Albright, Justice, dissenting:
I strongly dissent from both the result reached by the majority and the new
points of law set forth in syllabus points seven and eight.
(See footnote 1)
The writ of prohibition granted
in this cause, coupled with those new syllabus points drawn in a virtual factual vacuum,
constitute nothing more than an advisory opinion on the sensitive subject of the attorney-
client privilege and its narrowly-tailored crime-fraud exception. Through its opinion, the
majority seeks to guarantee that counsel for the plaintiff in substantially every bad-faith
insurance action may embark on a fishing expedition during the discovery phase calculated
to invade the oldest of all common-law privileges - the attorney-client privilege.
(See footnote 2)
Moreover, although the trial court committed error in holding that the attorney-client
privilege did not apply in first-party insurance bad-faith cases, that error was not prejudicial
because the trial judge fully complied with our instructions to follow the tests previously
discussed in State ex rel. Medical Assurance v. Honorable Arthur M. Recht, 213 W.Va. 457,
583 S.E.2d 80 (2003), for the purpose of identifying whether the attorney-client privilege
applies. Upon application of those enunciated standards, the trial court determined that the
disputed documents were subject to discovery, given the failure of the defendant to establish
the necessary grounds for their exclusion.
Because the majority chose to address these issues involving the venerated
attorney-client privilege upon a severely limited record given the matter's presentation on
application for a writ of prohibition, I fully anticipate the result of this impolitic course of
action will be protracted litigation for the purpose of testing the limits and probing the
ambiguities which continue to surface due to the abstract and confusing rules that the
majority sets forth to justify its invasion of the privilege. The majority unwisely and
unnecessarily injects this Court into the thicket of unresolved questions that surrounds
application of the crime-fraud exception. Critically, the new syllabus points, while clearly
fashioned to echo the holdings in United States v. Zolin, 491 U.S. 554 (1989), fail to
address the lingering unanswered issues involving Zolin's application that authorities have
repeatedly identified. Furthermore, the majority wrongly attempts to announce new legal
standards without having either a complete record or full briefing and argument on the issues - items which should always attend both our deliberations and our legal pronouncements on
weighty issues such as those improvidently addressed by the majority.
In explanation of why bad-faith claims are not routinely encompassed within
the crime-fraud exception, one commentator has observed:
The attorney-client privilege is obviously one of the most guarded rights that a litigant is afforded. Due to the importance of this privilege, courts have recognized rare limited exceptions to the privilege. One of those exceptions that policyholders' counsel have recently resorted to in support of a litigation bad faith theory is the crime-fraud exception. The crime-fraud exception exists because the very purpose of the attorney-client privilege would be abrogated by allowing attorneys and their clients to use the privilege to conceal evidence of fraud or to protect communications that are part of a criminal activity.
Not surprisingly, courts are reluctant to pierce the attorney-client privilege based on this exception. For the crime- fraud exception to apply, the proponent carries a high burden of establishing that the fraud was ongoing or occurred at or during the time that the documents were prepared, and that legal services were obtained in order to plan or commit a fraud. The majority of courts that have entertained an insured's argument that the attorney-client privilege can be abrogated by the filing of a bad faith claim, however, have refused to equate a bad faith cause of action with civil fraud. Such courts view civil fraud as a discrete cause of action distinct from bad faith and requiring different elements of proof.
Edward Zampino and M. Jarrett Coleman, Turning the Other Cheek: Can Insurers' Defense of Coverage Suits Constitute Grounds for Bad Faith Litigation, 38 Tort Trial & Ins. Practice Law J. 103 (Fall 2002) (footnotes omitted).
Yet another explanation of why bad-faith claims cannot be categorically
lumped into the crime-fraud exception was offered by three Ohio jurists:
[B]ad faith by an insurer is conceptually different from fraud. Bad-faith denial of insurance coverage means merely that the insurer lacked a reasonable justification for denying a claim. In contrast, an actionable claim of fraud requires proof of a false statement made with intent to mislead. Proof of an insurer's bad faith in denying coverage does not require proof of any false or misleading statements; an insurer could, for example, act in bad faith by denying coverage without explanation. Because bad faith is not inherently similar to fraud, there is no reason why an allegation of bad faith should result in an exception to the attorney-client privilege akin to the crime-fraud exception.
Boone v. Vanliner Ins. Co., 744 N.E.2d 154, 160 (Ohio 2001) (Moyer, C.J., Cook, Lundberg Stratton, J.J., dissenting) (citations omitted).
