Geico’s “Improper Use” of Privilege Confirms the Privilege is not a Sword & Shield Reply

In a bad-faith case against Geico, a Florida federal court ruled that Geico waived the attorney–client privilege when its coverage attorney testified to its good-faith efforts in the claims-handling process.  And because of Geico’s earlier “consistent and aggressive assertion” of the privilege, the court vacated Geico’s defense verdict and ordered a new trial.  Batchelor v. Geico Cas. Co., 2015 businessman_sword_shield_500_clr_9807WL 6468124 (M.D. Fla. Oct. 22, 2015).  You may read the decision here.


Donna Batchelor suffered injuries in an automobile accident and submitted a claim to Geico for compensation under her uninsured motorist policy.  Geico refused the settle the claim for policy limits of $30,000, and a subsequent state-court jury awarded Batchelor damages in the amount of $1.8M.  She then filed a bad-faith lawsuit against Geico.

Geico Claims Privilege

During the bad-faith case, Geico asserted the attorney–client privilege when Batchelor sought documents between Geico and its counsel in the underlying UM action. Geico claimed that it limited counsel’s role to defending the UM claim and did not involve him in the claims-handling process.  The court accepted Geico’s representations and precluded discovery of these documents.

At trial, however, Geico stated in opening statements that its coverage counsel would testify “to defend Geico.”  The attorney took the stand and testified about his case evaluation, including communications he had with Geico.

Privilege Waiver

The court immediately ruled that the testimony of Geico’s coverage counsel waived the previously asserted attorney–client privilege.  The court denied Batchelor’s mistrial request, but gave her counsel the option to review the withheld documents before cross-examining Geico’s coverage counsel or having his testimony stricken altogether.  She chose the latter.

Geico received a defense verdict, but the court granted Batchelor a new trial, stating that he should have granted a mistrial given Geico’s “improper use” of the attorney–client privilege.  The court stated that it must “narrowly construe” the attorney–client privilege, “particularly when it is asserted by corporate entities.”

With this narrow construction in mind, the court followed the rule that “an insurer who relies on ‘advice of its counsel as a defense’ in a bad faith claim waives the privilege ‘under the at-issue doctrine.’”  It noted that “manifest unfairness” results when one party deprives another of privileged information through selective disclosure.

Sword or Shield?

If Batchelor had the privileged documents prior to trial, then her counsel could have effectively cross-examined Geico’s lawyer.  As the court found, “the jury could easily have reached a different result if Geico had not improperly used the privilege as a shield to hide evidence before trial and as a sword to establish its purported good faith at trial.”

PoP Analysis

Geico’s attempt to “have its cake and eat it too” failed miserably.  It is well-established that one cannot rely on an advice-of-counsel defense yet withhold privileged communications from its attorney.  Counsel in bad-faith cases should conduct an early assessment whether to assert the advice-of-counsel defense and then prepare to conduct the litigation and trial accordingly.  Geico’s payment for this failed shield–sword attempt is paying for another full trial, but it could have been worse.

One point in the court’s ruling is concerning.  It stated that courts should construe the attorney–client privilege narrowly, which is true; but it went further to say that this narrow construction is particularly true when a corporation asserts the privilege.  The privilege applies to individuals and corporations, and courts should construe its construction the same for all parties and not take a more limited review when a corporation asserts it.

“At Issue” Privilege Waiver in Contract Disputes Reply

Attorneys draft contracts.  Contracting parties sue over the contract’s  interpretation.  And when parties litigate the meaning of a contractual provision, it is often the contract-drafting attorney who possesses the insider knowledge of intent and meaning.  The question arises whether the attorney-client privilege protects the contract-drafting attorney’s communications from discovery or lawyer contractwhether her client has impliedly waived the privilege.

In his excellent article, Implied Waiver of the Attorney-Client Privilege in Contractual Disputes, available here, Joshua Portnoy discusses situations where courts have ruled that a contracting party waived the attorney-client privilege by putting the contract’s interpretation “at issue” in the lawsuit. Portnoy particularly highlights cases distinguishing ambiguous and unambiguous contracts.

Portnoy also discusses the scope of any implied waiver and whether a party may also discover the contract-drafting attorney’s work product.  The article concludes with takeaways and practice pointers for protecting a party “from unknowingly waiving the attorney-client privilege in a contract dispute or, at least, limiting the potential harm in the event of” privilege waiver.

