The Fourth Circuit certified the following question to the South Carolina Supreme Court: Does South Carolina law support application of the "at issue" exception to the attorney-client privilege such that a party may waive the privilege by denying liability in its answer? In Re: Mt. Hawley Ins. Co., 2018 U.S. App. LEXIS 17910 (4th Cir. June 28, 2018).
Mt. Hawley insured Contravest Construction Company under an excess commercial liability policy from July 21, 2003 to July 21, 2007. During this period, Contravest constructed a development in South Carolina. In 2011, the Owners Association sued Contravest for alleged defective construction. Mt. Hawley denied tenders to defend or indemnify. Contravest ultimately settled the case.
Contravest and the Owners Association then sued Mt. Hawley, alleging bad faith failure to defend or indemnify, breach of contract, and unjust enrichment. During discovery, the plaintiffs requested Mt. Hawley's file on Contravest's claim for excess coverage relating to the development suit and later, Mt. Hawley's files relating to all of Contravest's claims under its excess liability policies. Mt. Hawley contended that these files contained material protected by the attorney-client privilege, and produced the files in redacted form with accompanying privilege logs. The plaintiffs filed multiple motions to compel, arguing that Mt. Hawley waived the attorney-client privilege as to these files.The district court granted plaintiffs' motions to compel and ordered Mt. Hawley to produce the files for in camera inspection. Mt. Hawley then sought a writ of mandamus from the Fourth Circuit to vacate the district court's order granting the motions to compel.
Mt. Hawley challenged the district court's holding that the relevant files were not protected by the attorney-client privilege because Mt. Hawley put them "at issue" in the case by denying liability for bad faith failure to defend or indemnify. The district court relied upon a prior case holding that if the insurer voluntarily injected an issue in the case, the insurer voluntarily waived the attorney-client privilege. City of Myrtle Beach v. United Nat. Ins. Co., 2010 WL3420044 ( D.S.C. Aug. 27, 2010). In Myrtle Beach, the insurer failed to meet its burden of establishing the absence of waiver of the attorney-client privilege on account of the defenses asserted in its answer, including that the insurer acted reasonably and in good faith.
Here, the district court found that Mt. Hawley denied bad faith liability, thereby waiving the attorney-client privileged with respect to he attorney-client communications in the claim files, to the extent such communications were relevant Fed. R. Civ. Proc. 26. The court thus ordered Mt. Hawley to produce the files for in camera review.
Mt. Hawley contended that if South Carolina law did not support the "at issue" exception, the district court's order granting the motions to compel was erroneous. The Fourth Circuit agreed. Therefore, the issue was sent to the South Carolina Supreme Court by way of the certified question.