Insurer Waives Privilege by Filing Affidavit Relying on Privileged Information

The Illinois Appellate Court for the First District, in an opinion written by Justice Ellis with Justices McBride and Howse concurring, applying Illinois law, held that attorney-client privilege does not permit a party to avoid the attached-documents requirement of Rule 191(a).  The Appellate Court found that State Farm Mutual Auto Insurance Company (“State Farm”) waived attorney-client privilege by expressly describing communications and by placing them affirmatively at issue in its attempt to seek summary judgment.  “It is hard to image a more blatant example of using communications as a ‘sword’ while invoking the privilege as a ‘shield.’”

Between 2006 and 2009, State Farm filed a series of subrogation lawsuits.  In 2010, a purported class action lawsuit was filed against State Farm and its attorney, James M. O’Dea, claiming that the subrogation lawsuits were part of a large scale scheme to obtain fraudulent default judgments against subrogation defendants by circumventing state service requirements.  The class action asserted claims against State Farm for abuse of process, civil conspiracy, and malicious prosecution.  Both O’Dea and State Farm filed dispositive motions.

A discovery dispute first brought the case before the Appellate Court.  (See previous Insurance Bytes).  The Appellate Court held communications between State Farm, O’Dea, and their respective attorneys concerning the defense of the lawsuit were not subject to disclosure because, while the joint communications might normally result in the waiver of attorney-client privilege, Illinois recognizes an exception to waiver when the parties are discussing matters of litigation in their common interest.

The second appeal focused on the trial court’s dispositive rulings.  On appeal, the plaintiffs argued, inter alia, that summary judgment on the civil conspiracy claim was premature because the trial court should have stricken the affidavits supporting the motion for summary judgment for the failure to attach the document on which the affiants relied for their sworn testimony.  State Farm attached to their summary judgment motion two affidavits – one from O’Dea and the second from a State Farm claims manager, Peter McCann.

The Appellate Court’s attorney-client privilege analysis focused on the McCann affidavit, which stated that, in the normal course of business, State Farm generates “Claim File Materials” for its subrogation cases, and that it created claim file materials for each of the plaintiffs.  Each claim file contains a “Claim Activity Log” on which State Farm’s claims representatives and supervisors electronically record “significant information or memorialize therein pertinent conversations or events.”  Neither the claim file materials nor the claim activity logs for plaintiff’s cases were attached to McCann’s affidavit.  The Appellate Court found that the McCann affidavit violated the bright line rule from Illinois Supreme Court rule 191(a) requiring that affidavits “shall have attached thereto sworn or certified copies of all documents upon which the affiant relies.”

During oral argument, State Farm stated that it did not attach the relevant documents concerning State Farm / O’Dea communications because it was not required to attach privileged attorney-client communications.  The Appellate Court asked the parties to brief the following question: “May State Farm rely on privileged attorney-client communications in support of its motion for summary judgment and then refuse to disclose those communications (a) to plaintiffs and (b) to the trial court?”

The Appellate Court found, based on both Rule 191(a) and the doctrine of waiver of privilege, that State Farm could not avoid the attached-documents requirement of Rule 191.  The parties did not dispute that the communications between State Farm and O’Dea concerning the litigation of the subrogation cases were privileged attorney-client communications.  Under Illinois law, waiver occurs in two situations:  first, when the client voluntarily testifies to the privileged matter (known as “express waiver”), and second, when the client voluntarily injects into the case either a factual or legal issue, the truthful resolution of which requires examination of confidential communications (known as “implied waiver”).  Implied waiver “prevent[s] a party from strategically and selectively disclosing partial attorney-client communication with his attorney to use as a sword, and then invoking the privilege as a shield as to other communications as to gain a tactical advantage in litigation.”  “Thus, if defendants have introduced into the litigation privileged communications to be used as a sword for tactical advantage, those communications, and undisclosed communications of the same subject matter, are discoverable.”

The Appellate Court found that waiver occurred on both grounds.  State Farm expressly waived its attorney-client privilege when McCann, by affidavit, voluntarily testified to the privileged matter.  The Appellate Court found it immaterial that McCann did not testify as to what O’Dea did tell State Farm but what he did not tell them.  Implied waiver occurred because through McCann’s review of the privileged communications and his testimony as to what was not found therein, State Farm was obviously attempting to seek tactical advantage, by way of summary judgment, based on the content of privileged communications.

The Appellate Court rejected State Farm’s argument that implied waivers are limited to the assertion of claims or defenses on which the litigant bears the burden of proof.  State Farm also argued that the mere denial of allegations does not amount to a waiver; and while the Appellate Court agreed with State Farm, it found that State Farm did far more than merely deny the plaintiffs’ allegations – it moved for summary judgment and attached an affidavit attempting to prove that it did not receive any notification from its attorney about the problems with service.  The Appellate Court acknowledged that “some of the consequences of invoking [attorney-client] privilege may be unfavorable.  A client may forgo favorable evidence contained within its privileged communications by invoking the privilege.”  The Appellate Court ruled that any attorney-client communications contained within the claim file materials and the claim activity logs for the subrogation cases are discoverable, unredacted.  Summary judgment on the claims for civil conspiracy was vacated and the case remanded.  Selby v. O’Dea, 2020 IL App (1st) 181951 (Mar. 31, 2020).