DRI published the article in the Summer 2015 issue of its fine journal, In-House Defense Quarterly.  My thanks to DRI and Mr. Portnoy for permission to republish the article in this post.

The Accountant–Client Privilege in MDL Proceedings Reply

There is no federal common-law accountant–client privilege. Couch v. United States, 409 U.S. 322 (1973). Some, but not all, states recognize an accountant–client privilege, but the privilege’s scope and application vary.

In diversity-jurisdiction actions, federal courts apply the privilege law as dictated by the conflict-of-laws rules of the forum state. For an example of how these issues become tangled, see my post discussing a federal court aaccountantpplying Georgia’s accountant–client privilege to a Texas party and his North Carolina-based accountant.

Matters become even trickier when the Judicial Panel on Multidistrict Litigation consolidates several federal-court cases into a single MDL court. Convoluted choice-of-law issues arise, particularly regarding application of state-created evidentiary privileges.

Kelly J. Balkin identifies and discusses these complicated issues in her excellent law-review article, The Accountant–Client Privilege in Multidistrict Litigation: An Efficient Federal Common Law Solution, 69 U. Miami L. Rev. 833 (2015). In this article, available here , Ms. Balkin summarizes in a straight-forward manner the state and federal conflict-of-laws issues with respect to evidentiary privileges, and then proposes that MDL courts apply a blanket accountant–client privilege in MDL proceedings where at least one party had relied on the privilege in its accountant dealings.

This article is worth reading for understanding the federal and state conflict-of-laws rules in applying evidentiary privileges in general, as well as for those litigants confronting trouble applying a state-law privilege when a MDL court assumes control of multiple, related actions. And you will also find helpful another article, cited by Ms. Balkin, titled The Application of Conflict of Laws to Evidentiary Privileges, and available here.

My thanks to Kelly Balkin and The University of Miami Law Review for permission to re-publish this first-rate article in this post.

NY Court Adopts Garner Test and Rejects Adversity Threshold for Avoiding Privilege’s Fiduciary Exception Reply

In a case defining—for the first time—the parameters of the fiduciary exception to the attorney–client privilege in corporate disputes, a New York appellate court adopted the fiduciary-exception test enunciated in Garner v. Wolfinbarger, 430 F.2d 1093 (CTA 5 1970). In doing so, the court rejected the corporation’s argument that the fiduciary exception is inapplicable once its shareholders-plaintiffs become adverse to the company. NAMA Holdings, LLC v. Greenberg Traurig, LLP, 2015 WL 5839311 (N.Y. App. Div. Oct. 8, 2015). You may read the decision here.

Shareholder Derivative Suit

NAMA Holdings, LLC, an investor in The Alliance Network, LLC, sued Alliance, its managers, corporate registerand its law firm alleging a variety of business-tort claims, including breach of fiduciary duty. Alliance and its co-defendants asserted the attorney–client privilege in refusing to produce a variety of documents, including communications between the company’s managers and its law firm. NAMA responded that the fiduciary exception applicable in shareholder derivative suits obviated the privilege.

Fiduciary Exception

This exception to the attorney–client privilege arose in trust law on the theory that a trustee’s communications with the trust’s lawyer benefitted the trust beneficiary and, as such, the beneficiary could obtain these communications under a so-called fiduciary exception to the attorney–client privilege.

In Garner, the Fifth Circuit extended the fiduciary exception to the corporate environment, and identified a non-exhaustive list of factors that one must prove to show the “good cause” necessary to invoke the fiduciary exception. The list includes:

  1. Number of shareholders and percentage of stock they represent;
  2. The “bona fides” of the shareholders;
  3. Nature of the shareholders’ claim;
  4. The shareholders’ need for the information and the information’s availability from other sources;
  5. Whether the purported wrong is criminal, illegal but not criminal, or of doubtful legality;
  6. Whether the communication sought involves past or prospective actions;
  7. Whether the communication involves advice concerning the litigation itself;
  8. Whether the shareholders have identified the communication or are “blindly fishing”; and
  9. The corporation’s interest in maintaining the confidentiality of its information, such as trade secrets.

