Opinion ID: 1415749
Heading Depth: 2
Heading Rank: 1

Heading: Bad Faith Action Premised on Post-litigation Conduct is an Exception to the Litigation Privilege

Text: The parties did not brief the issue of litigation privilege as a defense to post-litigation misconduct that is attributed to an insurer. However, I believe this is an issue that was implicitly decided by the majority opinion. Under the litigation privilege, `[a]ny communication, oral or written, uttered or published in the due course of a judicial proceeding is ... privileged and cannot constitute the basis of a civil action[.]' Jenevein v. Friedman, 114 S.W.3d 743, 745 (Tex.App.2003) quoting Reagan v. Guardian Life Ins. Co., 140 Tex. 105, 166 S.W.2d 909, 912 (1942). See also Collins v. Red Roof Inns, Inc., 211 W.Va. 458, 461-66, 566 S.E.2d 595, 598-603 (2002) (discussing litigation privilege). This privilege extends to any statement made by the judge, jurors, counsel, parties or witnesses, and attaches to all aspects of the proceedings, including statements made in open court, pre-trial hearings, depositions, affidavits and any of the pleadings or other papers in the case. James v. Brown, 637 S.W.2d 914, 917-18 (Tex.1982). The public policies associated with the litigation privilege include: (1) promoting the candid, objective and undistorted disclosure of evidence; (2) placing the burden of testing the evidence upon the litigants during trial; (3) avoiding the chilling effect resulting from the threat of subsequent litigation; (4) reinforcing the finality of judgments; (5) limiting collateral attacks upon judgments; (6) promoting zealous advocacy; (7) discouraging abusive litigation practices; and (8) encouraging settlement. Matsuura v. E.I. du Pont de Nemours & Co., 102 Hawai'i 149, 73 P.3d 687, 693 (2003). [T]he litigation privilege extends beyond claims of defamation to claims of abuse of process, intentional infliction of emotional distress, negligent misrepresentation, invasion of privacy, ... and ... interference with contract and prospective economic advantage. Pacific Gas & Elec. Co. v. Bear Stearns & Co., 50 Cal.3d 1118, 1132, 270 Cal.Rptr. 1, 791 P.2d 587 (1990) (citation omitted). But see Baglini v. Lauletta, 338 N.J.Super. 282, 768 A.2d 825, 833-34 (2001) (The one tort excepted from the reach of the litigation privilege is malicious prosecution, or malicious use of process.). The application of the litigation privilege to a bad faith action against an insurer was squarely addressed by the Arizona appellate court in Tucson Airport Authority v. Certain Underwriters at Lloyd's, London, 186 Ariz. 45, 918 P.2d 1063 (1996). In Tucson Airport, a class action was filed against the insured for harm caused when it released a toxic chemical into groundwater. [2] The insured subsequently filed a declaratory judgment action against its insurers to determine coverage in the underlying action. During the course of the litigation in the declaratory judgment action, the insured amended its complaint to state a bad faith claim against the insurers for engaging in misconduct during the declaratory judgment action. The insurers moved to dismiss, arguing that the alleged misconduct did not constitute bad faith and that, if it did, it was absolutely privileged under Arizona law. Tucson Airport, 918 P.2d at 1065. The trial court granted the motion and dismissed the bad faith claim. On appeal, the court of appeals found that the litigation privilege did not bar the bad faith claim. The appellate court reasoned as follows: The insurers ... contend that even if the [insured's] complaint stated a cause of action, the claim is based on privileged statements made during pending coverage actions by the insurers' counsel. Whether the defense of privilege exists is a question of law. Assuming, without deciding, the privilege even applies in bad faith proceedings, we conclude it does not apply in the circumstances of this case. We are persuaded by the reasoning of the California Supreme Court in White v. Western Title Ins. Co., 40 Cal.3d 870, 221 Cal.Rptr. 509, 710 P.2d 309 (1985). There, the court recognized the difference between a bad faith claim based squarely on a privileged communication, such as an action for defamation, and one based upon an underlying course of conduct evidenced by the communication. Id. at 888, 221 Cal.Rptr. at 518, 710 P.2d at 318. Applying that distinction, the litigation privilege would preclude the former action but would not bar evidence of the communications to prove the latter. The White court noted that it is not unusual for an insurance company to provide policy benefits, such as the defense of litigation, while itself instituting suit to determine whether and to what extent it must provide those benefits. It could not reasonably be argued under such circumstances either that the insurer no longer owes any contractual duties to the insured, or that it need not perform those duties fairly and in good faith. Id. at 885-86, 221 Cal.Rptr. at 517, 710 P.2d at 317. The gravamen of [the insured's] bad faith claim is not a communication, but a course of wrongful and tortious conduct evidenced by the insurers' actions and communications during the coverage action[ ]. Furthermore, [the insured's] claim does not assail a pleading but instead alleges that its insurers followed a course of conduct in which they failed to perform their duties fairly and in good faith. To be sure, the insurers in this case ... do not contend that the filing of the coverage action[ ] erased their duties of good faith and fair dealing. The duties nonetheless would be rendered meaningless if, as we understand these insurers to argue, the litigation privilege could be employed to excuse a breach of those duties, which occurs as part of the conduct of a coverage action. We hold, therefore, that in the circumstances presented in this case, [the insured] sufficiently pled a bad faith claim that is based on unprivileged conduct by its insurers. Accordingly, the trial court erred by dismissing [the insured's] bad faith claim in its second amended complaint. Tucson Airport, 918 P.2d at 1066. See also Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone, 107 Cal.App.4th 54, 78, 131 Cal.Rptr.2d 777 (2003) ([T]he litigation privilege does not shield LaBelle from liability for fraud.); Matsuura, 73 P.3d at 694 (holding that litigation privilege does not limit[ ] liability in a subsequent proceeding where there is an allegation of fraud committed in the prior proceeding). As I have indicated, the majority decision in the instant case implicitly found that, for the exclusive purpose of a bad faith action, there is no litigation privilege defense to misconduct occurring in an underlying claim.