In finding an opinion letter written by counsel for the insurer non-discoverable under the attorney-client privilege, the Kentucky Supreme Court concluded that the document was privileged in the absence of any evidence indicating the contemplation of a tortious act on behalf of [the insurance company.] Guaranty Nat'l Ins. Co. v. George, 953 S.W.2d 946, 948 (Ky. 1997). The court further opined: To develop an exception in bad-faith cases against insurers would impede the free flow of information and honest evaluation of claims. In the absence of fraud or criminal activity, an insurer is entitled to the attorney-client privilege to the same extent as other litigants. Id. at 948; see also State ex rel. U.S.F.& G. Co. v. Montana Second Jud. Dist. Ct., 783 P.2d 911, 916 (Mont. 1989) (observing that [a]n insurance company must have an honest and candid evaluation of the case, possibly including a 'worse case scenario' and that concern[s] by the attorney that communications would be discoverable in a [third-party] bad faith suit would certainly chill open and honest communication . . . [and] impede settlements).
The crime-fraud exception has a precise focus: It applies only when the communications between the client and his lawyer further a crime, fraud or other misconduct. It does not suffice that the communications may be related to a crime. To subject the attorney-client communications to disclosure, they must actually have been made with an intent to further an unlawful act.
Id. at 271; accord In Re Roe, 168 F.3d at 71-72 (rejecting application of crime-fraud exception on grounds that documents at issue were not shown to have been 'in furtherance of a fraud'). This significant limitation on the crime-fraud exception bears emphasis in light of the fact that there appears to be a concerted and orchestrated attempt underway to use the crime-fraud exception to gain access to the insurance claims file (See footnote 8) or what is referred to by lawyers involved in bad-faith litigation as the ticket to the gold mine. James R. Jebo, Overcoming Attorney-Client Privilege and Work Product Protection in Bad-Faith Cases, 70 Defense Counsel J. 261, 264 (April 2003). And this increase in attempts at using the crime-fraud exception as a means of gaining access to case files has imposed a substantial burden on trial judges who must conduct lengthy and time-consuming in camera inspections of documents to resolve these issues. See Clausen v. Nat'l Grange Mut. Ins. Co., 730 A.2d 133, 142 (Del. Super. 1997) (recognizing substantial burden of in camera inspections on trial judges and commenting it is difficult for a Judge to interrupt the norm of a trial day and quickly digest the complexity of the factual issues of a significant document production case in the context of a claim of privilege).
The United States Supreme Court cautioned in Zolin that [t]here is no reason
to permit opponents of the [attorney-client] privilege to engage in groundless fishing
expeditions, with the district courts as their unwitting (and perhaps unwilling) agents. 491
U.S. at 571. The high court was concerned that absent a necessary threshold showing of an
adequate factual basis suggesting applicability of the crime-fraud exception numerous
unwarranted in camera hearings might be forced upon the trial courts. Id. Since Zolin,
scholars, jurists, and practitioners have all recognized the heavy burdens that in camera
proceedings impose upon the trial courts and have further identified a marked divergence
among the courts on critical evidentiary issues involved in applying the crime-fraud
(See footnote 9)
Consequently, it appears that rather than adopting a standard that will assist
courts and lawyers with application of this significant and troublesome standard, the
majority has just launched this state into the murky waters in which other jurisdictions have
been floundering for quite some time. Without a truly workable standard for application of
the crime-fraud exception - one that has been carefully thought out and one that permits
both expeditious and uniform application in the full panoply of cases typically brought
before our state courts, our courts may soon find themselves unwittingly assisting in fishing
expeditions while simultaneously aiding in unintended eviscerations of both the attorney-
client privilege and the work-product doctrine. The majority's opinion, given its attempt to
fashion law out of sack cloth, was imprudent and will surely result in protracted litigation
as both attorneys and jurists alike attempt to make sense out of the amorphous procedural
morass that the majority announced amidst a dearth of factual underpinnings from which to
evaluate application of the purely, hypothetical standards. Rather than achieving final
resolution, the majority's declaration of law in a factual vacuum can only result in one
certainty: the necessity and likelihood of endless litigation as the full parameters of the
standards created by the majority continue to be identified and continue to demand
substantial clarification by this Court.
