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Ex parte Alfa Insurance Corp.

Supreme Court of Alabama

April 5, 2019

Ex parte Alfa Insurance Corporation et al.
v.
Alfa Insurance Corporation, Alfa Mutual General Insurance Corporation, Alfa Life Insurance Corporation, and Alfa Specialty Insurance Corporation In re: R.G. "Bubba" Howell, Jr., and M. Stuart "Chip" Jones

          PETITION FOR WRIT OF MANDAMUS Montgomery Circuit Court, CV-14-901893

          PER CURIAM

         Alfa Insurance Corporation, Alfa Mutual General Insurance Corporation, Alfa Life Insurance Corporation, and Alfa Specialty Insurance Corporation (hereinafter referred to collectively as "Alfa") petition this Court for a writ of mandamus requiring the Montgomery Circuit Court to vacate its May 23, 2018, orders (1) denying Alfa's motion for a protective order as to materials Alfa contends are protected by the attorney-client privilege and (2) compelling Alfa to produce such materials for in camera inspection and for discovery. We grant the petition and issue the writ.

         I. Facts and Procedural History

         The parties recently were before this Court regarding an earlier discovery order. In Ex parte Alfa Insurance Corp., [Ms. 1170077, April 6, 2018] __So. 3d__ (Ala. 2018) ("Alfa I"), Alfa sought mandamus review of a December 18, 2015, discovery order entered during the pendency of Alfa's appeal from the trial court's denial of Alfa's motion to compel arbitration, in which the trial court's judgment was affirmed, without an opinion, Alfa Ins. Corp. v. Howell (No. 1150151, Sept. 29, 2017) __So. 3d__ (Ala. 2017) (table). In Alfa I we summarized the pertinent factual background as follows:

"R.G. 'Bubba' Howell, Jr., and M. Stuart 'Chip' Jones were insurance agents for an Alfa insurance agency in Mississippi. Their agency agreements with Alfa included an arbitration provision, as well as a provision requiring Howell and Jones to purchase 'errors and omissions' insurance coverage.
"Howell and Jones purchased errors and omissions insurance policies from Alfa Mutual General Insurance Corporation ('the E&O policies'). The certificate of insurance for the E&O policies provided that Alfa, as the insurer, would
"'pay on behalf of the Individual Insured all sums in excess of deductible amount for which Individual Insured is legally obligated to pay as damages as a result of CLAIMS FIRST MADE AGAINST INDIVIDUAL INSURED DURING THE COVERAGE PERIOD by reason of acts, errors, or omissions in the performance of Professional Services by the Individual Insured, provided that such acts, errors, or omissions occurred (i) when acting on behalf of [Alfa] or with the specific consent of [Alfa], and (ii) during the Coverage Period.'
"(Capitalization in original.) The certificate also sets forth three 'key exclusions' to coverage under the E&O policies: '(1) Intentional, dishonest, fraudulent, etc., acts; (2) Commingling of funds; (3) Suits/claims by business enterprises owned by Individual Insured and not named on declarations.'
"In 2012, Alfa accused Howell and Jones of selling competing products in contravention of their agency agreements; Howell and Jones, however, alleged that their actions had been approved by Alfa. Regardless, Alfa forced Howell to resign his position as an Alfa agent on December 31, 2012, and discharged Jones on January 1, 2013.

