an insurance company lawyer in a bad faith case never represented the complainant, as in this case. The analysis of the attorney-client privilege requires that one start the analysis by answering the question: Who is the client s lawyer? In a third party case, the insurance company hires a lawyer for the insured. Thus, the insured has a right to the attorney s materials. In a first party case, however, the insured has a lawyer that is distinct from the insurance company lawyer. Therefore, there is no authority for the insured in a first party bad faith suit to require disclosure of communications between the insurer and the insurance company lawyer that has never represented the insured. It is not a question of whether different rules apply to first-party and third-party bad faith suits. It is instead a question of applying the time honored attorney-client privilege in a direct manner by determining where the attorney-client relationship lies. 25

32 The attorney-client privilege is a fundamental principle in our jurisprudence and should not be riddled with non-statutory exceptions or overcome by a showing of need, undue hardship or relevance. Because the attorney-client privilege is a creature of substantive statutory law, changes or exceptions to the privilege are solely within the authority of the legislature. A plain reading of Section reveals that none of the enumerated exceptions to the attorney-client privilege apply in this matter. Moreover, the text of Section reveals a complete absence of any reference to the attorney-client privilege. Therefore, XL submits that the holding of the First District is correct and must be upheld by this Court. 26

33 CONCLUSION Based on the foregoing, XL respectfully requests that this Court affirm the decision of the First District below. Respectfully submitted, MESSER, CAPARELLO & SELF, P.A Centennial Place Post Office Box Tallahassee, FL Telephone: (850) Facsimile: (850) By: Thomas M. Findley, Esq. Florida Bar No.: Robert J. Telfer III, Esq. Florida Bar No.: CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing was furnished by U.S. mail this day of December, 2006 to: Gary A. Shipman, Esq. William E. Whitney, Esq. James R. Caves, III, Esq. Dana G. Toole, Esq. Dunlap, Toole, Shipman & Whitney, P.A Thomasville Road, Suite 102 Tallahassee, Florida Attorneys for Aircraft Holdings, LLC 27

34 Celene Humphries, Esq. Swope, Rodante, P.A East Fifth Avenue Tampa, Florida Attorneys for Academy of Florida Trial Lawyers Brenton N. Ver Ploeg, Esq. R. Hugh Lumpkin, Esq. Jason S. Mazer, Esq. Christine A. Gudaitis, Esq. Ver Ploeg & Lumpkin, P.A. 100 S.E. 2nd Street, Suite 2150 Miami, Florida Attorneys United Policy Holders Thomas M. Findley CERTIFICATE OF COMPLIANCE I hereby certify that this brief was prepared in Times New Roman 14-point font, in compliance with Rule 9.210(a)(2) of the Florida Rules of Appellate Procedure. Thomas M. Findley 28