attorney-client privilege in insurance disputes: preserving...
TRANSCRIPT
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Presenting a live 90-minute webinar with interactive Q&A
Attorney-Client Privilege in Insurance
Disputes: Preserving Confidentiality
and Meeting Legal Ethics Standards Addressing Waiver and Exceptions to the Privilege, the Tripartite Relationship,
and the Role of Counsel in Claims Handling and Litigation
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
TUESDAY, JUNE 14, 2016
Louis A. Chiafullo, Partner, McCarter & English, Newark, N.J.
Robin Ann Williams, Shareholder, Bassford Remele, Minneapolis
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Application of the Attorney-Client Privilege in Insurance
Defense and in Insurance Coverage Disputes
Louis A. Chiafullo, Esq.
McCarter & English, LLP
Newark, NJ
Robin Ann Williams, Esq.
Bassford Remele
Minneapolis, MN
Attorney-Client Privilege – the Basics
6
♦ Evidentiary privileges are created by statute and courts are generally
powerless to carve out exceptions or create new ones.
♦ The attorney-client privilege has been described as the “oldest rule of
privilege known to the common law.” Upjohn Co. v. United States, 449 U.S.
383 (1981), citing Wigmore, Evidence in Trials at Common Law §2290
(McNaughton Rev. 4th ed. 1961).
♦ For privilege to attach there must first be an attorney-client relationship,
and it only protects confidential communications that are made for the
purpose of obtaining or providing legal advice.
Privilege Defined
Privilege attaches where:
♦ 1) legal advice of any kind is sought;
♦ 2) from a professional legal advisor in his capacity as such;
♦ 3) the communication relates to that purpose; and
♦ 4) the communication is made in confidence.
♦ United States v. Evans, 113 F.3d 1457, 1461 (7th Cir. 1997) (citing Wigmore,
Evidence in Trial at Common Law §2290 (McNaughton Rev. 4th ed. 1961).)
7
Privilege—the Basics
♦ Privilege protection extends only to communications, not facts.
♦ Upjohn Co. v. United States, 449 U.S. 383, 396 (1981).
8
State Law Governs Scope of Privilege in
Federal Diversity Cases
♦ Rule 501 of the Federal Rules of Evidence provides that evidentiary
privileges are “governed by the principles of the common law as they may
be interpreted by the courts of the United States in light of reason and
experience. However, in civil actions and proceedings, with respect to an
element of a claim or defense as to which State law supplies the rule of
decision, the privilege of a witness, person, government, State or political
subdivision thereof shall be determined in accordance with State law.”
♦ See First Pacific Networks Inc. v. Atlantic Mut. Ins. Co., 163 F.R.D. 574, 577
(N.D. Cal. 1995) (A federal court exercising diversity jurisdiction applies
California law to issues relating to the attorney-client privilege.)
9
Who is the “Client” for Purposes of Privilege?
♦ The seminal case which defines who the corporate “client” is for purposes
of the attorney client privilege is Upjohn Co. v. United States, 449 U.S. 383
(1981).
♦ In Upjohn, the U. S. Supreme Court rejected the “control group” test, which
limited privilege protection to officers and agents responsible for directing
the company’s actions, in favor of a broader application of privilege,
extending to mid-level and lower level employees—all those who have
relevant information needed by the attorney to adequately advise the client.
10
Is Disclosure Reasonably Necessary to Further
the Purpose of the Legal Consultation?
♦ While the Court in Upjohn attempted to create a uniform rule that reflects
the reality of corporate litigation, the case has not made application of
privilege in the insurance context more predictable. Whether privilege
attaches in the corporate context continues to be decided on a case by case
basis.
♦ See, e.g., Zurich American Ins. Co. v. Superior Court, 155 Cal. App. 4th 1485 (Cal.
Ct. App. 2007) (remanding on the issue of whether corporate employees
fall within the scope of the attorney-client privilege, on a “need to know”
basis).
11
Who Owns the Attorney-Client Privilege? Who
Can Waive It?
♦ Determined by state law in diversity cases.
12
Who Owns Privilege Where Corporation No
Longer Exists?
♦ An April 2013, California Court of Appeal decision has addressed the issue
of who owns the privilege where a corporation no longer exists.
– Melendrez v. Superior Court, 215 Cal. App. 4th 1343 (Cal. Ct. App. 2013).
Where a corporation no longer exists and the court is unable to appoint
a director or officer to verify discovery, “we believe that the
corporation’s attorney-client privilege would be passed to its insurers,
the de facto assignee of its policies and the claims against them.”
13
Scope of Waiver of Attorney-Client Privilege
Also Governed by State Law
♦ Garcia v. Progressive Choice Insurance Co., 2012 U.S. Dist. LEXIS 105932 (S.D.
Cal. July 30, 2012) (Because attorney-client privilege is governed by state
law in diversity cases, California controlled the scope of waiver of the
privilege. California law narrowly construes any waiver of privilege and does
not recognize “subject matter” waiver.)
♦ Employers Ins. of Wausau v. California Water Service Co., 2007 U.S. Dist. LEXIS
77363 (N.D. Cal. Oct. 9, 2007) (applying California’s narrow view of
privilege waiver to find privilege was not waived)
14
Work Product Doctrine
Under FRCP Rule 26(b)(3)(B)
♦ In cases of diversity jurisdiction, federal courts will apply state law to
questions of attorney-client privilege. Work product protection in federal
diversity cases, on the other hand, is governed by F.R.C.P. 26(b)(3).
♦ But see, Ward v. Equilon Enterprises, 2011 U.S. Dist. LEXIS 75451 (N.D. Cal.