Not all jurisdictions follow this test and, even where they do, it is with some modification. For a recent critique of this rule, see Benjamin Cooper, An Uncertain Privilege: Reexamining Garner v. Wolfinbarger and Its Effect on Attorney-Client Privilege, 35 Cardozo L. R. 1217 (2014), available for reading here.

Adversity Requirement

Some courts hold that the fiduciary exception does not apply to communications made after the suing shareholders become adverse to the company. A recent Massachusetts Supreme Court case, profiled in this post, held just that. The NY court, however, rejected the adversity-threshold requirement, stating that Garner “did not create a categorical adversity limitation” and that adversity is “a component of the greater good-cause inquiry.”

And importantly, the court applied a “communication-specific adversity inquiry,” meaning that the trial court must review each purportedly privileged communication to determine whether—using the Garner factors—it revealed the necessary level of adversity. In other words, adversity is “not one of timing … but is answered by the communications’ content.”


Rejecting an adversity-only threshold, the court adopted Garner in totality, stating that courts evaluating a fiduciary exception must apply all of the Garner factors to each challenged communication. Noting that this is a “difficult task,” the court nonetheless remanded the case for a communication-specific inquiry.

Apple Chicanery? Court Limits In-House Counsel Deposition & Privilege Waiver Reply

The USDC for the Western District of Wisconsin limited the scope of Apple’s advice-of-counsel privilege waiver by excluding from discovery Apple’s Applecommunications with its trial counsel regarding a patent’s invalidity.  And in doing so, the court found that Apple did not engage in the type of “chicanery”
necessary to expand privilege waiver beyond communications with opinion counsel.  Wisconsin Alumni Research Foundation v. Apple, Inc., 2015 WL 5009880 (W.D. Wis. Aug. 20, 2015).  You may read the opinion here.

Discovery Dispute

Wisconsin Alumni Research Foundation (WARF) filed a patent-infringement lawsuit in January 2014 claiming that Apple willfully infringed on its ‘752 patent.  In December 2014—eleven months into the case—Apple retained “opinion counsel” to render an opinion as to the patent’s invalidity.

An Apple in-house lawyer, working with a business person, provided opinion counsel with certain documents and information.  Apple received and reviewed the opinion letter on January 30, 2015, and, relying on the advice-of-counsel defense to willful infringement, disclosed it to WARF the same day.

Apple disclosed communications involving its in-house lawyer, business person, and opinion counsel, but refused to disclose communications with its trial counsel or produce its in-house lawyer for deposition.  WARF filed a motion to compel.

Legal Precedent

It is clear that a party waives the attorney–client privilege once it relies upon advice-of-counsel defense to a claim of willful infringement.  In re Echostar Commc’ns Corp., 448 F.3d 1294 (Fed. Cir. 2006).  The waiver applies to all communications related to the same subject matter, but does not apply to a party’s communications with its trial counsel.  There is an exception—a trial court has discretion to broaden the waiver to trial counsel under unique circumstances involving “chicanery.”  In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007).

Chicanery or Good Legal Strategy?

WARF asked the court to broaden the privilege waiver because of Apple’s chicanery.  The purported chicanery included Apple retaining opinion counsel 11 months after WARF initiated the lawsuit and then receiving, reviewing, and producing the opinion letter on the same day—without communicating the opinion to an Apple business decision-maker.  WARF argued that Apple’s trial counsel crafted the invalidity opinion, and this tactic was “part of a litigation strategy to allow Apple  to present a witness who could on the stand parrot the invalidity analysis prepared by Apple’s litigation counsel.”


The court summarily rejected WARF’s chicanery’s arguments. Although noting that Apple’s retention of opinion counsel 11 months into the lawsuit goes to the weight a jury may place on the letter, the court found that WARF “failed to put forth any evidence supporting a finding of ‘trickery’ or ‘deception’ on the part of Apple.”

While “the self-serving nature of such a late-retained opinion letter” was evident, labeling all post-lawsuit opinion letters as chicanery “hardly seems good public policy.”  As such, the court held that WARF was not entitled to discover Apple’s communications with its trial counsel.

Although refusing to broaden Apple’s privilege waiver, the court permitted WARF to take a limited deposition of Apple’s in-house attorney.  At the deposition, WARF may inquire into the substance of his communications with opinion counsel (but not trial counsel), including topics that the in-house lawyer did not discuss.

