Ghio v. Liberty Ins. Underwriters, Inc.

212 Conn.App. 754

276 A.3d 984

William GHIO

v.LIBERTY INSURANCE UNDERWRITERS, INC.

AC 44127

Appellate Court of Connecticut.

Argued December 2, 2021

Officially released May 31, 2022

Proloy K. Das, Hartford, with whom were Erik H. Beard, and, on the brief, Kevin W. Munn and Rachel Snow Kindseth, New Haven, for the plaintiffs in error (Paul Pendergast et al.).

Ronald P. Schiller, pro hac vice, with whom were Bonnie M. Hoffman, pro hac vice, and Elizabeth M. Cristofaro, for the defendant in error (Liberty Insurance Underwriters, Inc.).

Bright, C. J., and Alexander and Bishop, Js.

BRIGHT, C. J.

With this writ of error, the plaintiffs in error, Paul Pendergast, J. Reid Gorman, Carlos Silva, and Charles Cox (insureds), challenge a discovery order issued in the underlying action, which was brought by William Ghio and Janet Ghio (collectively, the Ghios) against the defendant in error, Liberty Insurance Underwriters, Inc. (Liberty).¹ In a prior action, the Ghios settled their claims against the insureds and brought the underlying action against Liberty, which had issued an insurance policy to the insureds. Relevant to this writ of error, in the underlying action the Ghios sought the production of all communications between Liberty and the attorney who represented the insureds in the prior action, and the insureds instructed Liberty as to which of those communications to withhold as protected by the attorney-client privilege. Liberty, wishing to use certain of the designated privileged documents to defend itself in the underlying action, claimed that the insureds waived the privilege as to all communications concerning the merits of the Ghios’ claims by selectively disclosing to the Ghios privileged communications on that subject. The trial court agreed and found that the insureds had waived the privilege as to all communications concerning the merits of the Ghios’ claims, clearing the way for Liberty to use those communications in the underlying action.

In this writ of error, the insureds claim that the court improperly concluded that they waived the attorney-client privilege because (1) the communications were produced pursuant to a court order, (2) Liberty had a duty to preserve the privilege and, therefore, could not have waived the insureds’ privilege by producing the communications, and (3) the court abused its discretion in finding that the privilege was waived without holding an evidentiary hearing or reviewing the relevant communications. We agree with the insureds’ final claim and, accordingly, grant the writ of error and remand the case for an evidentiary hearing.

The record reveals the following facts and procedural history. The Ghios invested in the insureds’ company, Back9 Network, Inc. (Back9), which owned an insurance policy issued by Liberty providing liability coverage for Back9 and its directors and officers (policy). In 2015, the Ghios brought an action against Back9 and the insureds, asserting claims related to their investment in Back9. Attorney Joshua Berman represented the insureds, and Liberty, pursuant to the policy, paid the insureds’ costs of defending against the Ghios’ claims.

In October, 2018, shortly before the scheduled trial, Attorney R. Stacy Lane, Liberty's coverage counsel, notified Berman that Liberty denied that the policy provided coverage for any judgment in the Ghios’ action. After receiving Lane's letter, the insureds and the Ghios entered into a stipulated judgment agreeing that judgment would enter for the Ghios in the amount of $1,901,056 and that the Ghios would seek to enforce the judgment against Liberty only. The court, Graham, J. , rendered judgment in accordance with the parties’ agreement. Pursuant to the judgment, the insureds assigned their rights under the policy to the Ghios and directed Berman to provide the Ghios with copies of all communications with Liberty regarding coverage under the policy, redacted as necessary to protect any applicable privilege.

In December, 2018, the Ghios brought the underlying action against Liberty² pursuant to General Statutes § 38a-321.³ In their three count amended complaint, the Ghios sought to enforce the stipulated judgment and alleged that Liberty had acted in bad faith and violated the Connecticut Unfair Insurance Practices Act, General Statutes § 38a-815 et seq. Liberty filed an answer and special defenses, as well as a counterclaim seeking a declaratory judgment that it does not have an obligation to pay the judgment against the insureds.