         "Procedural History

"A. The First Arbitration Proceeding
"On March 27, 2013, Howell and Jones invoked the arbitration provision in their agency agreements by initiating separate arbitration proceedings against Alfa, seeking post-separation benefits and damages. On June 19, 2013, Alfa answered the complaints in arbitration and filed counterclaims against Howell and Jones alleging breach of contract, breach of fiduciary duty, fraudulent misrepresentation, suppression, and intentional interference with business relations.
"....
"On May 23, 2014, Howell and Jones submitted insurance claims under the E&O policies demanding that Alfa defend and/or indemnify costs to combat Alfa's counterclaims against them. On June 4, 2014, Alfa denied Howell's and Jones's insurance claims on the basis that[, among other reasons, Howell and Jones's conduct fell within the exclusions from coverage under their respective E&O policies]. On July 9, 2014, Alfa voluntarily dismissed its counterclaims against Howell and Jones without prejudice.[1]
"B. The State-Court Proceedings
"On November 13, 2014, Howell and Jones filed a complaint in the Montgomery Circuit Court asserting claims of breach of contract, bad faith, abuse of process, the tort of outrage, and conspiracy against Alfa. Howell and Jones alleged, among other things, that Alfa breached the E&O policies by refusing to provide them defense and/or indemnity coverage on the counterclaims and that Alfa had filed the counterclaims, which it knew were not covered under the E&O policies, in the arbitration proceedings for the purpose of causing Howell and Jones to incur thousands of dollars in unnecessary legal expenses.
"Along with their complaint, which they subsequently amended, Howell and Jones propounded discovery requests, including a request for admissions and a request for production of documents. ... They also submitted a notice of depositions, including a request for the depositions of Angela Cooner, Thomas Treadwell, Tom David, and Charles Elmore, all of whom were legal counsel for Alfa, as well as for '[o]utside legal counsel of [Alfa] who participated in or contributed to the drafting and filing of the counterclaims against [Howell and Jones] as dated June 19, 2013.'
"On December 9, 2014, Alfa filed a 'Response to Requests to Admit' in which it denied most of the requested admissions, but it also repeatedly stated that '[d]iscovery is ongoing and will be supplemented as permitted under the Alabama Rules of Civil Procedure, and any request for additional information not contemplated by Rule 36 will be responded to within the bounds of the Alabama Rules of Civil Procedure.'
"On May 6, 2015, Howell and Jones filed a motion to compel Alfa to answer and to respond to the first discovery requests filed on November 13, 2014. That same afternoon, Alfa filed its response and objection to the motion to compel discovery, as well as a motion for a protective order. Alfa argued that the matters, documents, and depositions requested by Howell and Jones were all protected by the attorney-client privilege. ...
"On August 13, 2015, the circuit court granted Howell and Jones's motion to compel discovery, giving Alfa three weeks (until September 3, 2015) to respond. ...
"....
"On September 3, 2015, Alfa filed a 'Motion to Compel Arbitration, Dismiss, and Stay Proceedings.' The motion to compel was based upon the arbitration provision in the agency agreements. Simultaneously, Alfa filed its answer to the complaint in which it noted that it was 'specifically reserving the right to arbitrate these matters pursuant to the requirements of the Independent Exclusive Agency Agreement in effect between the parties in accordance with the Motion to Compel Arbitration filed prior to this initial Answer.' On the same date, Alfa also filed an 'Objection to Discovery Request and Notice of Service of Discovery Documents' along with a privilege log listing items Alfa identified as protected by the attorney-client privilege and the work-product doctrine."

__So. 3d at __. Alfa's privilege log asserted that Alfa was providing, "in accordance with the Alabama Rules of Civil Procedure," "a description of the nature of the documents, communications, or things not produced sufficient to enable the Plaintiffs to ascertain the need, or absence thereof, to contest the claim of privilege or protection." See Rule 26(b)(6)(A), Ala. R. Civ. P. The privilege log provides the pertinent Bates stamp for various documents being withheld and some description of those documents (for example, the document bearing Bates stamp "0001-0003" is described as a "[l]etter transmitting Coverage Opinion from outside counsel, concerning coverage of ... Jones, Policy Certificate No. EO-104-57"). The privilege log also includes various general descriptions such as "[a]ny and all communications, of any kind whatsoever, by or between Alfa in-house counsel and any other outside counsel representing Alfa in this or related matters, pertaining in any way to the subject matter of the Plaintiffs' Complaint or Plaintiffs' First Amended Complaint, filed in this case."

This Court's opinion in Alfa I continues as follows:
"On October 30, 2015, the circuit court denied Alfa's motion to compel arbitration, to dismiss, and to stay the proceedings.
"On November 2, 2015, Howell and Jones propounded their first set of interrogatories to Alfa. They also submitted their second set of requests for production of documents to Alfa, in which they sought the following:
"'1. ... [E]ach document in the custody or control of Alfa that it relied upon when it authorized the filing of counterclaims in arbitration against Chip Jones and Bubba Howell.
"'2. ... [E]ach piece of correspondence and/or memo in the custody or control of Alfa that touches upon or concerns the counterclaims in arbitration against Chip Jones and Bubba Howell.
"'3. ... [E]ach document provided to Dennis Bailey[, an attorney with the law firm Rushton, Stakely, Johnston & Garrett, P.A., ] by Alfa as part of the coverage opinion sought from Dennis Bailey regarding the claims for defense and indemnity asserted by Chip Jones and Bubba Howell pursuant to the Alfa policies issued to them.
"'4. ... [E]ach piece of correspondence between Alfa and Dennis Bailey or the law office of Rushton Stakely concerning the claims for defense and indemnity asserted by Chip Jones and Bubba Howell pursuant to the Alfa policies issued to them. ...'[2]
"On November 3, 2015, Howell and Jones filed notices of intent to serve subpoenas on the law firms of Rushton, Stakely, Johnston & Garrett, P.A. ('Rushton Stakely'), and Jackson Lewis P.C. ('Jackson Lewis'). From Rushton Stakely, Howell and Jones sought '[a]ll file materials, correspondence, invoices, memorandum, and any document of any kind that concerns Chip Jones and/or Bubba Howell making a claim for coverage concerning a policy of insurance issued by Alfa. This includes any communication with Alfa, and/or the law office of Jackson Lewis and/or Gray & Associates, LLC.' From Jackson Lewis, Howell and Jones similarly sought '[a]ll file materials, correspondence, memorandum, and any document of any kind that concerns Chip Jones and/or Bubba Howell making a claim for coverage concerning a policy of insurance issued by Alfa. This includes any communication with Alfa, and/or Gray & Associates.' On November 6, 2015, Alfa filed motions to quash the nonparty subpoenas.
"On November 9, 2015, Alfa filed a notice of appeal challenging the denial of its motion to compel arbitration. Alfa Ins. Corp. v. Howell (No. 1150151).
"On November 11, 2015, Howell and Jones filed a second motion to compel production of the complete discovery files from Alfa, including the coverage-opinion letters received from Dennis Bailey, an attorney with Rushton Stakely, and all factual information provided to Bailey for coverage review. They also filed motions to compel issuance of the nonparty subpoenas to Rushton Stakely and Jackson Lewis."

Alfa I, __So. 3d at __. Howell and Jones's second motion to compel states:

"1. As this Court is aware, the plaintiffs have asserted claims of breach of contract and bad faith against the Alfa defendants. Bubba Howell and Chip Jones each had a policy of insurance with Alfa. Plaintiffs Howell and Jones submitted claims for defense and indemnity to Alfa. The Alfa defendants denied the claims for defense and indemnity.
"2. The plaintiffs have sought from the Alfa defendants in discovery the complete claim files for both Bubba Howell and Chip Jones.
"3. The Alfa defendants withheld from their production coverage opinion letters[3] received from Montgomery attorney Dennis Bailey and all factual information provided to Mr. Bailey for his coverage review. The Alfa defendants contend this information is protected.
"4. These materials predated the coverage denial letters issued to Bubba Howell and Chip Jones.
"5. In a case asserting breach of contract and bad faith, coverage letters provided by an attorney to an insurance carrier are discoverable. See Ex parte Nationwide Mut. Ins. Co., 990 So.2d 355 (Ala. 2008). This information is not protected.
"6. Additionally, factual information provided to an attorney as part of the coverage review is discoverable. See Ex parte Alfa Mutual Insurance Company, 631 So.2d 858 (Ala. 1993). This information is not protected."

(Some emphasis omitted.)

          "On November 12, 2015, Alfa filed in the circuit court a motion to stay all proceedings pending the appeal [in case no. 1150151, the no-opinion affirmance]. On December 8, 2015, the circuit court conducted oral argument on the motion to stay and the motions to compel discovery." Alfa I, __So. 3d at__ . At the December 8, 2015, oral argument, counsel for Alfa contended, in part:

"The question then is do the matters that have been noticed for subpoena, do they request items that are attorney-client privileged, and that was why Alfa filed its objection. The general rule is that an attorney cannot disclose the advice that he's given to his client. Certainly, that would seem to include coverage opinions, which is one of the primary items that the plaintiffs are seeking here.
"And, in fact, we've cited previously to Your Honor Ex parte Great American Surplus Lines Insurance Co., 540 So.2d 1357 (Ala. 1989). It basically stands for the principle that even coverage opinions are considered attorney-client privilege.
"The plaintiffs have cited ... Ex parte Nationwide [Mutual] Insurance Company, [990 So.2d 355 (Ala. 2008), ] which dealt in part with matters leading up to the denial of coverage by Nationwide Insurance Company. And part of the question there was whether communications by their internal counsel, general counsel for the company, were in any way attorney-client privileged. Nationwide had actually already provided the plaintiffs in that case with the opinion letters themselves. So there are several issues there that are distinguishable from what's actually going on here. We're talking about outside counsel who were retained to represent Alfa and the communications back and forth. And the subpoena that the plaintiffs have sought to issue deal specifically -- they actually specifically request communications between Alfa and their counsel.
"So, you know, there's not a question here about whether or not they are seeking attorney-client privileged materials. The very issue, the very matters, they are seeking are by definition attorney-client privileged materials."

         Howell and Jones's counsel responded to Alfa's argument as follows:

"When Alfa received [Howell and Jones's] claim, it was assigned to the head of the claims department. When we got the claim file, there was a letter produced to us by Dennis Bailey, a Montgomery attorney. And it was represented that Mr. Bailey had given Alfa .... Mr. Bailey was hired to give a coverage opinion. Well, [counsel for Alfa] contacted us and said we produced that letter to you inadvertently. We ask that you not read it.
"I will say, Your Honor, I have not read that letter. I do know it's from Mr. Bailey because that was the subject that was discussed. But even today, I have not read that letter.
"Alfa maintains that letter is protected by the attorney-client privilege and the work-product doctrine. We disagree with that.[4]
"Here's our basis. Okay. And, look, we know not to ask for attorney-client information. I mean, we've heard about that for a long time.
"What happens when an insurance company hires a lawyer to give a coverage opinion, the facts that that lawyer receives to do the coverage opinion and then the coverage opinion itself, they are not subject to the attorney-client privilege. In this case, Alfa denied our clients' claims for defense and indemnification in part based upon the coverage opinion that was issued to it by Mr. Bailey. So ...

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