Analysis: Does the Privilege Cover Post-Accident Investigation Reports? Reply

In a case that should prove instructive for corporate legal and risk-management departments, a Washington state appellate court ruled that the attorney–client privilege protected a post-accident investigation report from discovery in a personal-injury case.  The case provides a privilege roadmap for companies that conduct post-accident investigations as a matter of course.  Doehne v. Empres Healthcare Mgt., LLC, 2015 WL 4756393 (Wash. Ct. App. Aug. 11, 2015).  You may access the opinion here.

Investigation listThose Pesky Wheel Stops

The plaintiff left a healthcare facility managed by the defendant, Empres, and tripped and fell on a wheel stop in the parking lot.  Empres has an in-house legal department as well as a risk-management department.  The risk manager “acts as a conduit between the legal department and insurers regarding liability issues.”

After the accident, Empres’s legal department directed the risk manager to conduct an investigation into the wheel-stop fall.  The risk manager then instructed an Empres operations manager’s administrative assistant to do the investigation and prepare a report.  And she did so “consistent with how [she] generally performed these tasks for [her] employer.”

Privilege Ruling

Using language that corporate legal departments may in the future cite with some frequency, the appellate court stated that the “attorney–client privilege applies to any information generated by a request for legal advice, including documents created by clients with the intention of communicating with their attorneys.” (emphasis added).  By contrast, the privilege “does not protect documents that are prepared for some purpose other than communicating with an attorney.”  (emphasis added).

Here, while a report from an operations manager’s administrative assistant seems far removed from the legal department, Empres submitted the assistant’s declaration stating that she prepared the report for and provided it to Empres’s “risk management and legal departments.”  And this declaration sealed the privilege, with the court noting that the privilege applies “to communications between in-house counsel and multiple lower-level employees in an organization when those communications are made in order to secure legal advice.”

The plaintiff argued, with support, that the assistant prepared the report consistent with her regular duties and did not provide the report to any specific attorney.  While true, the court rejected this theory, noting that “the purpose rather than the manner of preparation guides [its] analysis.”  And because Empres proved that the assistant prepared the report to assist in-house counsel in addressing liability issues, the privilege protected it from discovery.

PoP Analysis: Contrast and Compare

The Doehne decision contrasts with other rulings on post-accident reports that PoP has profiled.  In Nelson v. Intercontinental Hotels Group Operating Corp., 2013 WL 5890612 (N.D. Ill. Nov. 1, 2013), discussed in this post, the court ruled that the privilege did not apply to post-accident reports conducted in accordance with the company’s regular business policy.

In Nelson, however, there was no evidence that the company’s legal department directed the post-accident investigation; whereas, in Doehne, the legal department requested the investigation, and the privilege applied even through ultimately conducted by a lower-level employee.

And in Mega Manufacturing, Inc. v. Eighth Judicial District Court, 2014 WL 2527226 (Nev. May 30, 2014), profiled in this post, the Nevada Supreme Court rejected the privilege for an engineer’s post-accident report provided to the company’s outside counsel.   Again, it appears there was little evidence that the company’s lawyers actually directed the investigation, a key in the Doehne decision.

In sum, in order to establish the privilege, companies should endeavor to have its counsel, in-house or outside counsel, direct the investigation, even if delegated, and ensure that the investigation findings are for the purpose of the attorney rendering legal advice to the company.  Otherwise, post-accident reports conducted by business employees for business employees will likely receive no privilege protection.

18 Questions Doom Counsel’s Inadvertent Disclosure Argument and Waive Privilege Reply

We all know that lawyers must “promptly take steps to rectify” an inadvertent disclosure of privileged information or risk privilege waiver.  FRE 502.  And while the term “promptly” may have different meanings in different contexts, a federal court has ruled that permitting a lawyer to ask 18 deposition questions about an inadvprivilege boxertently disclosed, privileged email before lodging an objection was not prompt enough.  Waste Connections of N.C., Inc. v. K.R. Drenth Trucking, Inc., 2015
WL 4647823 (W.D.N.C. Aug. 5, 2015).  You may read the opinion here.


In this breach-of-contract case, the corporate plaintiff produced over 11,000 emails and documents, including emails between the company’s Division Vice President and two in-house lawyers.  One of these emails contained a statement indicating the vice president’s interpretation of a pertinent contract provision.

