Colossus judge says USAA documents not privileged

By Michelle Massey, East Texas Bureau | Aug 7, 2008

Judge Kirk Johnson

TEXARKANA, Ark. – Plaintiffs in the Colossus class action won a small victory recently when Miller County Circuit Judge Kirk Johnson agreed that insurer USAA would have to make public inadvertently disclosed documents.

USAA claimed it did not intend to disclose privileged communications between USAA attorneys and employees when it attached documents as an exhibit on a sealed motion. But the plaintiffs argued that USAA waived attorney-client privilege under the crime-fraud exception.

The crime-fraud exception can render the attorney-client privilege moot when communications between an attorney and client are used to further a crime or fraud. The plaintiffs in the country's largest class action allege insurers committed fraud and conspiracy by using the Colossus software to manipulate personal injury claims.

Judge Johnson ruled in favor of the plaintiffs' motion, but did not rule on whether the crime-fraud exception applied.

Lead plaintiffs' attorney John Goodson filed the original class action complaint on Feb 7, 2005, against Computer Science Corporation's software Colossus, Insurance Services Office's software COA, Claim IQ Inc.'s software Injury IQ and those insurance companies which use that software.

The complaint alleges that the insurance companies that use these "cost containment" software programs are engaging in conspiracies to systematically undervalue bodily-injury claim settlements in an effort to profit at the expense of their insured.

The software companies and insurance companies describe the program as a way to provide consistent estimates of bodily-injury claims through the data inputs of insurance adjusters.

A hearing was held in May for a ruling on whether the accidentally produced USAA document should fall under the crime-fraud exception to the attorney-client privilege. Defendant USAA argued the privileged document was inadvertently disclosed and is not discoverable as it is protected communication.

The court privately reviewed the document and held that the document was protected. However, after the recent hearing, USAA attached the documents as an exhibit to a Sur-Reply.

Judge Johnson's recent order stated that the "disclosure of the document waived the privilege regardless of the protective order that was in place."

Johnson continues, "The court cannot protect the privilege when defendant purposefully did not avail itself of the necessary safe-guards to protect the attorney-client privilege."

The order also denied the defendants' oral argument that deciding on a crime-fraud exception to the attorney-client privilege is inquiring into the merits of the case.

A long held Arkansas rule on class action states, "the court may not inquire into the merits at the certification stage."

Regarding the issue, Judge Johnson wrote that he is not prohibited from "making evidentiary rulings that arise during the discovery process."

Due to Judge Johnson's finding that the defendant waived privilege, he wrote that it was not necessary to rule upon the crime-fraud exception.

The suit faults the defendants for civil conspiracy, breach of contract, unjust enrichment, fraudulent concealment, and the breach of the covenant of good faith and fair dealing.

Case No.: CV-2005-0059-3

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