Insurance companies maintain extensive files documenting their handling of claims. These files contain correspondence with insureds, investigation reports, adjuster notes, and communications with attorneys. When disputes arise about how insurers handled claims, plaintiffs naturally want access to these files through discovery. Insurers resist by asserting various privileges.
The attorney-client privilege protects confidential communications between lawyers and clients made for the purpose of obtaining legal advice. Insurance companies frequently claim this privilege shields their claims files from discovery. However, establishing this privilege requires more than simply showing that attorneys participated in claim handling. The party asserting privilege must prove through proper evidence that specific communications were made in confidence and not intended for disclosure to third parties.
This issue often comes up in probate litigation as insurance claims can be at issue in the probate dispute. These same concepts also come up with respect to medical records when a decedent lacked capacity to execute a will, power of attorney, or to make a gift or other lifetime transfer.
Humphreys v. Caldwell, 888 S.W.2d 469 (Tex. 1994), provides an opportunity to consider whether insurance claims files can be protected by attorney-client privilege and what evidence insurers must present to establish this protection.
Facts & Procedural History
Jill and Charlotte were involved in an automobile accident in January of 1991. State Farm Mutual Automobile Insurance Company insured Jill. Danny and Harlan worked as State Farm claims adjustors handling Jill’s claim.
Charlotte sued Jill in Dallas County over the accident. The parties settled before trial. However, while her suit against Jill was pending, Charlotte filed a separate lawsuit in Matagorda County. This lawsuit named State Farm, Danny, and Harlan as defendants. Charlotte alleged they engaged in bad faith and unfair settlement practices under Article 21.21 of the Texas Insurance Code.
State Farm filed a motion for summary judgment arguing that Charlotte lacked standing and a cause of action because she was a third party rather than an insured. The trial court overruled this motion.
During discovery, Charlotte requested production of State Farm’s claims file. This file contained documents relating to the accident and lawsuit between Jill and Charlotte. The file included memoranda and correspondence prepared by Jill’s attorney in connection with the litigation. State Farm objected, claiming the file was protected by attorney-client privilege and attorney work product privilege.
In response to Charlotte’s motion to compel, State Farm submitted four affidavits of Clarence Jones, State Farm’s Claims Superintendent. These affidavits asserted numerous grounds for exempting the claims file from discovery, including attorney-client privilege.
The trial court held hearings on the motion to compel in September of 1993 and May of 1994. State Farm submitted the claims file to the trial court for in camera review. On June 20, 1994, the trial court ordered State Farm to produce the entire claims file.
State Farm, Danny, and Harlan filed a petition for writ of mandamus challenging this discovery order.
The Burden of Proving Attorney-Client Privilege
Texas Rule of Civil Procedure 166b(4) establishes the framework for asserting privileges in discovery. A party who seeks to exclude any matter from discovery on the basis of an exemption or immunity must specifically plead the particular exemption or immunity relied upon. The party must also produce evidence supporting the claim in the form of affidavits or live testimony at a hearing.
The burden rests squarely on the party asserting privilege from discovery to produce evidence concerning its applicability. The Supreme Court stated this principle in Peeples v. Honorable Fourth Supreme Judicial District, 701 S.W.2d 635, 637 (Tex. 1985). Simply asserting that documents are privileged does not satisfy this burden. The party must present actual evidence establishing that the claimed privilege applies to specific documents.
For attorney-client privilege specifically, the party must prove that communications were made between attorney and client in confidence and were not intended to be disclosed to third parties. The Supreme Court stated this requirement in Giffin v. Smith, 688 S.W.2d 112, 114 (Tex. 1985). The privilege protects only those communications made for the purpose of obtaining legal advice where both parties intended the communications to remain confidential.
This burden serves important purposes in the discovery system. It prevents parties from withholding relevant documents through unsupported privilege claims. It ensures that judges have an adequate record for determining whether privileges actually apply to specific documents. It protects the requesting party’s right to discovery by requiring opponents to prove their objections rather than simply asserting them.
State Farm attempted to satisfy this burden through two methods. First, State Farm proffered four affidavits of Clarence Jones addressing the claimed privileges. Second, State Farm submitted the claims file for in camera review by the trial court. However, as the Supreme Court found, these efforts failed to establish attorney-client privilege for the claims file.
Technical Requirements for Valid Affidavits
Texas law imposes strict requirements on affidavits used in pretrial motions. An affidavit must positively and unqualifiedly represent that the facts disclosed in the affidavit are true and within the affiant’s personal knowledge. An affidavit failing to meet these requirements is legally insufficient for purposes of pretrial motions.
The Supreme Court established this standard in Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984), and reaffirmed it in Burke v. Satterfield, 525 S.W.2d 950, 955 (Tex. 1975). These cases reflect the policy that affidavits submitted to courts must unequivocally establish that the affiant has personal knowledge of the facts stated and that those facts are true.
The personal knowledge requirement ensures that affiants testify only about matters they actually know rather than matters they heard from others or believe to be true. An affiant cannot satisfy this requirement by stating that facts are based partly on personal knowledge and partly on information obtained from others. The affidavit must show that all stated facts come from the affiant’s own personal knowledge.
The truth requirement ensures that affiants take responsibility for the accuracy of their statements. An affiant cannot merely recite facts without affirming their truth. The affidavit must contain a clear statement that the disclosed facts are true.