July 13, 2011) (“Because the work product doctrine is a statutory privilege
under California law, work product materials are not automatically
discoverable under Rule 26(b)(1).”)
15
Scope of Work Product Protection
♦ F.R.C.P. 26(b)(3) provides that a party is not entitled to discovery of
“documents and tangible things that are prepared in anticipation of
litigation or for trial by or for another party or its representative” unless a
showing of substantial need and lack of undue hardship is made.
♦ “The work-product doctrine is a qualified immunity which protects from
discovery documents and tangible things prepared by a party or that party’s
representative in anticipation of litigation. …The party claiming the work-
product privilege bears the burden of establishing that documents claimed
as work product were prepared in anticipation of litigation.” (Kintera Inc. v.
Convio, 219 F.R.D. 503, 507 (S.D. Cal. 2003)).
16
Fact versus Opinion Work Product
♦ Fact Work-Product—qualified immunity.
– “Fact work-product consists of factual material that is prepared in anticipation of litigation or trial. In determining whether documents were prepared in anticipation of litigation, the court should consider whether the documents ‘would have been generated but for the pendency or imminence of litigation.’” (Kintera, Inc. v. Convio, 219 F.R.D. 503, 507 (S.D. Cal. 2003), quoting Griffith v. Davis, 161 F.R.D. 687, 698-99 (C.D. Cal. 1995)).
17
Work Product Re Witness Interviews
♦ Coito v. Superior Court, 54 Cal.4th 480 (Cal. 2012). Recorded witness
statements are entitled as a matter of law to at least qualified work product
protection and may be entitled to absolute protection if proponent of
privilege can show that disclosure would reveal its “attorney’s impressions,
conclusions, opinions, or legal research or theories.”
♦ As to identity of witnesses from whom counsel has obtained statements,
such information is not automatically entitled to absolute or qualified
protection. In order to invoke the privilege, defendant must persuade the
court that disclosure would reveal attorney’s tactics, impressions or
evaluation of the case (absolute privilege) or would result in opposing
counsel taking undue advantage of attorney’s industry or efforts (qualified
privilege).
18
Fact versus Opinion Work Product
♦ Opinion Work-Product—“nearly absolute protection”
♦ Holmgren v. State Farm, 976 F.2d 573 (9th Cir. 1992, Mont.) The Ninth Circuit does not extend absolute privilege to attorney work product. Interprets “shall” as “may” under FRCP Rule 26. (Attorney opinion work product may be discoverable in bad faith case where mental impressions are at issue in a case and the need for the material is compelling.)
♦ Kintera, Inc. v. Convio, Inc., 219 F.R.D. 503, 507 (S.D. Cal. 2003) “Opinion work product receives ‘nearly absolute protection.’” “Where the selection, organization, and characterization of facts reveals the theories, opinions, or mental impressions of a party or the party’s representative, that material qualifies as opinion work product. …In ordering discovery of such materials, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation.” Fed. R. Civ. P. 26(b)(3). (Id.)
19
Who Owns the Work Product Privilege?
♦ Courts generally hold work product belongs to the attorney, and it is the
attorney who can waive its protections.
♦ See Hartford Fire Ins. Co. v. Garvey, 109 F.R.D. 323 (N.D. Cal. 1985)(“[A]s
attorney work product ‘belongs’ to the attorney, the disclosure will be
analyzed under the case law applying to inadvertent disclosure.”)
♦ Hechinger Investment Co. v. Official Committee of Unsecured Creditors, 303 B.R. 18,
*10 (Bankr. D. Del. 2003) (“‘[W]ork product is the privilege of the
attorney’…thus the attorney is the one who may waive it.”)
20
Issues Unique to Insurance Defense:
No Protection for Insurer-Insured Communications
♦ Neither federal common law nor the vast majority of states recognize any
type of insurer-insured privilege.
– It appears that only Illinois, Indiana and Missouri recognize an insurer-
insured privilege.
21
The “Tripartite” Relationship
♦ The “joint-defense” or “common interest” doctrine protects information shared among parties involved in litigation who are represented by separate counsel but who are engaged in the joint defense of a claim.
– The doctrine is not technically a privilege in and of itself but, instead, it creates an exception to the general rule that the attorney-client privilege is waived when privileged information is voluntarily disclosed to a third party.
– It was established to facilitate communications between aligned parties in order to protect their common interests in a litigated matter with respect to communications designed to further that joint legal effort.
22
Tripartite Relationship Defined
♦ “When an insurer retains counsel to defend its insured, a tripartite attorney-
client relationship arises among the insurer, insured and counsel. As a
consequence, confidential communications between either the insurer or
the insured and counsel are protected by the attorney-client privilege, and
both the insurer and insured are holders of the privilege.” Work product
also “does not lose its protection when it is transmitted to the insurer.”
– Bank of America v. Superior Court, 212 Cal. App. 4th 1076, 1083 (Cal. Ct. App.
2013).
23
Tripartite Relationship—a “Coalition”
♦ “Both the insured and the carrier have a common interest in defeating or
settling the third party’s claim. . . . In such a situation, the attorney has two
clients whose primary, overlapping and common interest is the speedy and
successful resolution of the claim and litigation. . . . The three parties may
be viewed as a loose partnership, coalition or alliance directed toward a
common goal, sharing a common purpose which lasts during the pendency
of the claim or litigation against the insured. Communications are routinely
exchanged between them relating to the joint and common purpose—the
successful defense and resolution of the claim.”
– American Mut. Liab. Ins. Co. v. Superior Court, 38 Cal. App. 3d 579, 591-92
(Cal. Ct. App. 1974).
