Texas, Bad Faith & Attorney Communications

Texas has been generating a lot of workers' compensation bad faith law lately.

A couple of weeks ago the state's Supreme Court essentially put the lid on bad faith arising out of workers' compensation claims with its Ruttiger opinion.

Now the same court ruled that there is no attorney-client privilege applicable to communications between an insurer's lawyer and the employer.

In Re XL Specialty Insurance Co., 10-0969, 06/29/2012 involved Jerome Wagner who sought workers' compensation benefits for an injury while working for Cintas Corp. XL Specialty insured Cintas with a policy that included a $1 million deductible per claim.

XL's third-party administrator, Cambridge Integrated Services Group, denied Wagner's claim. The Division of Workers' Compensation (DWC) ruled in favor of Wagner and granted medical and temporary income benefits.

During administrative proceedings, XL's outside counsel, Rebecca Strandwitz, sent communications to Cambridge and to Cintas.

After the administrative dispute was resolved, Wagner sued XL, Cambridge and claims adjuster Melissa Martinez for breach of the common law duty of good faith and fair dealing and violations of the Insurance Code and Texas Deceptive Trade Practices Act. During discovery, Wagner sought communications between Strandwitz and Cintas.

XL and Cambridge argued that the communications were protected by attorney-client privilege. The trial court, however, held that the privilege did not apply.

The Court of Appeals denied the petition of XL and Cambridge for relief. The insurer and employer then appealed to the Supreme Court.

XL argued that Section 503(b)(1)(C) of the Texas Rules of Evidence, known as the "joint defense" privilege or "common interest rule," was applicable. The rule protects confidential communications between a lawyer and client and also discourse among their representatives.

While the joint defense rule applies when multiple parties to a lawsuit, each represented by different attorneys, communicate among themselves to form a common defense strategy, in this case Cintas was not represented by an attorney in the workers' comp proceedings.

In addition XL and Cintas were not joint clients of Strandwitz. While XL argued that Cintas was a representative of the insurer, it did not submit any evidence that Strandwitz was authorized to represent both parties.

A dissent was penned by Justice Don R. Willett who argued, what one would think: that Ruttiger obviated the need to even rule in the case and that such issues were moot since a workers' compensation claimant may not pursue a bad-faith action against a workers' compensation insurer unless he shows that the insurer misrepresented provisions of its policy.

Two lessons I learned from this most recent case: 

1) if you're a defense attorney for a carrier and wish to communicate with the employer in a protected, privileged manner then get authorization to represent both carrier and employer (with the caveat of an appropriate waiver of conflict of interests); 

2) Justice Willett may be right technically, but the Texas Supreme Court didn't nail the coffin shut in Ruttiger - the prospect is still alive that a misrepresentation of the policy bad faith argument could arise and evidence may be found in carrier/employer communications so be very, very careful with what is committed to writing in such cases.