In a thorough article published in DRI’s In-House Defense Quarterly, lawyers Dan Kohane and Sean Griffin, along with soon-to-be lawyer John Ewell, discuss recent court decisions eroding the attorney–client privilege and work-product protections for claims files and other communications in bad-faith litigation.
From these decisions, the authors conclude that “[t]oday, insurance companies cannot assume that their communications with their attorneys will remain confidential.” The authors do not simply identify the issue; rather, they advocate for a “better rule” modeled after the West Virginia Supreme Court’s decision in Montpelier U.S. Ins. Co. v. Bloom, 757 S.E.2d 788 (W. Va. 2014), a decision that PoP profiled in this post.
The article also contains a host of practice pointers for insurers and their counsel to “help them protect their coverage file from discovery.” I commend this well-researched article for your consideration. And for additional information see the following posts: Court Rejects Privilege for Insurer’s Claims File and Attorney Communications and Court Rejects Privilege for Emails of Attorney Claims Specialist.
Dan D. Kohane, Sean Griffin, & John R. Ewell, Practical Solutions to Fend Off the Attack on the Confidentiality of Insurer-Coverage Counsel Communications, In-House Defense Quarterly, at p. 42 (Spring 2016). My thanks to DRI for allowing republication of this article.
In litigation over an insurance company’s denial of a claim, a New York Appellate Court ruled that the attorney–client privilege did not protect the insurer’s claims file and attorney communications. Melworm v. Encompass Indemnity Co., 977 N.Y.S.2d 321 (App. Div. 2013). You may access the opinion here.
The Melworm case involved an insurance claim over boat damage. The insured sued for breach of contract after the insurer denied the claim, and sought in discovery the insurer’s electronic claims diary prepared by an employee. The insured also sought the insurer’s attorney’s communications during his investigation into the claim.
The insurer asserted the attorney–client privilege over the claims file and attorney communications, but the Court rejected the privilege claims after an in camera review of the documents. The Court noted that the payment or rejection of claims is part of the regular business of an insurance company, and stated:
Reports prepared by insurance investigators, adjusters, or attorneys before the decision is made to pay or reject a claim are thus not privileged and are discoverable, even when those reports are mixed/multi-purpose reports, motivated in part by the potential for litigation with the insured.
The Court ruled that the insurer’s employee and attorney prepared the diary entries and letters as part of the insurer’s claim investigation and were not “primarily and predominantly of a legal character.” This “regular course of business” versus “predominantly legal” analysis went against the insurer in this instance. For other PoP profiles of court decisions in this area, see this post, and this one.
The USDC for the District of Connecticut rejected an insurance company’s claim that the attorney–client privilege protects emails by and with its claims specialist prior to a coverage decision. And the court rendered this decision even though the claims specialist is an attorney. Mehta v. Ace American Ins. Co., 2013 WL 3105215 (D. Conn. June 18, 2013).
In Mehta, the plaintiff filed a claim against Ace American Insurance alleging that it breached its uninsured motorist policy by failing to pay a fatality claim. The plaintiff filed a motion to compel when Ace refused to produce emails “by and with [its] claims specialist, an attorney, prior to the coverage decision.”
In this diversity case, the court correctly applied Connecticut’s state privilege law as required by Federal Rule of Evidence 501. For a detailed review of the conflict-of-law rules for evidentiary privileges, including the rules for federal and state conflicts and state and state conflicts, see my Conflict of Laws article here.
The Mehta court granted the motion to compel, stating that “an insurance company may not insulate itself from discovery by hiring an attorney to conduct ordinary claims investigations.” The court held that the attorney–client privilege does not apply to attorneys acting as claims adjusters, claims process supervisors, or claims investigation monitors rather than as legal advisors. The court drew a clear distinction between insurance documents representing “truly confidential inquiries or responses to counsel concerning legal advice” and insurance claims investigations.
PoP Analysis. The court followed the narrow privilege interpretation that many courts apply when analyzing insurance claims adjusters. The attorney–client privilege protects communications to and from attorneys, but only when made for the purpose of rendering legal advice. Courts often view claims adjusters, particularly in coverage cases, as conducting factual investigations that other lawyers in the company will use to complete a legal evaluation. When attorneys act something other than an attorney, her communications simply are not privileged.
My thanks to Hartford lawyer Michael T. McCormack of the Hinckley Allen firm for alerting me to this informative ruling.