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Twin City Fire Insurance Company v. Burke2/18/2003
358, 909 P.2d 421, 425 (App. 1995).
DISCUSSION
The trial judge concluded the attorney-client privilege did not apply to the information General Star sought. But the motion to compel was aimed at forcing disclosure of communications between Twin City and its counsel about a matter for which Twin City sought legal advice. Clearly the privilege applies. See A.R.S. § 12-2234. Given the record and the judge's reference to Lee, the judge apparently believed that, in light of our holding in Lee, Twin City had waived the privilege. Because the record indicates there was no express waiver, the judge must have found an implied waiver, and we examine his ruling in that context. To determine the propriety of the judge's implicit finding that Twin City waived the attorney-client privilege, we must first review our decision in Lee.
Like the present case. Lee was a special action arising out of a bad faith claim. There. we established the standard for deciding whether the attorney-client "privilege has been waived in cases in which the mental state of a litigant is at issue." 199 Ariz. at 54 , 13 P.3d at 1171 . At issue in Lee was whether, given the state of the law at the time, State Farm acted in bad faith when it refused to pay policyholders' underinsured and uninsured motorist claims based on 'State Farm's interpretation of the "anti-stacking" provisions of its policies. In their class action against State Farm, the policyholders asserted there was no legal justification for State Farm's interpretation and resultant denial of their claims. The policy holders sought discovery of communications between State Farm and its counsel relating to State Farm's rejection of the claims. State Farm conceded it had obtained the advice of counsel in deciding whether to pay the policyholders' claims but denied that it would rely on that advice as a defense to the allegations of bad faith denial of the claims. Rather, it described its defense as merely an argument that its agents had acted reasonably in denying the claims because, given their knowledge of the existing law, they had objectively and subjectively concluded there was no legal obligation. Id. at 57 13, 13 P.3d at 1174 13. The trial judge "concluded that State Farm impliedly waived the privilege when it put at issue the subjective legal knowledge of its managers after they sought and received legal advice." Id. at 56 7, 13 P.3d at 1173 7 (emphasis deleted). We held that the trial judge had not committed legal error or abused his discretion by making these findings. We approved of the following test for determining when a party impliedly has waived the attorney-client privilege:
(1) assertion of the privilege was a result of some affirmative act, such as filing suit [or raising an affirmative defense], by the asserting party;
(2) through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case;and(3) application of the privilege would have denied the opposing party access to information vital to his defense. Id. at 56 10, 13 P.3d at 1173 (quoting Hearn v. Rhay, 68 F.R.D. 574, 581 (E.D. Wash. 1975)).
We also adopted the test set forth in RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 80(1), which provides, in relevant part, that:
The attorney-client privilege is waived for any relevant communication if the client asserts as to a material issue in a proceeding that:
(a) the client acted upon the advice of a lawyer or that the advice was otherwise relevant to the legal significance of the client's conduct.
Explaining further the application of these tests, we expressly rejected the not
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