24
Suggested Strategies for Protecting Tripartite
Communications
♦ Execute a Joint Defense Agreement
♦ Execute a Confidentiality Agreement
♦ Implement Procedures to Maintain the Privilege
♦ Whenever Possible, Avoid Written Communications
♦ Consider Mediating the Insurance Issues
25
Impact of ROR on Privilege
♦ No waiver where tender of defense accepted without reservation:
– Continental Casualty Co. v. St. Paul Surplus Lines Ins. Co., 265 F.R.D. 510 (E.D.
Cal. 2010) (Both insurer and insured are “considered the clients of the
defense counsel, and an attorney-client privilege is shared among all of
them.”)
♦ Finding that ROR does not impact the privilege:
– Bank of America v. Superior Court, 212 Cal. App. 4th 1076, 1091-92 (Cal. Ct.
App. 2013) (tripartite attorney-client relationship exists notwithstanding
reservation of rights)
26
Impact of ROR on Privilege
Finding ROR may waive attorney-client privilege:
– Lectrolarm Custom Sys., Inc. v. Pelco Sales, Inc., 212 F.R.D. 567, 572 (E.D. Cal.
2002) (when “the insurer defends under a reservation of rights, denying the
duty to indemnify on some or all claims . . . There exists in this situation an
inherent tension between the carrier’s interests and the interests of the
insured. Thus, the attorney client relationship, the first and most important
element of the attorney client privilege, is missing.”).
Finding no privilege between insured and insurer:
– In re Pfizer Inc. Securities Litigation, 1993 U.S. Dist. LEXIS 18215 (S.D.N.Y.
Dec. 23, 1993) (rejecting argument that insured and insurer share common
interest where there was no evidence that parties agreed to act as partners;
holding that disclosure by insured to insurer waived attorney-client
privilege)
27
Impact of ROR on Privilege
♦ No privilege where insurer denies defense and indemnity obligation:
– Where the policy includes a duty to defend and insurer denies or rejects that duty, communications between that counsel and the insurer are not protected from disclosure under either the attorney-client privilege or the joint defense privilege.
North River Ins. v. Philadelphia Reinsurance, 797 F. Supp. 363, 367 (D.N.J. 1992)
Vermont Gas Systems, Inc. v. United States Fidelity & Guaranty Co., 151 F.R.D. 268, 277 (D. Vt. 1993)
Remington Arms Co. v. Liberty Mutual Ins. Co., 142 F.R.D. 408, 417-18 (D. Del. 1992)
CAMICO Mutual Insurance Co v. Heffler Radetich & Saitta, 2013 U.S. Dist. LEXIS 10832 (E.D.Pa. Jan. 28, 2013).
28
Impact of ROR on Privilege—Independent
Counsel
♦ Where ROR leads to appointment of independent counsel:
– No Privilege: Lectrolarm Custom Systems, Inc. v. Pelco Sales, Inc., 212 F.R.D. 567 (E.D. Cal. 2002) (“[M]ost important element of the attorney client privilege” is missing when a conflict of interest requires the appointment of independent counsel.)
– In Continental Casualty Co. v. St. Paul Surplus Lines Ins. Co., 265 F.R.D. 510
(E.D. Cal. 2010), the court noted that the attorney-client privilege does not
extend to communications between an insured, an attorney, and insurer
who is defending with a reservation of rights, let alone to an insurer that is
not defending at all.
29
Impact of ROR on Privilege—Independent
Counsel
– California Civil Code § 2860 (d) independent counsel is to “disclose to the
insurer all information … except privileged materials relevant to coverage
disputes” and any information disclosed by independent counsel to the
insurer is “not a waiver of the privilege as to any other party.”
– Privilege remains in effect: Bank of America v. Superior Court, 212 Cal. App. 4th 1076 (Cal. Ct. App. 2013) (Even where independent counsel is appointed, both insured and defense counsel have a duty “to disclose to the insurer all information concerning the action except privileged materials relevant to coverage disputes, and timely to inform and consult with the insurer on all matters relating to the claim. (Civ. Code §2860, subd. (d).) Any information disclosed by the insured or by independent counsel is not a waiver of the privilege as to any other party.”)
30
No Waiver of Privilege for Cumis Counsel
♦ Fidelity National Financial, Inc. v. National Union Fire Insurance Co., 2014 WL
1393743 (S.D. Cal. Apr. 9, 2014) Cumis attorney did not waive privilege by
providing copy of settlement analysis to insurer because Cumis counsel is
required by statute to share this information and, in doing so, Cumis
attorney was not acting without coercion.
31
The Use of Counsel in Claims Investigations
♦ “The application of the work product doctrine is particularly difficult in the context of insurance claims.”
– Gilliard v. Great Lakes Reinsurance U.K. PLC , 2013 U.S. Dist. LEXIS 56968 (D.S.C. Apr. 22, 2013) (finding that “the proponent of work product protection must establish that the ‘driving force behind the preparation of each requested document’ is the prospect of litigation.”)
32
Claims Handling and Privilege: Was the Report
Created in the “Ordinary Course of Business”?
♦ California: It is settled that the attorney-client privilege is inapplicable where the attorney merely acts as a negotiator for the client, gives business advice or otherwise acts as a business agent. (Aetna Cas. & Surety Co. v. Superior Court, 153 Cal. App. 3d 467, 475 (Cal. Ct. App. 1984).
♦ Nebraska: Church Mutual Ins. Co. v. Clay Center Christian Church, 2012 U.S. Dist. LEXIS 105552 (D. Neb. July 30, 2012) (work product protection inapplicable to report created in ordinary course of business).
♦ Minnesota: Mission National Ins. Co. v. Lilly, 112 F.R.D. 160, 163 (D. Minn. 1986) (work product immunity did not apply were “immediately upon receiving notice of the [incident], [insurer decided] to employ attorneys to fulfill its ordinary business function of claims investigation.”)
33
Claims Handling and Privilege: Was the Report
Created in the Ordinary Course of Business?
♦ Iowa: St. Paul Reinsurance Co. v. Commercial Fin. Corp., 197 F.R.D. 620, 636
(N.D. Iowa 2000) (It is the insurer’s business to investigate claims.)
♦ Meighan v. Transguard Ins. Co. of America, 298 F.R.D. 436 (N.D. Iowa 2014).
(Documents related to insurer’s surveillance of insured not subject to
privilege.)
♦ Indiana: Harper v. Auto-Owners Ins. Co., 138 F.R.D. 655, 663 (S.D. Ind.
1991) (“[A] document or thing produced or used by an insurer to evaluate
an insured’s claim in order to arrive at a claims decision in the ordinary and
regular course of business is not work product regardless of the fact that it
was produced after litigation was reasonably anticipated.”)
34
Claims Handling and Privilege: Was the Report
Created in the Ordinary Course of Business?
♦ Pennsylvania: Henriquez-Disla v. Allstate Property and Cas. Ins. Co., 2014 WL
2217808 (E.D. Pa. May 29, 2014) Claim file “log entries and emails related
to scheduling and taking EUOs, including collection of information for the
EUOs, are part of the ordinary business function of claims investigation
and therefore fall outside the attorney-client privilege. However, any
communications seeking counsel’s advice remains privileged.” And, once
EUOs are taken, “counsel’s observations and opinions concerning the
content of the statement are privileged.”
♦ New York: Certain Underwriters at Lloyd’s v. Nat’l R.R. Passenger Corp., No.
14-cv-4717 (E.D.N.Y. May 16, 2016) (motion to compel granted where
insurer “failed to show by specific, competent evidence that the challenged
documents were not created in the ordinary course of business.”).
35
What is the “Dominant Purpose” of the
Attorney’s Work?
♦ Some jurisdictions look to the “dominant purpose” of hiring counsel.
– Costco Wholesale Corp. v. Superior Court of Los Angeles County, 47 Cal.4th 725
(Cal. 2000) (Trial court must “determine the dominant purpose of the
relationship between the insurance company and its in-house attorneys.
i.e., was it one of attorney-client or one of claims adjuster-insurance
corporation… .”)
– McAdam v. State National Ins. Co., 15 F. Supp. 3d 1009 (S.D. Cal.
2014)—California courts will look to the dominant purpose of the
relationship between counsel and the insurer, not the dominant purpose
of each document created. Proponent of privilege has option of seeking
in camera review. Must include declarations.
36
“Predominant Purpose”
♦ New Jersey courts have also addressed the issue in terms of the "predominant purpose" of the attorney-insurer relationship:
– Munich Reinsurance America, Inc. v. American National Insurance Company, 2011 U.S. Dist. LEXIS 41826 (D.N.J. Apr. 18, 2011) (proper inquiry is whether the attorney-client relationship is “predominantly for the purpose of rendering legal services”) (quoting Louisiana Municipal Police Employers Retirement System v. Sealed Air Corp., 252 F.R.D. 300 (D.N.J. 2008))
37
“Driving Force” behind Preparation of
Document
♦ South Carolina: Gilliard v. Great Lakes Ins., 2013 U.S. Dist.
LEXIS 56968 (D.S.C. Apr. 22, 2013). What is the “driving force”
behind preparation of each document? Focus is on the
communication, not the relationship between counsel and insurer.
38
Bad Faith: the Cedell Case
♦ Cedell v. Farmers Insurance Exchange, 295 P.3d 239 (Wash. 2013)—holds that
if an insurer is sued for bad faith for denying first-party coverage, the
insurer’s entire claim file is subject to discovery, including advice from its
counsel.
♦ “We start from the presumption that there is no attorney-client privilege
relevant between the insured and insurer in the claims adjusting process, and
that the attorney-client and work product privileges are generally not relevant.”
39
Cedell
♦ Insurer may overcome presumption of discoverability by showing that the
attorney was not engaged in a “quasi-fiduciary” investigation and evaluation
of the claim.
♦ Upon such showing, the insurance company is entitled to an in camera
review of the claims file and to redaction of communications that reflect
attorney’s mental impressions unless those mental impressions are directly
at issue in its “quasi fiduciary” responsibilities to its insured.
♦ The insured’s burden is minimal—the insured merely needs to allege (not
prove) facts that show an act of bad faith has occurred.
40
Cedell: Four Scenarios for Disclosure
♦ 1. Insurer cannot overcome initial presumption that attorney-client
privilege and work product are waived in the first party bad faith context.
♦ 2. In camera review reveals that insurer’s attorney engaged in “quasi
fiduciary” roles of investigating, processing or evaluating claim.
♦ 3. In camera review reveals that attorney’s opinion work product is “directly
at issue” in the insurer’s “quasi fiduciary” roles
♦ 4. In camera review leads the trial court to find there is sufficient foundation
for a civil fraud bad faith claim to proceed.
See Philadelphia Indemnity Ins. v. Olympia Early Learning Center, 2013 WL 3338503,
at *4 (W.D. Wash. July 2, 2013)
41
Cases Leading up to Cedell
♦ Tilden-Coil constructors, Inc. v. Landmark American Ins. Co., 2010 WL 3789104
(W.D. Wash. Sept. 23, 2010) (outside counsel’s review of documents in
preparation for drafting denial letters not subject to work product
protection.)
♦ Panattoni Construction, Inc. v. Travelers, 2012 WL 6567141(W.D. Wash. Dec.
