Massachusetts Federal Court Rules That Insurer’s Decision To Commence Rescission Action Does Not Waive Attorney-Client Privilege


    Insurers can take comfort that their decision to bring a rescission action against a Massachusetts insured will not itself effect a waiver of the attorney-client privilege, at least in cases where the carrier’s process for deciding whether to sue is not relevant to the rescission claim itself. The federal district court in Massachusetts recently considered that precise question in Preferred Mutual Insurance Company v. Lodigiani, No. 13-cv-30138-MGM (D.Mass. Aug. 12, 2014). A copy of the decision is available here.

    Preferred Mutual Insurance Company issued Leonard Lodigiani, a Massachusetts-licensed master plumber, a liability insurance policy in December 2012. Lodigiani’s policy application included information about the way he operated his plumbing business. After the policy issued, Lodigiani was hired to perform plumbing work at a property in South Hadley, Massachusetts. In January 2013, fire damaged that property, allegedly as a result of negligence on the part of plumbers, including Lodigiani. Upon learning of the fire, Preferred Mutual hired counsel to defend Lodigiani against potential claims.

    After investigating the loss, Preferred Mutual determined that Lodigiani had made misrepresentations in his insurance application. Accordingly, Preferred Mutual brought suit to rescind Lodigiani’s policy. Only the owner and the leasee of the damaged property contested the suit.

    During discovery, the defendants deposed Preferred Mutual’s corporate representatives, who testified that Preferred Mutual relied in part on the advice of counsel when deciding to rescind Lodigiani’s policy. Although Preferred Mutual’s attorneys instructed Preferred Mutual’s representatives not to disclose the substance of the advice given, the defendants claimed that Preferred Mutual had waived its privilege by placing its counsel’s advice at issue in the litigation. Accordingly, it sought to compel Preferred Mutual to testify as to the substance of its communications with counsel, to produce counsel’s correspondence with Preferred Mutual, and to permit a deposition of Preferred Mutual’s coverage lawyer. Preferred Mutual refused, and the defendants filed a motion to compel.

    Denying the motion, the federal district court explained that the attorney-client privilege “ends at the point where the defendant can show that the plaintiff’s civil claim, and the probable defenses thereto, are enmeshed in important evidence that will be unavailable to the defendant if the privilege prevails.” Preferred Mutual asserted that it had not placed its privileged communications at issue in the rescission suit because the substance of its communications with counsel was not relevant to the merits of its rescission claim. The court agreed.

    Citing the Massachusetts General Laws, the court stated that, in order to prove its case, Preferred Mutual would have to “introduce evidence regarding the information Lodigiani provided on his application, his intention in providing that information, the scope of his business arrangements at the time he applied for insurance, and the risk of loss associated with the business arrangements reported to” Preferred Mutual, as well as his actual business arrangements. The court explained that Preferred Mutual would not have to make a showing with respect to its assessment of those factors to sustain its burden, and that the only relevant issues pertained to the decision to rescind itself – not the decision to bring suit to rescind. Accordingly, the court held that Preferred Mutual had not waived the attorney-client privilege.

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