Court Rejects Privilege for “Reserve Amount” Set by In-House Claims Counsel Reply

If an insurance company may have to pay a claim, it typically sets aside a sum of money—the reserve—to fund that claim if and when payment becomes necessary. And if the company’s in-house claims counsel decides the reserve amount, the question arises whether the attorney–client privilege or work-product doctrine protects that decision from discovery.

The Arizona federal court, applying federal law, rejected a surety company’s privilege and work-product arguments, and ordered it to disclose its reserve amount to its adversary. The court made this ruling even though the company’s Senior Claims Counsel “solely” set the amount “in his capacity as legal counsel.” Western Surety Co. v. United States, 2018 WL 6788665 (D. Ariz. Dec. 26, 2018). You may read the decision here. More…

Deck the Halls with Boughs of Kovel 1

Over the last quarter of 2018 and leading into this holiday season, several courts have issued decisions applying the Kovel Doctrine in a variety of settings. So, this seems like an excellent time to review the doctrine, explain it, and see how courts have recently applied it, including in settings involving adult children, public-relations consultants, investment bankers, and accountants.

What is the Kovel Doctrine?

Louis Kovel was, as we Southerners would say, a revenuer. He worked as an IRS agent but, in 1943, became employed as an accountant with Kamerman & Kamerman, a NY tax law firm. When a federal grand jury began investigating a man named Hopps for tax improprieties, Hopps sought counsel from the Kamerman firm, and specifically met with the non-lawyer, former revenuer Kovel.

Kovel was later subpoenaed to provide grand-jury testimony against Hopps, but refused to answer any questions on grounds that the attorney–client privilege protected his discussions  with Hopps.  Remember, there is no federal accountant–client privilege, so the attorney–client privilege was his only avenue for relief.

The district judge bluntly rejected Kovel’s privilege argument, omnisciently stating:

  “You don’t have to give me authority on [the privilege]”;

  “I’m not going to listen” to Kovel; and

   “There is no privilege to this man at all.”

And when Kovel refused the judge’s order to disclose his communications with Hopps, the judge held him in criminal contempt and sentenced him to a year in jail.

Poor Kovel.

The judge let Kovel out of jail after 4 days so that he could appeal to the Second Circuit, and so he did. Legendary judge Henry J. Friendly authored what became the seminal decision on More…

No Room in the Inn: Marriott’s Legal Dep’t Loses Privilege over Strategic Plan Memo 1

The age-old privilege issue of an in-house lawyer providing business or legal advice has once again reared its head. Marriott’s legal department provided analysis and advice into the company’s strategic-plan memorandum, but a federal court ruled that the privilege did not protect the lawyer-drafted sections from discovery. RCHFU, LLC v. Marriott Vacations Worldwide Corp., 2018 WL 3055774 (D. Colo. May 23, 2018). You may read the decision here.

This case raises issues of legal standards and practical application, so let’s explore it.

Strategic Plan Memorandum

Marriott Vacation Club’s COO and its Senior VP sent a memorandum, titled “Ritz-Carlton Destination Club Proposed Strategic Plan,” to the Corporate Growth Committee. On the surface, this document seems purely business related with no privilege protection. While its confidentiality remained intact, the memo contains no privilege-related notices or alerts, and no lawyer appears to have written or received it.

But let’s take a closer look.

Business Advice or Legal Advice?

Marriott’s Vice-President and Senior Counsel submitted a sworn declaration, available here, stating that More…