14, 2012). In bad faith cases insurer-attorney communications are subject to
disclosure if relevant to the issue of bad faith.
42
How Cedell Changes the Game
♦ Far easier to “pierce the attorney client privilege”: “If nothing else, it is
now clear that the scope of discovery in first party bad faith actions is very
broad, and the attorney-client privilege and work product doctrine are less
difficult to overcome now than they were prior to the opinion.” Philadelphia
Indemnity Ins. v. Olympia Early Learning Center, 2013 WL 3338503, at *4 (W.D.
Wash. July 2, 2013)
♦ Changes Court’s Role: The in camera review contemplated by Cedell “put[s]
the trial court in the uncomfortable position of sorting through evidence to
determine if an insured has a potential civil fraud claim—essentially an
investigative role for the court, rather than an adjudicative one.” (Id.)
43
Criticism of Cedell
♦ In Philadelphia Indemnity Ins. v. Olympia Early Learning Center, 2013 WL
3338503, *3 (W.D. Wash. July 2, 2013), the District Court for Washington
criticized Cedell— “Unfortunately, the opinion creates rather than alleviates
confusion about what must be produced and under what circumstances.”
♦ Philadelphia Indemnity also notes that Cedell “conflates attorney client privilege
and the work product doctrine.” (Id.)
♦ “To this Court’s knowledge there is not and has never been in Washington
a ‘substantial need’ exception to the attorney-client privilege…If the
Washington Supreme Court intended to create such a vast exception to the
attorney-client privilege…it did so without explanation and without
acknowledging that it was fundamentally altering the law in this area.” (Id.)
44
Criticism of Cedell
♦ See also MKB Constructors v. American Zurich Ins. Co., 2014 WL 2526901, at *5
(W.D. Wash. May 27, 2014 ) noting that Cedell fails to “elaborate upon what
it means for an insurer’s act of bad faith to be ‘tantamount to civil fraud.’”
45
Cedell’s Progeny
♦ 1) MKB Constructors v. American Zurich Ins. Co., 2014 WL 2526901(W.D.
Wash. May 27, 2014) Insured’s “allegation of bad faith conduct alone, even
where sufficiently supported by the record to establish prima facie case,
does not suffice to make out a claim for waiver of attorney-client privilege
based on the civil fraud exception.” Also holds that federal district court,
based on Erie doctrine, does not have to view documents in camera but,
rather, may choose “other procedure or mechanism [that] is equally or
more appropriate… in the specific context of the case before it.”
46
Cedell’s Progeny
♦ 2) Woodward v. American Family Mutual Ins. Co., 2014 WL 2198808, at *1
(W.D. Wash. May 27, 2014) Noting that court “is unlikely to find” that a
categorical refusal to produce documents created after litigation is
contemplated “is an acceptable limitation of Cedell.”
♦ 3) Garoutte v. American Family Mutual Ins. Co., 2013 WL 5770358, at *3 (W.D.
Wash. Oct. 24, 2013). “[T]he Court is not persuaded that every document
created by an insurance company after suit has commenced is protected by
the work product privilege.” It is insurer’s “burden to overcome this
presumption.”
47
Cedell’s Progeny
♦ 4) Grange Ins. Ass. v. Lund, 2014 WL 584011 (W.D. Wash. Feb. 13, 2014).
Ordering production to insured’s assignee of all documents in claims file,
including between in house and outside claims counsel, but limiting range
of production to documents generated between “pre-judgment limits-
related bad faith claims” and “postjudgment conditional settlement bad
faith claims” that arose after underlying bad faith case was settled.
48
Cedell’s Progeny
♦ 5) Carolina Casualty v. Omeros, 2013 WL 1561963 (W.D. Wash., April 12,
2013): extends Cedell to third party liability based on “quasi fiduciary
relationship.” Documents created after underlying litigation settled are likely
subject to privilege but documents created during period “when it appears
coverage counsel took an active role in resolving [underlying litigation],
Carolina Casualty may have no basis for withholding documents.”)
♦ 6) Ten Talents v. Ohio Security, 2013 WL 3155379 (W.D. Wash. June 21,
2013): Production of coverage opinion. “It does not appear to this Court
that the new Cedell standard is particularly difficult one for an insured to
meet.”
49
Cedell’s Progeny
♦ 7) Philadelphia Indemnity v. Olympia Early Learning Center, 2013 WL 3338503
(W.D. Wash. July 2, 2013). Claim file subject to single in camera review to
analyze four-part test under Cedell.
♦ 8) Palmer v. Sentinel Ins. Co., 2013 WL 3819925 (W.D. Wash. July 23, 2013)
Attorney investigated facts, interviewed witnesses, hired experts, advised on
coverage and exposure—privilege waived. Privilege as to communications
with subrogation counsel not waived.
♦ 9) Everest Ins. Co. v. QBE Ins. Co., 980 F. Supp.2d 1273 (W.D. Wash. 2013)
Third party liability. Insurer counsel subject to deposition.
50
Cedell’s Progeny
♦ 10) Stewart Title v. Credit Suisse, 2013 WL 1385264 (D. Idaho Apr. 3, 2013):
Counsel had mixed role; work product protection did not apply; all files
must be produced in bad faith cases.
♦ 11) Hilborn v. Met. Group Ins. Co., 2013 WL 6055215 (D. Idaho Nov. 15,
2013). “In a bad faith insurance claim settlement case, the strategy, mental
impressions and opinion of the [insurer’s] agents concerning the handling
of the claim are directly at issue.” (finding that attorneys who placed call to
Border Patrol Agents who were present at fire, “as part of the ongoing
claims investigation” were “engaged in the quasi-fiduciary tasks of
investigating and evaluating or processing the claim.”