At the vice president’s deposition, defense counsel showed him one of these emails and asked 18 questions about it without objection from plaintiff’s counsel.  The parties took a 49-minute lunch break and, upon resumption of the deposition, plaintiff’s counsel informed defense counsel that it appeared his client inadvertently produced privileged documents.

Defense counsel then filed a motion asking the court to deem the privileged waived as to the email used at the deposition as well as all inadvertently disclosed privileged emails.

Consent Protective Order

The parties agreed that a Consent Protective Order, available for review here, governed the vice president’s deposition and related discovery.  While the Order provides guidance regarding the identification and return of inadvertently produced documents, it was silent regarding the precautionary measures that the parties must take to avoid inadvertently producing privileged information.  The court took note of the absence of any governing provisions.

Adequate Measures

In the absence of guidance from the Consent Protective Order, the court defaulted to FRE 502 to determine whether the corporate plaintiff took adequate precautionary measures to prevent inadvertent disclosures.  The plaintiff argued that objections to privileged materials do not have to be immediate, but the court determined that allowing 18 questions before asserting an objection was neither immediate nor prompt.

The Court is sympathetic with counsel, but does not believe that he should be afforded greater protection than an attorney at trial who does not object to evidence at the critical point when tendered.

The court found the privileged waived and ordered production.

PoP Analysis

Two lessons arise from the Waste Connections opinion.  First, if lawyers agree on a protective order that governs inadvertent disclosures, then they should consider including an agreement on precautionary measures that each party must take to avoid inadvertent production of privileged information.  Without identified and agreed-upon measures, courts will default to FRE 502 (or state equivalent) to determine the adequacy of procedures.  A word of caution: if a party agrees to certain pre-production measures, then he must adhere to them or risk indefensible waiver.

Second, while allowing your opponent lawyer 18 questions on a putatively privileged document may not seem overly permissive, particularly when the lawyer was unsure how defense counsel obtained the documents and felt secure in the Consent Protective Order, the court’s ruling instructs lawyers to object immediately, even with a protective order, and prevent further questioning until all of the facts are known.

D.C. Circuit (Again) Upholds Privilege for In-House Counsel’s Internal Investigation Reply

Following its significant July 2014 opinion that the attorney–client privilege covers corporate internal investigations led by in-house counsel, the D.C. Circuit has ruled that the in-house lawyer did not subsequently waive that privilege by reviewing the investigation materials prior to his deposition or by placing the Investigationinvestigation results “at issue” in the case.  In re Kellogg Brown & Root, Inc., 2015 WL 4727411 (D.C. Cir. Aug. 11, 2015).  You may read the decision here.

Initial Decision

In a July 2014 opinion that PoP discussed in this post, the D.C. Circuit reversed a district court’s decision that the attorney–client privilege did not cover KBR’s internal investigation into whether the company defrauded the government by inflating invoices to the Department of Defense.  The court held that the privilege applies so long as the company’s legal department directed the investigation.

But on Remand …

On remand, KBR presented its in-house counsel as its 30(b)(6) representative on the topic of KBR’s internal investigation.  In preparation for the deposition, KBR’s in-house lawyer reviewed the internal-investigation materials, but KBR’s outside counsel asserted privilege objections to the in-house lawyer’s testimony about the investigation.

KBR later filed a summary judgment motion and, in a footnote, stated that KBR routinely conducts internal investigations; discloses adverse findings to the government but never discloses the investigation on privilege grounds; conducted an internal investigation into this particular matter but did not disclose any findings to the government.

The district court held that, under Federal Rule of Evidence 612, KBR waived the attorney–client privilege because the in-house lawyer reviewed internal-investigation documents in preparation for his deposition. And it ruled that KBR waived the privilege by placing the internal investigation “at issue” by referencing the investigation in a MSJ footnote.

The D.C. Circuit quickly reversed both decisions on a writ of mandamus.

No Rule 612 Waiver

FRE 612 provides that an adverse party may review documents that a witness “uses a writing to refresh memory.” The district court applied a “balancing test,” evaluating reasons to pierce the privilege and reasons to uphold the privilege.  The D.C. Circuit, however, held the balancing test “inappropriate in the first instance” and that, if identifying documents as privileged automatically “constitutes testimonial reliance,” then the attorney–client privilege “would mean nothing at all.”

