Mr. Blue filed a personal injury action against Dow Corning Alabama; an employee of Dow Corning Alabama; Dow Corning Corporation, the parent company of Dow Corning Alabama; and an employee of Dow Corning Corporation (collectively, the "Dow defendants").

Mr. Blue sought compensatory and punitive damages from the Dow defendants.

The Dow defendants demanded that Alabama Electric, which had contractually agreed to indemnify Dow Corning Alabama, and Alabama Electric's insurance carrier, National Trust Insurance Company, Inc., provide them with a defense and indemnity in Mr. Blue's personal injury action.

That request, however, was denied.

Accordingly, the Dow defendants' own insurers, Zurich American Insurance Company and National Union Fire Insurance Company of Pittsburgh, Pennsylvania (together, the "Dow insurers"), provided a defense. In April 2014, after more than a year of litigation, the Dow defendants settled with Mr. Blue, and his personal injury action was dismissed.

Thereafter, Alabama Electric and National Trust sued the Dow defendants and the Dow insurers, seeking a judgment declaring that they were not responsible for the defense costs incurred by the Dow defendants in Mr. Blue's personal injury action or for the settlement proceeds paid to Mr. Blue; that is, they asserted that Alabama Electric was not required to indemnify the Dow defendants.

The Dow insurers counterclaimed, seeking contribution for the defense costs they had incurred and for the settlement funds they had paid to Mr. Blue.

In their declaratory judgment action, Alabama Electric and National Trust sought to depose representatives of Dow Corning Corporation and Dow Corning Alabama. The deposition notices stated that Alabama Electric and National Trust would seek testimony regarding Dow Corning Corporation's and Dow Corning Alabama's "decision to settle Mr. Blue's claims, including but not limited to [their] analysis of [their] liability for the claims asserted against [them] in the [personal injury action] and [their] analysis of the settlement value of Mr. Blue's claims."

Alabama Electric and National Trust also submitted deposition notices to the Dow insurers seeking similar testimony and, in addition, testimony regarding:

Reports, evaluations, and recommendations from defense counsel for the Dow defendants in the underlying action that relate to:

1. Facts

2. Liability

3. Injury

4. Damages

5. Analysis and recommendation on settlement/alternative dispute resolution

6. Potential outcomes for settlement and trial

7. Litigation plan and timeframe for completion

8. Budget

9. Liability and/or negligence of third parties.

The Dow defendants and the Dow insurers objected, asserting that the subpoenas called for the production of information protected by the attorney-client privilege and the work-product doctrine, and moved for a protective order.

In response, Alabama Electric and National Trust argued that, by seeking indemnity in Mr. Blue's personal injury action, the Dow defendants and the Dow insurers had waived those protections. Alabama Electric and National Trust asserted that reports, evaluations, and recommendations regarding liability exposure, potential verdict range, and settlement value in Mr. Blue's personal injury action, which typically would have been protected by the attorney-client privilege or the work-product doctrine, were relevant to establishing whether the settlement with Mr. Blue was reasonable and was made in good faith.

According to Alabama Electric and National Trust, the Dow parties, by seeking indemnity and putting the reasonableness and good faith of the settlement in issue, had waived the attorney-client privilege and the protection afforded by the work-product doctrine.

The trial court agreed and denied the motion for a protective order.

The dispute reached the Alabama Supreme Court.

The Alabama Supreme Court's Decision

The Supreme Court of Alabama directed the trial court to vacate its discovery order requiring disclosure of the requested information and to enter an appropriate protective order.

In its decision, the court first decided that the reasonableness and good faith of a settlement in the context of an indemnity claim were to be judged using an "objective standard."

The court then ruled that a party, by seeking indemnity and thereby placing the reasonableness and good faith of a settlement in issue, did "not waive the attorney-client privilege or the protection afforded by the work-product doctrine."

In the court's view, proving or disproving the objective reasonableness and good faith of the settlement in Mr. Blue's personal injury case did not require the production of attorney-client-privileged materials or materials protected by the work-product doctrine. Instead, the court continued, the filings, discovery, documentary evidence, witness testimony, nonprivileged correspondence, and other nonprivileged materials generated in connection with Mr. Blue's personal injury action could be used to evaluate the Dow defendants' potential liability to Mr. Blue and to prove or disprove whether the settlement was reasonable and whether it had been entered into in good faith.

Accordingly, the court ruled, although the Dow parties sought contribution from Alabama Electric and National Trust, thereby raising the issue of whether the settlement with Mr. Blue was a good faith, reasonable settlement, resolution of that issue did "not require information protected by the attorney-client privilege or the work-product doctrine." The issue, the court concluded, could be resolved by consideration of the nonprivileged materials generated in connection with Mr. Blue's personal injury action. Therefore, the Dow parties had not waived those protections by seeking indemnity.

The case is Ex parte Dow Corning Alabama, Inc., No. 1171118 (Ala. Nov. 27, 2019).