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Cedell’s Progeny
♦ 12) The Shaw Group, Inc. v. Zurich American Ins. Co., 2014 WL 199626 (W.D.
La. June 14, 2012). Adopting reasoning of Cedell to deposition of Zurich’s
claims counsel but finding, based on affidavits, that Zurich overcame
presumption of waiver of privilege.
♦ 13) Ingenco Holdings, LLC v. Ace Am. Ins. Co., 2014 WL 6908512, at *3 (W.D.
Wash. Dec. 8, 2014) (“Because the court will not apply Cedell today, and
may never apply it in this case, it will not consider its holdings in detail. It
observes, however, that every federal court to consider the issue has held
that the in camera review mandate of Cedell does not apply in federal
court.”)
52
Jurisdictions with Similar Approach to Cedell
♦ Alaska: USAA v. Werley, 526 P.2d 28 (Ala. 1974). No privilege for insurers
in bad faith cases.
♦ Arizona: State Farm Mutual v. Lee, 13 P.3d 1169 (Ariz. 2000). UM/UIM
case. Court finds waiver b/c legal advice was sought and relied on.
♦ But see Hartford Roman Catholic Diocesan v. Interstate Fire & Cas. Co., 297 F.R.D. 22
(D. Conn. 2014) (communications between insurer and counsel did not come
within bad faith exception to attorney client privilege and were not
discoverable where insured failed to allege that insurer gave information to or
sought advice of counsel for purposes of concealing or facilitating alleged bad
faith conduct).
53
Communications Prior to Denial Not Subject
to Privilege
♦ Ohio: Boone v. Vanliner, 744 N.E.2d 154 (Ohio 2001). Insured is entitled to discover claims file materials containing attorney-client communications related to the issue of coverage that were created prior to the denial of coverage. The claim file “may cast light” on whether the insurer acted in bad faith.
♦ Ohio: C.B. Fleet Co. v. Colony Specialty Ins., 2013 U.S. Dist. LEXIS 6504
(N.D. Ohio Jan. 15, 2013). Even where the insurer has denied coverage
after the inception of the coverage litigation, it may be required to turn over
privileged information from its claim file, up to the date of denial.
54
Communications Prior to Denial Not Subject
to Privilege
♦ New York: National Union Fire Insurance Company of Pittsburgh v. TransCanada
Energy USA, 119 A.D.3d 492 (N.Y. App. Div. 2014). Coverage opinion subject
to discovery. Documents prepared in the ordinary course of insurance
company’s investigation of whether to pay or deny insured’s claims were not
protected by attorney client privilege or work product doctrine.
♦ Melworm v. Encompass Indemnity Co., 112 A.D.3d 794 (N.Y. App. Div. 2013)
(Letters drafted by counsel who conducted investigation before claim denied
are subject to disclosure.)
55
Communications Made Before Coverage
Determination
♦ Bombard v. Amica Mutual Ins. Co., 783 N.Y.S.2d 85 (N.Y. App. Div. 2004)
(holding that reports prepared by insurance investigators, adjustors or
attorneys before the decision is made to pay or reject a claim are not
privileged and are discoverable even where such reports are motivated in
part by the potential for litigation with insured.)
56
Communications Prior to Denial Not Subject
to Privilege
♦ Indiana: Illiana Surgery and Medical Center LLC v. Hartford Fire Ins. Co., 2010
U.S. Dist. LEXIS 122827 (D. Ind. Nov. 18, 2010) (outside counsel’s work
did not “equate to legal advice” where outside counsel conducted phone
conferences with in-house adjusters and never rendered a coverage opinion)
♦ Connecticut: Mehta v. Ace Am. Ins. Co., 2013 WL 3105215 (D. Conn. June
18, 2013) (“emails by and with defendant’s claim specialist, an attorney,
prior to the coverage decision” not subject to attorney-client privilege)
57
Attorney Involvement Not Necessarily the Key
to Privilege Attaching
♦ New Jersey: American Home Assurance Co. v. U.S., 2009 U.S. Dist. LEXIS
93597 (D.N.J. 2009). Report of investigator not attorney work-product under
FRCP Rule 26(b)(3) even where insurer believed it was prepared in anticipation
of litigation: “[S]imple involvement of counsel in an insurer’s claim
investigation does not transform the investigation to one undertaken in
anticipation of litigation. …Generally work-product protection is not afforded
to documents prepared prior” to a coverage decision being made.
♦ Connecticut: Mehta v. Ace Am. Ins. Co., 2013 WL 3105215 (D. Conn. June
18, 2013) (emails by and with defendant’s claim specialist not subject to
attorney-client privilege even when claims specialist was an attorney)
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Was the Document Created in Anticipation of Litigation?
♦ Application of work product protection to claim file under Rule 26 depends on “whether, under the specific facts of the case, the claims analysis would have been created because of anticipated litigation or whether it would have been created in the ordinary course of business.” (Safeco Ins. Co. v. M.E.S. Inc., 2011 U.S. Dist. LEXIS 140700 (E.D.N.Y. Dec. 6, 2011))
♦ St. Paul Fire & Marine Co. v. SSA Gulf Terminals, Inc., 2002 U.S. Dist. LEXIS 11776 (E.D. La. June 10, 2002) (for work product protection to attach, insurer must establish that “primary motivating purpose” of investigations, reports and meetings “was to aid in future litigation.”)
♦ Raritan Bay Federal Credit Union v. Cumis Ins. Society, Inc., 2010 U.S. Dist. LEXIS 112640 (D.N.J. Oct. 21, 2010) (investigator’s communications with insurer’s counsel and notes and summaries of interviews of witnesses were prepared in ordinary course of insurer’s investigation of claim and therefore not subject to work product or attorney-client protection.)
