Funding the defense doesn’t make you a co-client entitled to see all of the privileged documents in a case, a federal judge has ruled, interpreting unsettled Pennsylvania law over which federal and state courts have been split.

Camico Mutual Insurance Co. can’t claim the “common interest” or “co-client” exception to attorney-client privilege in its bid to get documents from Heffler, Radetich & Saitta, a company it insures, in order to support its case that it is responsible for only up to $100,000 in Heffler’s legal defense in another case, the court ruled.

Since the Pennsylvania Supreme Court hasn’t addressed the issue, the U.S. District Court for the Eastern District of Pennsylvania was left to predict what the state’s high court is likely to decide. The Eastern District of Pennsylvania’s sister courts have ruled both ways.

Leaning on a Superior Court opinion, a decision of the U.S. Court of Appeals for the Third Circuit, and the Restatement (Third) of the Law Governing Lawyers, U.S. District Judge Jan E. DuBois decided that an insurance company that funds the defense of a company it insures isn’t necessarily a co-client who would be entitled to see all of the documents in a case simply by virtue of having paid for the attorney.

Although he found that there is no absolute rule governing the extent of the relationship between an insurer and its insured for the purposes of attaching attorney-client privilege, DuBois held that in this case, Camico Mutual Insurance is not entitled to co-client status.

“Heffler presented evidence which establishes that no joint representation occurred in this case,” DuBois said. “Notably, Heffler independently retained the [Conrad] O’Brien firm in 2008 in litigation connected to its employee’s misconduct.”

The law firm of Conrad O’Brien defended Heffler, which administers class-action settlement funds, in a suit brought by a class member alleging that a Heffler employee had misappropriated proceeds from a settlement fund, according to the opinion in Camico Mutual Insurance v. Heffler, Radetich & Saitta.

Under the terms of its coverage for Heffler, Camico has been paying for the defense in that case, according to the opinion. It is seeking a declaratory judgment from the court that it is obligated to pay only up to $100,000 and asked the court to compel Heffler to produce documents related to the underlying case.

Camico agreed that those documents are subject to attorney-client privilege, but argued that it shares a common interest with Heffler, which means that it, too, is a party to the privileged papers.

The judge wasn’t convinced.

In examining this unsettled area of law, DuBois relied heavily on a 2007 opinion from the Third Circuit captioned In re Teleglobe Communications.

Although that opinion dealt primarily with the application of Delaware law, “‘its discussion of the common-interest doctrine was not so limited,’” DuBois said, quoting from the U.S. District Court for the District of New Jersey’s 2011 opinion in Hoffmann-La Roche v. Roxane Laboratories.

“‘In fact, Teleglobe has been cited by courts around the country as a leading opinion on the common-interest doctrine,’” that opinion said.

Teleglobe fractured the issue into two separate exceptions: common interest and co-client.

The first applies when clients retain separate counsel, but share information in order to further their common legal interest, according to the opinion. That exception clearly doesn’t apply, the court held.

The second exception applies when clients share the same lawyer. Camico argued that Conrad O’Brien was representing the joint interests of itself and Heffler in the underlying action, so documents from that case should be open to both companies.

“There are two ways by which Camico may be considered a co-client with Heffler,” DuBois said. “First, the parties would be co-clients if, by virtue of an absolute rule, insured and insurer are always considered co-clients whenever the insurer pays for the defense of the insured. Second, even if an absolute rule does not apply, the parties may be co-clients if the facts of the case demonstrate that a joint representation occurred.”

It is on the first question that the courts have split.

DuBois looked to the Pennsylvania Superior Court’s 2011 opinion in Eckman v. Erie Insurance Exchange to find that no co-client relationship necessarily exists when an insurance company pays for its insured’s lawyer. That opinion cited the Pennsylvania Rules of Professional Conduct, which notes that lawyers are often paid by a third party, whether it is a relative or friend of the client or an insurance company, and that doesn’t necessarily mean that the payor is a co-client.

Similarly, DuBois quoted from the Restatement (Third) of the Law Governing Lawyers, saying, “‘The insurer is not, simply by the fact that it designates the lawyer, a client of the lawyer.’”

Holding that there is no absolute rule as to whether or not insurer and insured are necessarily bound as co-clients for the purposes of attorney-client privilege, DuBois said, “The court concludes, in line with Eckman, the Restatement (Third) of the Law Governing Lawyers and Teleglobe, that where an insurer funds the defense of its insured, the insurer may be, but is not always, a co-client of the insured.”

As for the facts specific to this case, DuBois held that Camico hadn’t given sufficient evidence to support its claim that it had participated in the defense of the underlying action from the start.

“Camico asserts that it shares a ‘joint interest’ with Heffler regarding the outcome of the [underlying] action,” DuBois said. “The court concludes that such a shared interest, without more, does not create a co-client relationship.”

Joseph Monahan of Saul Ewing in Philadelphia represented Camico and declined to comment.

Lee Epstein of Flaster Greenberg in Philadelphia represented Heffler and couldn’t be reached for comment.

Saranac Hale Spencer can be contacted at 215-557-2449 or Follow her on Twitter @SSpencerTLI.

(Copies of the 10-page opinion in Camico Mutual Insurance v. Heffler, Radetich & Saitta, PICS No. 13-0261, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •