In an important decision regarding bad faith and the application of the work product doctrine to work performed by an insurer's in-house counsel, the Hawaii Supreme Court vacated the Intermediate Court of Appeals's upholding the trial court's award of summary judgment to a title insurer on the issue of bad faith. Anastasi v. Fid. Nat'l Title Ins. Co., 2016 Haw. LEXIS 30 (Feb. 4. 2016).
Llyod Anastasi loaned Alajos Nagy $2.4 million. The loan was secured by a mortgage on property. After Nagy executed the $2.4 million mortgage, a warranty deed was signed by Paul Stickney and purported to deed the property from Stickney to Nagy in exchange for $10 in consideration. Fidelity issued Anastasi a title insurance policy on the property in the amount of $2.4 million. The policy promised to provide a defense where a third party asserted a claims adverse to the interest of the insured.
In November 2005, Stickney sued to quiet title against Nagy and Anastasi alleging that Stickney's signature had been forged on the warranty deed. Anastasi tendered the suit to Fidelity. In a letter from Elizabeth McGinnity, Senior Vice-President and Major Claims Counsel for Fidelity, Fidelity accepted the defense under a reservation of rights and appointed Jade Lynne Ching as defense counsel.
Ching wrote an introductory letter to Anastasi, noting that she anticipated Fidelity would provide recommendations and instructions regarding the steps and procedures to be taken in defending or settling the claim.
On February 13, 2006, McGinnity and Ching received a letter from Clifford Frieden, an attorney retained by Fidelity to provide coverage advice and investigate the allegations made in the Stickney lawsuit. Frieden compared Stickney's signature to the signature on the warranty deed and thought they were different. Further, the driver's license number and the expiration date of the license recorded by the notary were different from Stickney's actual driver's license number and expiration date.
The circuit court granted Stickney's motion for summary judgment. Ching recommended that an appeal not be filed because, although summary judgment should not have been issued, Anastasi would not be able to establish the validity of the Warranty Deed in subsequent proceedings. McGinnity, however, instructed that an appeal be filed. Although an appeal was filed, the parties eventually stipulated to dismiss the appeal. Fidelity paid Anastasi $2.4 million under the policy.
Anastasi then filed suit against Fidelity for breach of contract and bad faith in delaying payment because the meaningless appeal was pursued.
Anastasi moved to compel the production of documents that Fidelity had withheld because of attorney-client privilege or work product. McGinnity was listed as either the recipient or author on many of the documents listed in the privilege log. After an in camera review, the trail court held that Fidelity's assertion of attorney-client privilege and/or work product was proper. The circuit court then granted Fidelity's motion for summary judgment on the bad faith issue because Fidelity acted reasonably in its interpretation of the policy provisions.
The ICA ruled that because McGinnity acted in a dual capacity as in-house counsel and claims adjuster, the circuit court abused its discretion in ruling that all of the McGinnity documents were covered by attorney-client privilege or work product.The ICA's decision is summarized here. Further, the circuit court erred in determining that Fidelity acted reasonably as a matter of law, and vacated the summary judgment award. Finally, the circuit court did not err in determining that Fidelity did not control or direct Ching's representation of Anastasi.
The Hawaii Supreme Court first determined that the ICA erred in determining that a presumption existed whereby documents prepared before an insurer made a final decision on an insured's claim were prepared in the ordinary and routine course of an insurer's business and were not work product. Such a presumption was not required under Hawaii law. The issued was remanded to allow the circuit court to determine whether the McGinnity documents were prepared because of the prospect of litigation, and therefore considered work product.
On the bad faith issue, there was evidence that Fidelity knew within four months of receiving the claim that the warranty deed was forged. Yet, Fidelity did not address how proving the fraud or forgery in the Stickney lawsuit would have affected coverage under the policy. Therefore, it was error to determine, as a matter of law, that Fidelity's actions following its knowledge that the deed was forged were reasonable. The issue was remanded. Fidelity would have the opportunity to present evidence as to why its actions were in good faith. Although Fidelity argued a title insurer should be excluded from the enhanced standard of good faith when claims were defended under a reservation of rights, the court determined there was nothing distinctive about title insurance that would eliminate the potential for conflict when a reservation of rights was issued.
Finally, viewing the evidence in the light most favorable to Anastasi, the evidence was sufficient to raise a genuine question as to whether Ching allowed Fidelity to direct or regulate her professional judgment. Fidelity's Claims Handbook expressly stated, "If the outcome of a suit is unfavorable to the insured, the insurer may determine, in its sole discretion, whether or not to appeal."Further, Ching's letter to Anastasi stated Fidelity would provide recommendations and instructions on the steps and procedures to be taken in defending or settling the claim. Therefore, there was a question of fact as to whether Ching breached her ethical duties.
