dissenting.
I respectfully dissent from the majority's opinion as to the issue raised by Allstate.
I agree with the majority's pronouncement of the applicable law, but I disagree with the majority's application of the law to Allstate and would distinguish an affirmative defense that a plaintiff's claim is "fairly debatable" when referring to a factual issue from an affirmative defense that a plaintiff's claim is "fairly debatable" as to a legal issue.
When an insurer asserts that a claim is "fairly debatable" to indicate a factual issue affects the claim's strength or legitimacy, it does not necessarily rely on the advice of counsel and therefore does not necessarily waive the attorney-client privilege. Such factual issues would arise, for example, when the policy is clear but coverage is not clear because of an issue as to whether a person lives in the same home as the insured, whether the insured was speeding, or the severity of an injury.
Alternatively, when an insurer asserts that a claim is "fairly debatable" refers to a legal issue, it necessarily relies on advice of counsel and waives the attorney-client privilege. Such legal issues would arise, for example, when the "fairly debatable" issue involves contract interpretation, whether the policy covers claims for negligent infliction of emotional distress, or whether a policy's per-person limit restricts coverage. The Delaware Supreme Court has held: "Where ... an insurer makes factual assertions in defense of a claim which incorporate, expressly or implicitly, the advice and judgment of its counsel, it cannot deny an opposing party an opportunity to uncover the foundation for those assertions in order to contradict them." Tackett v. State Farm Fire & Cas. Ins. Co., 653 A.2d 254, 259 (Del.1995) (citation omitted).
This application of the law would not undermine the key policy concerns the majority identifies: balancing of parties rights, attorney-client privilege protection, and the truth-seeking function of the courts. Rather, insurers might more clearly indicate when they have relied on an attorney's legal conclusion to deny coverage-and therefore put an attorney's advice at issue to waive the attorney-client privilege-and alternatively when they have not relied on the advice of counsel but determined that the facts of a particular case led to denial of coverage. In future cases this application of the law might clarify the substantive issues in dispute and when the attorney-client privilege is waived.
Here, Allstate's affirmative defense refers to a legal issue: whether the policy's per-person liability limit precluded Mr. Goad from recovering damages. The record reveals Allstate's "fairly debatable" affirmative defense refers to this legal uncertainty, not a factual uncertainty. The policy's per-person limit was the central issue in Alistate's declaratory action in the federal district court. See Allstate Ins. Co. v. Clancy, No. 2:03 CV 428, 2005 WL 5949755 (N.D.Ind. March 23, 2005). In a separate pleading, Allstate cited the federal district court's ruling, quoting the following:
[To the extent that Mr. Goad asserts a claim for emotional harm arising from witnessing the personal injuries sustained by his wife Dianna, such a claim is subject to the same per-person limit of liability under the Allstate policy as the per-person limit applicable to the claim of Dianna Goad for her bodily injury.
Appellant's Appendix at 81 (emphasis and citation omitted). Allstate also asserted:
*281To the extent that Mr. Goad's emotional harm arose from an impact of bodily injury sustained by him and not from witnessing the personal injuries sustained by his wife Dianna, the Allstate policy of insurance would provide for a per-person limit of liability separate from the limit applicable to Dianna Goad's claim.
Id. Perhaps more importantly, in the trial court hearing following the federal court's ruling, Allstate repeatedly indicated that this affirmative defense and the "fairly debatable" phrase in particular referred to the legal issue of whether Mr. Goad would be covered under the policy's per-person limit. At no point in the trial court hearing did Allstate expressly or implicitly indicate that the "fairly debatable" phrase referred to a factual uncertainty or dispute.
This case should not be confused with cases the majority cites from other jurisdictions where courts have concluded that an insurer's challenge to a claim as "fairly debatable" did not necessarily give rise to a bad-faith tort claims regardless of whether "fairly debatable" referred to fact or law. E.g., Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468 (Iowa 2005); Dakota, Minn. & E. R.R. Corp. v. Acuity, 771 N.W.2d 623 (S.D.2009); see also Seastrom v. Farm Bureau Life Ins. Co., 601 N.W.2d 339, 346 (Iowa 1999) (same); Imperial Cas. & Indem. Co. v. Bellini, 746 A.2d 130, 134 (R.I.2000) (same). Those cases determined the effectiveness of the "fairly debatable" defense to a bad-faith claim; this case addresses how a "fairly debatable" defense to a bad-faith claim could affect an insurer's attorney-client privilege. Similarly, our decision of Hart ford Financial Services Group, Inc. v. Lake County Park and Recreation Board, 717 N.E.2d 1232 (Ind.Ct.App.1999), addresses the scope of the attorney-client privilege in first-party-insurer bad-faith cases, which is a different issue than the one now before us. The Hartford opinion distinguished itself from several other cases. The case now before us more closely resembles those cases on the facts and issues that Hartford distinguished them than it does Hartford. See Blockbuster Entm't Corp. v. McComb Video, Inc., 145 F.R.D. 402 (M.D.La.1992); Silva v. Fire Ins. Exch., 112 F.R.D. 699 (D.Mont.1986); Colbert v. Home Indem. Co., 45 Misc.2d 1093, 259 N.Y.S.2d 36 (N.Y.Sup.Ct.1965).
Based on the reasoning above and the facts in the record, I would conclude that Allstate's affirmative defense that Mr. Goad's coverage was "fairly debatable" necessarily referred to advice of counsel, thereby waiving Allstate's attorney-client privilege.