During discovery, the Ghios served on Liberty a request for production, seeking all communications between Liberty and Berman regarding the prior action against the insureds. After consulting with the insureds, Liberty informed the Ghios that the insureds claimed that the responsive documents in Liberty's possession were protected by the attorney-client privilege. On August 6, 2019, after a discovery conference, the court, Moukawsher, J. , ordered Liberty to produce all communications between Liberty and Berman that are statements of fact or relate to the issue of insurance coverage. Thereafter, the insureds reviewed the relevant documents, redacted portions of those documents, and instructed Liberty as to which documents to withhold entirely. Liberty complied with the insureds’ instruction and provided the documents and a privilege log to the Ghios.

On November 25, 2019, the Ghios moved for summary judgment on the first count of their amended complaint seeking to enforce the stipulated judgment. In that motion, the Ghios relied on certain privileged communications between Berman and Lane in support of their argument that the settlement was reasonable. As acknowledged by the insureds in their brief to this court, Berman disclosed three of those communications to the Ghios pursuant to the stipulated judgment in the prior action. In a February 7, 2020 e-mail, Attorney Bonnie Hoffman, counsel for Liberty, notified the insureds that Liberty would seek the court's permission to produce and disclose all communications between Berman and Liberty regarding the merits of the Ghios’ claims in the prior action because the insureds had waived the attorney-client privilege by producing some communications on the same subject. Hoffman claimed that Liberty was entitled to use these communications to defend itself in the underlying action because the Ghios had relied on some of Berman's communications regarding the merits of the prior action in their motion for summary judgment. In response, Attorney Erik Beard, counsel for the insureds, requested that Hoffman identify the specific documents that she asserted constituted waiver of the privilege, and Hoffman identified six documents, two of which had been included in the Ghios’ motion for summary judgment.

At a March 6, 2020 hearing, the court heard argument on several matters, including the Ghios’ motion to strike Liberty's counterclaim and the privilege issue. At the outset of the hearing, the Ghios’ attorney noted that the court had a limited amount of time because it was presiding over a trial that morning, and the court proceeded to hear the parties on the motion to strike. Before turning to the claimed waiver of the attorney-client privilege, the court stated, "Let's try to move as quickly as we can because I'm running short of time." Attorney Ronald P. Schiller, counsel for Liberty, proceeded to argue that the privilege had been waived because the insureds disclosed some of Berman's communications with Liberty regarding the merits of the Ghios’ claims in the prior action but claimed that other communications on the same subject were privileged. In addition, Schiller claimed that Berman's communications regarding the merits of the Ghios’ claims in the prior action had been put at issue in the underlying action because the Ghios are "saying [Liberty was] unreasonable and they're relying on Berman's communications that he did share with them. And so, yes, it bleeds into the waiver issue, but it also bleeds into what they're relying on, Your Honor ...."

On behalf of the insureds, Beard denied that any waiver occurred and claimed that the only documents identified by Liberty as constituting waiver "were documents relating to coverage issues, exclusively. They were the back and forth in October, 2018, between Liberty ... and Attorney Berman about the declination of coverage letters and the positions that were taken." The court then engaged in the following exchange with Schiller and Beard:

"The Court: Okay, can I stop you right there so that we can see—is there a perfect example in terms of the document—

"[Schiller]: Yes.

"The Court: —of what you claim Berman did to waive the privilege?

"[Schiller]: Yes.

"The Court: Just give me a document and tell me what it says.

"[Schiller]: Yes, Your Honor, and I have a notebook where we have the documents at issue, and it's not just the six ....

"The Court: Well, I just want one.

"[Schiller]: Okay.

"The Court: Can you ... just give me your very best one that would say Berman provided ... a document that shows his advice and it—and it opens the door?

"[Schiller]: Okay. And to be clear, this is post Beard's redacting and what he redacted were sometimes things that were just critical of judges or critical of [the Ghios’ attorney]. They were—they did not go to the merits ....

"[A]nd I don't have a Bates number, so I'm going to give you the e-mail date and time.

"The Court: Yeah just tell me what it says. That's what I'm more interested in.

"[Schiller]: Okay. It's Joshua Berman to Eileen Leviton. She's at Liberty LIU, dated September 26, 2017: ‘It pains me to offer [the Ghios] a single red cent in response to their extortionate and unsupportable legal claim.’ There's a reference to the demand. ‘The guy has no case and is making offers like this,’ referring to a demand from [the Ghios’ attorney].

"The Court: All right. I—that's enough.

"[Schiller]: ‘The offer should be a nonstarter.’

"The Court: I—I heard it.

"[Beard]: Two—two things,...