There are well-known ways to waive the protection of the attorney-client privilege: for example, the intentional disclosure of an initially confidential communication to someone outside of the privileged relationship waives the privilege; accusing your lawyer of malpractice also waives the privilege. But there are also some less well-known ways to waive the attorney-client privilege that can trip up the unwary.

Vitamin Energy v. Evanston Insurance illustrates two relatively unusual ways to lose the protection of the privilege. In that case, Vitamin Energy Inc. (VEI) sought a declaration that Evanston Insurance Co. (EIC) had a duty to provide insurance coverage and defend VEI in a separate, underlying suit. VEI also alleged that EIC’s denial of coverage was in bad faith. In discovery, EIC disclosed that its claims handler had consulted with an in-house lawyer regarding VEI’s claim for coverage. During the claims handler’s deposition, EIC’s litigation counsel invoked the attorney-client privilege, refused to permit testimony about the substance of the communications with the in-house lawyer, and affirmatively disclaimed that EIC would rely on an advice-of-counsel defense.

Nothing too controversial or unusual there.

Later in the case, however, EIC sought to introduce expert testimony that would have pointed to the fact that EIC had conferred with in-house counsel as one of the indicia of EIC’s good faith in handling VEI’s claim for coverage. EIC sought to have its expert testify that the consultation with counsel was itself evidence of EIC’s “desire and effort to conduct a thorough analysis before making a coverage decision.” VEI moved to bar the expert from testifying because VEI had been denied access to the substance of the attorney-client communication.

The court-appointed special master refused to allow EIC to advance its “involvement of counsel” defense. It is well-established that—for obvious reasons—the invocation of an advice-of-counsel defense waives the privilege: A party cannot be permitted to attempt to justify its actions by saying it acted in line with its lawyer’s advice but then not let the opposing party have access to that advice in discovery. In an effort to avoid an advice-of-counsel waiver, EIC argued that it was not relying on the substance of its attorney’s advice; instead, EIC argued that it was only pointing to the existence of its consultation with counsel as evidence of its good faith.

The special master recommended that the court reject that fine distinction, citing the decision in In re Valeant Pharmaceuticals for support. The special master asked, rhetorically: What if the advice of EIC’s in-house counsel was that VEI was entitled to coverage? Then, EIC’s consultation with counsel, combined with its denial of coverage, ultimately would have been an indication of bad faith rather than good faith. Further discovery of the substance of the attorney-client communication would be needed to determine the evidentiary import of the consultation with counsel; but, because EIC had not disclosed the substance of the advice, the special master barred EIC’s expert from testifying about the “involvement of counsel.”

As with an advice-of-counsel defense, misapprehension of the common-interest doctrine creates a risk of waiver of attorney-client privilege protection. In an earlier report and recommendation in the same case, the special master rejected the applicability of the common-interest doctrine because of the direct participation of clients in the communications at issue even though those clients were members of the common-interest pact.

While the Pennsylvania Supreme Court has never expressly endorsed the doctrine, common-interest agreements are regularly utilized, and lower courts and federal courts applying Pennsylvania law have consistently recognized the availability of common-interest protection.

However, what may not be as well recognized is that multiple courts have held that the common-interest doctrine only allows the lawyers representing the parties to the pact to communicate with each other without waiving the privilege. If a nonlawyer party or party representative directly participates in a common-interest meeting or communication, the privilege is waived and not saved by the common-interest doctrine. Therefore, if, for instance, D1 and D2 are parties to a common-interest agreement, and then the lawyers for each decide to hold a joint strategy session attended by D1 and his lawyer and D2 and her lawyer, the privilege will not apply to that meeting because the common-interest doctrine applies only to communications between/among the lawyers representing the members of the community of interest. Direct participation by the members themselves disqualifies the communication from common-interest protection.

While it remains to be seen if the Vitamin Energy court will adopt his recommendations, the special master’s analysis hits two important cautionary notes about the boundaries of attorney-client privilege protection.

Reprinted with permission from The Legal Intelligencer, © ALM Media Properties LLC. All rights reserved.