By Stacy Broman and Danielle Dobry on July 3, 2018
Recently, the Colorado Supreme Court in State Farm Fire and Cas. Co. v. Griggs, No. 17SA299, 2018 WL 2470642 (Colo. Jun. 4, 2018) determined whether an insurer’s submission of a former attorney’s affidavit impliedly waived the insurer’s attorney-client privilege. The court held that the insurer did not impliedly waive the attorney-client privilege as the affidavit focused on factual issues involved in opposing counsel’s motion for sanctions.
Mr. Griggs, a State Farm insured, was involved in an automobile accident with Ms. Goddard and several others. The underlying declaratory judgment action involved State Farm’s claim that Mr. Griggs breached his insurance policy’s contractual duties when he entered into a settlement in which he “waived a jury trial, consented to arbitration, and assigned to [Ms.] Goddard any rights that he had against State Farm.” Ms. Goddard counterclaimed that State Farm acted in bad faith in refusing to settle her claims against Mr. Griggs and to indemnify Mr. Griggs for judgment entered against him following arbitration.
During discovery, a State Farm insurance adjuster testified to Exempla’s medical lien for services provided to an individual injured in the accident. The adjuster testified that the lien amount was $264,075. The lien amount was important as State Farm allegedly relied on it to determine how to allocate insurance proceeds among the injured parties. After the insurance adjuster testified to the Exempla medical lien amount, State Farm’s attorney at the time learned that the lien amount was incorrect. The Exempla lien actually totaled $264.75. However, before the attorney could correct the error, the attorney was disqualified under Colo. RPC 1.9 due to his prior relationship with the law firm representing Ms. Goddard. Once State Farm retained new counsel, the correct lien amount was disclosed. State Farm’s new counsel also disclosed that Exempla was responsible for the mistake.
Following the disclosure, Ms. Goddard sought sanctions against State Farm. Ms. Goddard requested that a directed verdict be entered against State Farm on her bad faith claim alleging that State Farm intentionally concealed the correct lien amount. In opposition to Ms. Goddard’s sanctions request, State Farm submitted an affidavit from the previously disqualified attorney addressing the lien correction.
After the affidavit submission, Ms. Goddard argued that State Farm waived the attorney-client privilege. However, Ms. Goddard did not allege that the privilege was waived based on the affidavit. Rather, Ms. Goddard argued that State Farm waived the privilege when it used the former attorney as a witness regarding State Farm’s argument that it properly declined to intervene in the arbitration due to alleged collusion between the arbitrator and Ms. Goddard.
The district court held that State Farm waived the attorney-client privilege. However, the district court did not adopt Ms. Goddard’s theory. Rather, the district court held State Farm impliedly waived the attorney-client privilege because the affidavit involved claims or defenses concerning attorney advice. As a result, the lower court mandated that State Farm disclose communications between its employees and the former attorney.
As a result of the district court’s ruling, State Farm filed a petition in the Colorado Supreme Court to exercise original jurisdiction under C.A.R. 21. The Colorado Supreme Court issued the rule to show cause.
For the purposes of its Opinion, the Colorado Supreme Court focused on the district court’s holding that the former attorney’s affidavit, and not State Farm’s endorsement of the former attorney as a witness, waived the attorney-client privilege. The court first noted that under Colorado law, a client impliedly waives the attorney-client privilege when the attorney “(1) discloses privileged communications to a third party or (2) asserts a claim or defense focusing on advice given by the attorney, thereby placing the allegedly privileged communications at issue.” See People v. Madera, 112 P.3d 688, 691 (Colo. 2005). An implied waiver may be made when a party demonstrates a client averred a claim or defense that “depends on privileged information.” See People v. Trujillo, 144 P.3d 539, 543 (Colo. 2006); In re City of Erie, 546 F.3d 222, 229 (2d Cir. 2008).
The Colorado Supreme Court began its analysis by noting the lower court opinion held that attorney-client privilege was waived because State Farm asserted claims or defense in the former attorney’s affidavit based on advice the attorney gave to State Farm. The Colorado Supreme Court reversed, finding that the privilege was not waived for three reasons.
First, the court reasoned that that affidavit exclusively included facts rather than claims or defenses. The facts concerned State Farm’s initial disclosures, the former attorney’s discovery of a possible error in the lien amount, and the former attorney’s disqualification. Even though the former attorney’s affidavit stated that he did not intentionally conceal the proper lien amount, the court acknowledged that denying an allegation does not waive the attorney-client privilege.
Second, the court reasoned that the affidavit did not include any advice given by the former attorney to State Farm. The court noted that the affidavit in fact included nothing regarding communications between the disqualified attorney and State Farm. For this reason, the court reasoned that, facially, the affidavit did not waive the attorney-client privilege.
Finally, the court reasoned that State Farm did not “offer the affidavit in support of any claim or defense that depends on privileged information or attorney advice.” The court noted that the affidavit was submitted to show the former attorney did not conceal the correct lien amount in support of State Farm’s argument that Ms. Goddard’s requested directed verdict was improper.
The Griggs holding provides interesting insight regarding interpretation of the attorney-client privilege, and its potential waiver, by the courts. While the Griggs court dealt with the waiver of the attorney-client privilege in a narrow circumstance, it is imperative to understand how litigation tactics may invoke these issues.