In an insuredâs bad-faith claim against its insurer, the USDC for the Western District of Kentucky (Louisville) rejected attorneyâclient privilege and work-product assertion
Third-Party Subpoena to Broker
Cardinal Aluminum Co. sued Continental Casualty Co. claiming breach-of-contract and bad faith after Continental rejected Cardinalâs coverage claim for a crack in a piece of industrial equipment. Continental subpoenaed Cardinalâs 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 CFOâs affidavit. The CFO stated that the broker âshepherded Cardinal through the eleven-month claims process,â negotiated with Continental on Cardinalâs behalf, met with Cardinalâs lawyer âto develop strategies,â and âacted to protect and advance Cardinalâs legal interests.â You may read the affidavit here.
The broker was clearly involved with Cardinalâs counsel, and it is easy to see why Cardinal fought so hard to protect these communications.
Court Rejects AttorneyâClient Privilege
In this diversity case, the federal court correctly applied Kentucky state privilege law to Cardinalâs 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, clientâs representatives, the lawyer, or the lawyerâs representatives.
Cardinal argued that its broker was a âclient representativeâ under Kentuckyâs privilege rule. After reading the CFOâs affidavit, however, the court ruled that the brokerâs actions âdo not amount to legal advice.â And the brokerâs negotiations with Continental over the policy âwere not undertaken to obtain legal advice, but rather to secure insurance coverage.â In short, the court found that, contrary to an attorneyâclient relationship, âthe brokerâinsured relationship arises simply from a commercial transaction for the sale of insurance.â
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 CFOâs 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 Cardinalâs privilege and work-product claims and ordering the brokerâs deposition to move forward, the court provided Cardinal some hope. The court permitted Cardinal to review the brokerâs documents and submit a specific privilege log and to re-assert any privilege or work-product claims. The courtâs rulings, however, create a high hurdle for any future argument.