59
Was the Document Created in Anticipation of
Litigation?
♦ Where documents are generated as an “inherent and long-standing part” of
the defendant’s business, “that litigation appeared imminent is of no
moment.” The documents therefore are not subject to privilege. (MBIA
Ins. Corp. v. Countrywide Loans, 93 A.D.3d 574, 575 (N.Y. App. Div. 2012).)
♦ Certain Underwriters at Lloyd’s v. Nat’l R.R. Passenger Corp., No. 14-cv-4717
(E.D.N.Y. May 16, 2016) (court noted that “‘even documents created after
the institution of litigation must be proven to have been created because of
the lawsuit.’”) (quoting Weber v. Paduano, 2003 WL 161340 (S.D.N.Y. Jan.
22, 2003).
60
Was the Document Created in Anticipation of
Litigation?
♦ See also, Dinh v. Samsung Fire & Marine Ins. Co., 2013 WL 1625184 (S.D. Tex.
Apr. 12, 2013) (“Because litigation was commenced in this case two months
after the accident and before the defendant had completed its investigation,
it was just not possible to separate the legal advice from the claims
investigation process.”)
♦ Westchester Surplus Lines Ins. Co. v. Clancy & Theys Construction Co., 2013 WL
6058203 (E.D. N.C. Nov. 15, 2013) (Threat of litigation must be
“substantial and imminent.”)
61
Burden on Insurer to Establish that Each
Document Is Subject to Privilege
♦ Consugar v. Nationwide Ins. Co. of America, 2011 U.S. Dist. LEXIS 61756
(M.D. Pa. June 9, 2011) (The date the insurer “decided that the possibility
of litigation was substantial and imminent” is not the relevant inquiry.
Insurer must provide privilege log specifying grounds for application of
protection with respect to each document.)
62
General Principles—You Can’t Convert Non-
Privileged Information Into Privileged Information
♦ “Any relevant fact may not be withheld merely because it was incorporated into a communication involving an attorney.” (Upjohn Co. v. United States, 449 U.S. 383, 395-96 (1981))
♦ “It is established that otherwise routine, non-privileged communications between corporate officers of employees transacting the general business of the company do not attain privileged status solely because in-house or outside counsel is ‘copied in’ on correspondence or memoranda.” (Zurich American Ins. Co. v. Superior Court , 155 Cal. App. 4th 1485, 1504 (Cal. Ct. App. 2007))
63
Advice of Counsel Defense: Opening the Door
♦ “The deliberate injection of the advice of counsel into a case waives the
attorney-client privilege as to communications and documents relating to
the advice.” Handgards, Inc. v. Johnson & Johnson, 413 F.Supp. 926 (N.D. Cal.
1976)
♦ City of Glendale v. National Union Fire Ins. Co., 2013 WL 1797308 (D. Ariz. Apr.
29, 2013) “‘When a litigant seeks to establish its mental state by asserting that it
acted after investigating the law and reaching a well-founded belief that the law
permitted the action it took, then the extent of its investigation and the basis
for its subjective evaluation are called into question. …Thus the advice received
from counsel as part of the investigation and evaluation is relevant to the
court’s truth seeking functions.’” (quoting State Farm Mut. Auto. Ins. Co. v. Lee,
13 P.2d 1169, 1175 (Ariz. 2000))
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No Implied Waiver
♦ Nguyen v. American Commerce Ins. Co., 2014 WL 1381384 (Ariz. Ct. App. Apr.
8, 2014). Where a party relies solely on objective reasonableness and merely
consults attorney to evaluate the reasonableness of its position, there is no
implied waiver.
65
No Implied Waiver Where Insurer Does Not
“Interject” Advice of Counsel into Litigation.
♦ But see Empire West Title Agency LLC, 323 P.3d 1148 (Ariz. 2014). Rejecting
claim that insurer has impliedly asserted the advice of counsel defense –
“The party claiming the privilege must affirmatively interject the issue of
advice of counsel into the litigation. …Merely pleading a claim…does not
waive the attorney-client privilege.”
66
Advice of Counsel—No Implied Waiver
♦ See also, Cudd Pressure Control, Inc. v. New Hampshire Ins. Co., 297
F.R.D. 495 (W.D. Okla. 2014) “An insurance company just as any
other individual or entity has the right to seek confidential legal
advice.” (finding that insurer’s reliance on legal advice when
formulating coverage opinion is not the equivalent of asserting an
“advice of counsel” defense— “Defendants have not taken any
affirmative step in this litigation that would make the substance of
its attorney’s previous advice relevant… .”)
67
Use of Bifurcation to Protect Privilege
♦ DeVito v. Grange Mutual Cas. Co., 996 N.E.2d 547 (Ohio 2013). Trial Court
granted bifurcation of bad faith claim, but refused to stay discovery of bad
faith issues, which would have opened claim file up to insured. Court of
Appeal found that “failure to impose a stay [of discovery re bad faith]
would result in manifest prejudice to Defendant’s ability to defend the
coverage issues. …Once the underlying claims are decided, and provided
the bad-faith claim remains unresolved, discovery may proceed on the bad-
faith claim… . In this regard, courts have determined that an in camera
review of the claims file is appropriate to determine which materials in the
claims file are relevant to bad faith.”
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Best Practices for Preserving Privilege
♦ Retention letters for attorneys with clear directives as to the engagement
♦ Use of investigators and adjusters
♦ Role of privilege log
♦ Bifurcation of bad faith claim in jurisdictions where permissible
♦ In camera inspection – know your jurisdiction (e.g., California prohibits in
camera review absent request by privilege holder; Washington courts must
conduct in camera review under Cedell.)
