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

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.