The Supreme Court examined the four affidavits submitted by Clarence Jones. Each affidavit stated that the affiant’s statements were based on his “own personal knowledge and/or knowledge which he has been able to acquire upon inquiry.” This language created two fatal defects.
First, the affidavits failed to unequivocally show they were based on personal knowledge. The phrase “and/or knowledge which he has been able to acquire upon inquiry” introduced ambiguity about which facts came from personal knowledge versus information from others.
Second, the affidavits provided no representation that the facts disclosed therein were true. The affidavits explained the basis for the affiant’s knowledge but never stated that the facts were actually true.
Because of these defects, the Supreme Court held the affidavits were legally invalid. The affidavits could not serve as evidence in support of State Farm’s claims of privilege—including its claim of attorney-client privilege.
Why State Farm Failed to Establish Attorney-Client Privilege
The Supreme Court specifically addressed State Farm’s failure to prove attorney-client privilege in a footnote. The Court stated: “We note that State Farm failed to prove that the claims file was protected by the attorney-client communications privilege. Without consideration of the affidavits, there is no evidence that the communications between Mullinax’s attorney and State Farm were not intended to be disclosed to third parties.”
This statement reveals the fundamental problem with claiming attorney-client privilege for insurance claims files. The privilege protects only communications that were intended to remain confidential. Communications that parties intended to disclose to third parties—even if those communications involved attorneys—do not qualify for protection.
Insurance claims files typically contain many types of communications. Some communications occur between the insured and the insured’s attorney for the purpose of obtaining legal advice. These communications may qualify for attorney-client privilege if they were made in confidence.
However, claims files also contain communications between attorneys and insurance adjusters, between adjusters and insureds, between adjusters and third parties, and between attorneys and opposing parties. Many of these communications were not intended to remain confidential. Adjusters routinely share information from claims files with multiple parties as part of the claims handling process.
The mere fact that an attorney participated in a communication does not automatically make it privileged. The parties must have intended the communication to remain confidential. They must have made the communication for the purpose of obtaining legal advice rather than for business or administrative purposes.
State Farm’s defective affidavits provided no evidence about which specific communications in the claims file were made in confidence. The affidavits did not identify which documents contained attorney-client communications. The affidavits did not explain why particular communications should be considered confidential. The affidavits did not establish that parties intended specific communications to remain undisclosed to third parties.
Even the trial court’s in camera review could not cure this deficiency. While a court reviewing documents can determine from their face whether they constitute attorney work product, determining whether communications were intended to remain confidential often requires extrinsic evidence. The court needs evidence about the circumstances surrounding the communications and the parties’ intentions regarding confidentiality.
Without such evidence, State Farm failed to carry its burden of proving attorney-client privilege. The claims file therefore was not protected by that privilege regardless of what attorney communications it contained.
The Distinction Between Attorney-Client Privilege and Work Product Protection
The Supreme Court did find that some documents in the claims file qualified for attorney work product protection. This holding demonstrates the important distinction between these two privileges.
Attorney-client privilege protects confidential communications between attorneys and clients made for the purpose of obtaining legal advice. The privilege belongs to the client. It protects the communication itself regardless of whether the communication contains the attorney’s thoughts or strategies.
Attorney work product privilege protects materials prepared by attorneys or their agents in anticipation of litigation. The privilege protects the attorney’s mental processes, conclusions, and legal theories. The privilege applies based on the nature of the document and the purpose for which it was created.
The claims file included memoranda and correspondence prepared by Jill’s attorney in connection with the suit between Jill and Charlotte. The Supreme Court found these documents met all requirements for attorney work product privilege.
First, the documents were prepared by Jill’s attorney or his agents. Second, the documents were prepared in anticipation of trial. Third, the documents contained the attorney’s mental processes, conclusions, or legal theories.
The Court cited National Tank Co. v. Brotherton, 851 S.W.2d 193, 200 (Tex. 1993), and National Union Fire Insurance Co. v. Valdez, 863 S.W.2d 458, 460 (Tex. 1993), for these requirements. Documents satisfying all three elements qualify for work product protection.
Charlotte argued these documents should not receive protection because they were prepared for the suit between Charlotte and Jill rather than the underlying bad faith suit. The Supreme Court rejected this argument. Work product privilege has continuing duration. The Court cited Owens-Corning Fiberglas Corp. v. Caldwell, 818 S.W.2d 749, 751-52 (Tex. 1991), for this principle.
Documents protected as work product in one lawsuit remain protected when discovered in subsequent related litigation. The privilege attaches to the documents based on how and why they were created rather than which specific lawsuit they relate to.
This meant that while State Farm failed to establish attorney-client privilege for the claims file, some documents within the file still qualified for work product protection. The trial court should have separated protected work product from discoverable materials rather than ordering production of the entire file.
The Takeaway
This case explains when insurance claims files can be protected from discovery. The case shows that establishing attorney-client privilege for claims files requires more than showing that attorneys participated in claims handling. Insurance companies have to produce evidence that specific communications were made in confidence and not intended for disclosure to third parties. This typically requires affidavits that identify particular documents, explain the circumstances of the communications, and establish the parties’ intent regarding confidentiality. The affidavits must satisfy strict technical requirements and unequivocally state that all facts come from the affiant’s personal knowledge.
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