The Beaumont Court of Appeals in In re Mid Century Ins. Co. of Texas, Cause No. 09-14-00068-CV, 2014 WL 989726 (Mar. 13, 2014) denied mandamus relief sought by Mid Century arising out of a discovery order where the trial court compelled defense counsel (for the driver of a vehicle insured by Mid Century) to produce his complete defense file from the underlying tort litigation to the representatives of the driver’s estate in subsequent separate litigation between Mid Century and assignees of the insureds’ claims against Mid Century. 

Mid Century issued a policy that covered a vehicle driven by Robert Conrad in an accident that injured the Herberts.  The Herberts offered to settle the case for policy limits but ultimately filed suit against Conrad.  The Herberts suit against Conrad for personal injuries resulted in a judgment in excess of policy limits.  The trial court in that personal injury case issued an order for the dependent administrator of Conrad’s estate to turn over any assignable causes of action to the Herberts.

The active litigation concerning this matter includes Mid Century’s declaratory judgment action consolidated with a Stowers claim asserted by the Herberts under the assignments of Conrad’s claims against Mid Century.  The Herberts obtained an assignment of the right to waive any attorney-client or work product privileges and then sought the attorney’s defense file from the representation of Conrad.  The trial court ordered that the file be turned over after an in camera review.

Mid Century contended that the file is not relevant to the second litigation and contains privileged communications between Mid Century and defense counsel because documents in the file explain the evaluation of the tort claim covered by the policy.  The Herberts argued the privileges belong to the insured, Conrad, and were waived through Conrad’s assignment of claims.  Mid Century argued Conrad’s waiver of privileges could not affect any privileges Mid Century possessed by virtue of the tripartite insurance relationship.

The Beaumont Court of Appeals found the trial court did not disregard established legal principles when it declined to recognize the insurance company’s assertion of privilege in the face of the insured’s assignment of the Stowers claim and the right to waive attorney-client and work product privileges.

[Editor’s note: This case illustrates two important aspects of Texas insurance law: one, rejecting a policy limit demand in Texas is always a risky strategy and; two, Texas law on the existence of privilege protections arising out of the tripartite relationship are not as developed as they are in other states.  As to the second point, the Texas Supreme Court has never addressed the attorney client and attorney work-product privilege protections, if any, which a liability insurer may claim arising out of the tripartite relationship.  As such, the first point – the risk to a liability insurer following a policy limit demand – becomes even more risky when the carrier declines to pay a policy limit demand because of liability, damage or coverage concerns.  Any time an insured is motivated to cut a side settlement deal with the plaintiff, the liability carrier should assume it will contain a waiver of any applicable attorney client or attorney work product privileges.]

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