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Paying for the Defense does not Make Insurer a “Co-Client” for Attorney Client Privilege Exception

By Claire Juliana of Aon Risk Solutions

Claire Juliana - Aon Environmental

A recent decision from the United States District Court for the District of Pennsylvania described the circumstances where an insurer neither qualified for the “common interest” or “co-client” exceptions to the attorney–client privilege under Pennsylvania law. Camico Mutual Insurance Company v. Heffler, Radetich & Saitta, LLP, 2013 U.S. Dist. LEXIS 10832 (E.D. PA Jan. 28, 2013). (“The Camico Case”). The Camico Case arose out of a coverage dispute between an insured - Heffler, Radetich & Saitta (“Heffler”) and its insurer CAMICO Mutual Insurance Company (“CAMICO”) regarding an alleged misappropriation lawsuit against Heffler. As part of the coverage dispute, CAMICO sought to compel production of privileged documents concerning the underlying matter for which Heffler sought coverage. CAMICO acknowledged these documents as privileged, but claimed an exception to the privilege on the ground that it shared a “common interest” with Heffler regarding defense of the underlying matter.

The District Court, predicting how the Supreme Court for the Commonwealth of Pennsylvania would resolve the dispute (since it had not addressed yet the issue), ruled that CAMICO was not entitled to the documents under either the common interest or co-client exceptions to the attorney client privilege. With respect to the “common interest” (or also referred to as the “community of interest”) exception, Pennsylvania intermediate state courts have held that where co-defendants with essentially the same interests retain separate counsel to void potential conflicts, these defendants should be able to pool their resources on matters of common interest. But, to avail of such an exception, separate counsel for different clients is required. In this case, CAMICO did not claim it had separate counsel and therefore the common interest exception did not apply.

With respect to the “co-client” exception (which applies where two or more clients share the same attorney), the court rejected CAMICO’s position that counsel represented the joint interests of Heffler and CAMICO with respect to the defense of the underlying lawsuit. First, the Court noted that a recent state case dismissed the notion of any absolute rule that an insurer is always considered a co-client with its insured simply because it funds the defense of the insured. Then, the court looked to the particular circumstances of the underlying representation to determine whether counsel in fact conducted a joint representation of both insurer and insured. Based upon the evidence, including that Heffler independently retained the firm, correspondence from that firm to CAMICO stating: “we represent Heffler…”, as well as CAMICO’s own correspondence referring to the firm as “independent counsel”, the court found no evidence of any such joint representation.

Typically, insurance companies often retain counsel for their insureds – so it is not clear whether that fact alone would have altered the District Court’s ultimate finding. Clearly, the “dual client” relationship between an insured and its insurer remains, despite this case, one that has and will continue to be the subject of much debate and legal wrangling in Pennsylvania until the highest court rules on the matter.

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