Second, I respectfully suggest that the standards governing the antecedent proof that must be adduced by the party desiring to overcome the attorney-client privilege must be clearly set forth before a trial court conducts a review of the challenged documents to ascertain their relationship to the asserted crime or fraud. One commentator has suggested the following as a useful standard for applying the crime-fraud exception to insurance cases:
A preliminary determination should be made as to whether fraudulent conduct on the part of the insurance company has occurred and whether such conduct was sufficient to overcome the privilege before permitting discovery of attorney-client privileged communications. A factual showing adequate to support a good faith belief by a reasonable person that wrongful conduct of a sufficient magnitude has taken place should be a preliminary trial court determination. Upon this determination, the court should then subject the claims file to an in camera inspection to determine whether there is a foundation in fact to overcome the privilege based upon an allegation of fraud.
Steven Plitt, The Elastic Contours of Attorney-Client Privilege and Waiver in the Context of Insurance Company Bad Faith: There's a Chill in the Air, 34 Seton Hall L. Rev. 513, 571 (2004). Moreover, absent a clearly articulated standard that specifies the degree of relation the subject documents must bear to the crime or fraud in issue, we are assuredly sanctioning an improper and unauthorized broadening of the intended scope of the crime- fraud exception.
Third, given the broad definitions of fraud and constructive fraud adopted by
this Court, I respectfully suggest that the application of the exception to asserted matters of
fraud should be limited to actual, [intentional] or criminal fraud. See Syl. Pt. 1, Lengyel v.
Lint, 167 W.Va. 272, 280 S.E.2d 66 (1981) (holding that [t]he essential elements in an
action for fraud are: '(1) that the act claimed to be fraudulent was the act of the defendant
or induced by him; (2) that it was material and false; that plaintiff relied upon it and was
justified under the circumstances in relying upon it; and (3) that he was damaged because
he relied on it.' Horton v. Tyree, 104 W.Va. 238, 242, 139 S.E. 737 (1927)); cf. Syl. Pt. 4,
Dodrill v. Nationwide Mut. Ins. Co., 201 W.Va. 1, 491 S.E.2d 1 (1996) (setting forth
elements of statutory bad-faith claim for committing unfair settlement practices in
violation of W.Va. Code § 33-11-4(9)). To equate the commission of a statutory violation
of bad faith or even a common-law bad-faith insurance claim with what the exception was
originally aimed at - preventing the attorney-client privilege from shielding the planning of
or current commission of criminal or fraudulent offenses (both of which significantly
required the critical element of intent) - is a serious attenuation of the laudatory objective
that resulted in the creation of the crime-fraud exception.
Fourth, I respectfully suggest that we must heed the concerns noted by several courts and various commentators. The courts must be vigilant in not permitting the oldest common-law privilege to be cast aside in the guise of assuring open and fair discovery, when the true objective at hand is to assist one recognizable group of litigators while simultaneously singling out one specific business enterprise and denying that business interest the protections that all other businesses are afforded. As one commentator has recognized, [a]n insurance company should not lose the protection of the attorney-client privilege simply because its litigation opponent raises an issue to which advice of counsel may be relevant. Plitt, supra, 34 Seton Hall L.Rev. at 568.
Fifth, I respectfully suggest that the trial courts of this state be urged to view
the invasion of the attorney-client privilege as warranted on only rare occasions and only
upon clear proof of the alleged fraud or crime. To do otherwise will surely amount to a
demise in the willingness of both corporations and individuals to seek advice from attorneys.
No one would seriously dispute that the courts of this state should never be used as a tool
for denying protections viewed as intrinsic to our system of jurisprudence. Yet, the majority
has set the stage for just such a downward spiraling of these age-old protections.
To establish the application of the crime-fraud exception,
a party must demonstrate an adequate factual basis exists to
support a reasonable person's good faith belief that an in
camera review of the privileged materials would produce
evidence to render the exception applicable. In making this
prima facie showing, the party must rely on nonprivileged
evidence, unless the court has not previously made a
preliminary determination on the matter of privilege, in which
case the allegedly privileged materials may also be considered.
Discretion as to whether to conduct an in camera review of the
privileged materials rests with the court. If, however, the prima
facie evidence is sufficient to establish the existence of a crime
or fraud so as to render the exception operable, the court need
not conduct an in camera review of the otherwise privileged
materials before finding the exception to apply and requiring
disclosure of the previously protected materials. The crime-
fraud exception operates to compel disclosure of otherwise
privileged materials only when the evidence establishes that the
client intended to perpetrate a crime or fraud and that the
confidential communications between the attorney and client
were made in furtherance of such crime or fraud.
To the extent the attorney-client privilege and the work product doctrine operate to protect communications between a client and his or her counsel in a first-party bad-faith action, the crime-fraud exception also operates to require disclosure of such communications made in furtherance of a crime or fraud.