The court noted that the district court’s decision essentially permits parties to notice “internal investigations” as a deposition topic and, when the deponent reviews the investigation in preparation, defeat the privilege through a Rule 612 waiver argument.  The court rejected the plaintiff’s “absurd position” that KBR should have had someone give the in-house lawyer a “summary” of the internal investigation rather than having him personally review it.

This makes no sense.  Such a rule would encourage entities to provide less knowledgeable corporate representatives for deposition, thus defeating the purpose of civil discovery to establish the fullest possible knowledge of the issues and facts before trial.

In short, a party cannot, through a deposition notice, put a privileged internal investigation “at issue” and then use Rule 612 to seek production of the privilege material.  As the court stated, “[a]llowing privilege and protection to be so easily defeated would defy reason and experience.”

No “At Issue” Waiver

While KBR’s footnote reference to it not providing investigation findings to the Department of Defense “presented a more difficult question,” the court held that KBR did not actually disclose the investigation findings.  And because KBR sought no specific relief by using the internal investigation, it did not put the investigation “at issue” and no waiver occurred.


My thanks to my law partner and excellent appellate lawyer, Scott Smith, for bringing this notable opinion to my attention.

Privilege Covers In-House Lawyer’s Communications with “Indirect Subsidiary” Reply

The USDC for the Western District of Texas (Austin) recently held that the attorney–client privilege protects from discovery communications between a parent company’s in-house counsel and management personnel of an “indirect subsidiary.”  The court ruled that the joint-client doctrine applied as the in-house lawyer supplied a well-crafted affidavit establishing the client relationship and all elements of the privilege.  Nester v. Textron, Inc., 2015 WL 1020673 (W.D. Tex. Mar. Org Chart9, 2015).  You may read the decision here.


In this products-liability case, the plaintiff claimed that Textron negligently designed the “kick off brake system” on its E-Z-GO Workhorse cart.  In 2005, a fatal accident occurred in the United Kingdom involving a similar model distributed by Ransomes Jacobsen, Ltd (RJL), an indirect subsidiary of Textron.  The British Health & Safety Executive (HSE) investigated the incident, and Textron’s in-house counsel provided legal advice to RJL during the investigation.

The corporate chain for this “indirect subsidiary,” illustrated in the accompanying chart, is: RJL, a British company, is a subsidiary of British company Ransomes Limited (RL).  RL is a subsidiary of British company Textron Acquisition Limited, which is a subsidiary of Textron Atlantic, LLC, a Delaware company.  And Textron Atlantic is a subsidiary of the defendant in this case, Textron, Inc.

The plaintiff sought in discovery communications between Textron, Inc.’s in-house lawyer and RJL personnel created during the HSE investigation.  Textron asserted that RJL was a joint client of Textron’s in-house counsel and, therefore, the attorney–client privilege protected these communications from discovery.

In-House Counsel Affidavit

I commend for your review the Textron in-house counsel affidavit, available here, because it adequately covered all of the elements to establish the joint-client doctrine and the corporate attorney–client privilege.  The lawyer explained the Textron–RJL relationship and that RJL “engage[d] [him] to provide legal advice and counsel” related to the UK accident and the HSE investigation.

Regarding the communications, the in-house lawyer covered all of the necessary elements to establish the attorney–client privilege, stating that he was Assistant General Counsel at the time and provided “professional legal services to and represented the legal interests of” RJL and Textron.  And as to the specific emails at issue, the lawyer persuasively stated that they “were confidential, and intended to remain confidential, and were made for the primary purpose of securing professional legal services” to RJL.


In this diversity case, the court correctly held that state privilege law supplies the rule of decision, and then applied Texas’s attorney–client privilege set forth in Tex. R. Evid. 503(b).   On a side note, it appears that neither the parties nor the court addressed whether Texas’s conflict-of-laws rules mandated application of UK privilege law.

Based primarily on Textron’s in-house counsel’s affidavit, the court ruled that he was “engaged to represent both RJL and Textron as joint clients during the 2005 HSE investigation.”  And because of this joint-client situation, the court ruled that “it is black letter Texas law” that the attorney–client privilege covers the emails between Textron’s in-house lawyer and RJL personnel.

What about the Allied-Litigant Doctrine?