♦ Decide whether advice of counsel will be used early on
♦ Limit written communications
♦ Washington, Idaho, Louisiana: know that presumption is that claims file will
be subject to discovery
69
Privilege Issues Unique to Insured-Broker
Relationship -- Hypothetical
♦ In a coverage litigation relating to an underlying professional negligence
claim, the insured and an employee of its broker – WillMar – had
multiple communications relating to the claim, the relevant insurance
policies, and the potential for coverage under those policies. These
communications included a discussion of relevant case law and potential
legal strategy. The broker both received and authored communications,
and notes were taken by the insured and the broker memorializing
phone conversations during which the above subjects were
discussed. The broker employee was also a licensed attorney, but in
many communications an automated email “footer” stated that the
broker was not providing legal advice.
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Hypothetical - continued
♦ During discovery, the insurers moved to compel all documents
prepared by, transmitted to, or summarizing communications with
the broker. In response, the insured sought to withhold the
communications pursuant to the attorney-client privilege, claiming
that in addition to being its insurance broker, WillMar also
provided legal counsel and, thus, any communications between
them were subject to the privilege.
♦ Do the insurers get the documents?
71
Privilege and Brokers
♦ Cellco Partnership d/b/a Verizon Wireless v. Certain Underwriters at Lloyd’s,
London, et al., 2006 WL 1320067 (D.N.J. May 12, 2006).
– Insurers moved to compel production of communications that were
prepared by, transmitted to, or that summarized communications with the
insured’s insurance broker, Aon.
– The insured sought to withhold these communications pursuant to the
attorney-client privilege, claiming that Aon also provided legal counsel and,
thus, any communications between them were subject to the privilege.
– The insured relied in part on the fact that the Aon employee responsible
for handling its claim submission was also a licensed attorney and was
providing legal counsel to the insured.
72
Privilege and Brokers
– The court rejected Cellco’s argument, finding that there was no
retainer agreement between Aon and Cellco, and finding that Cellco
failed to sufficiently demonstrate how Aon’s role and function
changed to that of legal counsel from insurance broker. The court
also found that the broker/attorney employed by Aon explicitly
stated that the information he was providing was not intended to be
legal advice.
– The court concluded, based upon these facts, that neither Aon nor
the insured could have reasonably believed that an attorney-client
relationship existed or that they had an expectation of confidentiality
surrounding their communications.
73
Privilege and Brokers
♦ In re Tetra Technologies Inc., No. 2010 WL 1335431 (S.D. Tex. Apr. 5, 2010).
– Tetra argued that its insurance brokers were its agents and therefore fell within the
ambit of the attorney-client privilege. Plaintiffs argued that many of Tetra’s
communications with its brokers took place in the context of a dispute between Tetra
and its insurer – thus, the brokers were simply facilitators and not agents.
– The court held that, even in situations where an insured and its insurers are in a
dispute, an insurance broker can nonetheless act as the insured’s agent when the
purpose of the communication was made “to facilitate the rendition of legal services.”
The court noted that what is vital to the attorney-client privilege is that “the
communication be made in confidence for the purpose of obtaining legal advice from
a lawyer.” The court ruled that it would review in camera the communications that the
plaintiffs alleged did not meet such criteria to determine whether or not that
particular communication fell within the attorney-client privilege.
74
Privilege and Brokers
♦ Amtel Corp. v. St. Paul Fire & Marine Ins. Co., 409 F. Supp. 2d 1180 (N.D.
Cal. 2005)
– Insurer moved to compel the production of attorney-client privileged materials
that the insured, Amtel, had sent to its insurance broker. The insurer argued
that brokers are independent contractors and do not act as agents for either the
insurer or insured.
– The court rejected that argument by noting that the broker had negotiated the
policies at issue and thereafter served as a “necessary advisor” to Amtel on
insurance coverage and claim issues. Accordingly, the court ruled that “[g]iven
the relationship between [the broker] and Amtel, the attorney-client privilege
was not waived because [the broker] was present to further Amtel’s interests
and disclosure to [the broker] was reasonably necessary to provide information
to the insurers.”
75
♦ Certain Underwriters at Lloyd’s v. Nat’l R.R. Passenger Corp., No. 14-cv-4717
(E.D.N.Y. Feb. 19, 2016) (court held that insurers “failed in their burden to
establish that the attorney-client privilege protects” documents where, “due
to the unique structure of the London insurance markets” documents on
the insurers’ privilege logs were shared with third party brokers; finding that
“the London brokers acted as nothing more than an intermediary or
clearing house” for the London insurance policies).
♦ The London insurers filed a motion for reconsideration of the Court’s
February 19, 2016 Order, which was denied.
76
Privilege and Brokers
Privilege and Brokers
♦ SR Int’l Bus. Ins. Co. v. World Trade Center Prop., LLC, 2002 WL 1334821
(S.D.N.Y. June 19, 2002) (third-party insurance broker not within scope
of attorney-client privilege).
♦ J.E. Dunn Constr. Co. v. Underwriters at Lloyd’s, London, 2006 WL 1128777
(W.D. Mo. Apr. 25, 2006) (communications to third-party broker not
privileged, even where insured and broker entered into joint defense
agreement, because broker’s interest in litigation was to minimize its
own liability to the insured – therefore, there was no “common
interest”)
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Contacts
Louis A. Chiafullo, Esq.
McCarter & English, LLP
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
973-848-5340
Robin Ann Williams, Esq.
Bassford Remele
33 South Sixth Street
Suite 3800
Minneapolis, MN 55402-3707
612.376.1631
78