Citing a 2012 Texas Supreme Court case, In re XL Specialty, 373 S.W.3d 46 (Tex. 2012), the plaintiff argued that Texas’s allied–litigant doctrine precluded the privilege finding.  In XL Specialty, a case that PoP profiled in this post, the Texas Supreme Court held that the common-interest privilege applies only to communications made by two parties during ongoing litigation.

Arguably, the allied–client doctrine would not apply to the communications sought from Textron/RJL because they pre-dated the litigation.  The Nester court, however, found this argument moot because XL Specialty “expressly does not change the long-standing Texas law that one attorney may simultaneously represent two or more clients on the same matter.”

PoP Analysis

Textron’s handling of this privilege issue provides guidance for in-house lawyers supplying legal advice to direct or indirect subsidiaries.  In-house counsel should document the subsidiary’s engagement of her services and request for legal advice. And after the attorney–client relationship exists, the lawyer must establish that the privilege covers the client communications by ensuring they were confidential when made, remained confidential thereafter, and were made for the purposes of securing legal advice.

No Privilege or Work-Product Protections for Communications between Insured and its Broker Reply

Author’s note: I apologize for the recent absence of blog posts.  Over the last three months I have tried two cases, one of which lasted seven weeks.  These trials prevented me from posting on recent privilege developments, but I resume today with this interesting opinion.

In an insured’s bad-faith claim against its insurer, the USDC for the Western District of Kentucky (Louisville) rejected attorney–client privilege and work-product assertionBrokers over communications between the insured and its broker.  In doing so, the court ruled that the communications did not pertain to legal advice even though the broker “shepherded the insured through the claims process.”  Cardinal Aluminum Co. v. Cont’l Cas. Co., 2015 WL 4483991 (WD Ky. July 22, 2015).  You may read the decision here.

Third-Party Subpoena to Broker

Cardinal Aluminum Co. sued Continental Casualty Co. claiming breach-of-contract and bad faith after Continental rejected Cardinal’s coverage claim for a crack in a piece of industrial equipment.  Continental subpoenaed Cardinal’s insurance broker seeking opinions, reports, and examinations related to the equipment and all documents related to the case.

Cardinal filed a motion to quash and filed in support its CFO’s affidavit.  The CFO stated that the broker “shepherded Cardinal through the eleven-month claims process,” negotiated with Continental on Cardinal’s behalf, met with Cardinal’s lawyer “to develop strategies,” and “acted to protect and advance Cardinal’s legal interests.”  You may read the affidavit here.

The broker was clearly involved with Cardinal’s counsel, and it is easy to see why Cardinal fought so hard to protect these communications.

Court Rejects Attorney–Client Privilege

In this diversity case, the federal court correctly applied Kentucky state privilege law to Cardinal’s privilege assertions over its broker communications.  Kentucky Rule of Evidence 503 requires the privilege proponent to prove that the communication was confidential, for purposes of legal advice, and made between two of these four parties: client, client’s representatives, the lawyer, or the lawyer’s representatives.

Cardinal argued that its broker was a “client representative” under Kentucky’s privilege rule.  After reading the CFO’s affidavit, however, the court ruled that the broker’s actions “do not amount to legal advice.”  And the broker’s negotiations with Continental over the policy “were not undertaken to obtain legal advice, but rather to secure insurance coverage.”  In short, the court found that, contrary to an attorney–client relationship, “the broker–insured relationship arises simply from a commercial transaction for the sale of insurance.”

Court Rejects Work-Product Doctrine

Contrary to the privilege conflict-of-law result, federal law governs work-product claims in federal court.  Cardinal claimed that the work-product doctrine protected communications with its broker arising after the date it submitted its claim to Continental.

The court rejected this assertion, however, stating that Cardinal failed to prove that the broker prepared the documents in anticipation of litigation.  Indeed, the CFO’s affidavit was silent in this regard.  The court further noted:

Documents prepared as part of the ordinary business functions of an insurance broker are not prepared as a result of anticipated litigation.

Small Hope

Although rejecting Cardinal’s privilege and work-product claims and ordering the broker’s deposition to move forward, the court provided Cardinal some hope.  The court permitted Cardinal to review the broker’s documents and submit a specific privilege log and to re-assert any privilege or work-product claims.  The court’s rulings, however, create a high hurdle for any future argument.