Yes, Virginia, There is an “Insurance Compliance Self-Evaluative Privilege”

In 1897, 8-year-old Virginia O’Hanlon sent a letter to the editor of the New York Sun newspaper asking if Santa Claus existed.  The paper’s editor, Francis Pharcellus Church, responded in an Virginniaeditorial declaring “Yes, Virginia, there is a Santa Claus.”  You may read about this story on the Newseum’s website, accessible here.

While no one has asked a newspaper (or me) whether there is an Insurance Compliance Self-Evaluative Privilege, I am certain the legal public has this question on its collective mind.  So, I will end everyone’s anxiety by stating, yes, Virginia, there is an Insurance Compliance Self-Evaluative Privilege, but only in certain states.

Model Act

In 1988, the National Conference of Insurance Legislators (NCOIL) adopted a model act titled Insurance Compliance Self-Evaluative Privilege Model Act, which you can access here. The purpose of this act is to encourage insurance companies conducting activities regulated by a state insurance agency to conduct voluntary internal audits of their compliance with state and federal regulations.

The Privilege

To further this purpose, the act creates an evidentiary privilege that protects from discovery an “insurance compliance self-evaluative audit document,” which the act broadly defines as documents prepared as a result of or in connection with an insurance compliance audit.  The privilege specifically covers an audit report prepared by an auditor, memoranda analyzing all or portions of the insurance-compliance audit, discussions of implementation issues, and implementation plans that address correcting past non-compliance or preventing future non-compliance.

The privilege also precludes the examination in any civil, criminal, or administrative proceeding an insurance company’s employee or consultant hired for the purpose of conducting an insurance-compliance audit.


The privilege does not protect documents, communications, data, reports, and other information that an insurance agency expressly requires the insurance company to collect, develop, or maintain. There are two exceptions to the privilege: when asserted for a fraudulent purpose or the self-audit contains evidence relevant to the commission of a criminal offense.

Selective Waiver

The model act includes a selective-waiver provision that permits the insurance company to voluntarily disclose self-audits without fear that the disclosure will constitute privilege waiver in subsequent state litigation.   And to the extent that a state insurance agency has authority to compel a self-audit, this disclosure likewise does not operate as a privilege waiver in subsequent litigation.

An unanswered yet significant issue, however, is whether federal courts would adhere to the state-law selective waiver provision or rule that disclosure to a state insurance agency amounts to privilege waiver.  Fed. R. Evid. 502(a) is of no help because it applies only to disclosures to federal agencies.

Where Does the Privilege Apply?

Several legislatures have adopted, in some form, the Insurance Compliance Self-Evaluative Privilege, including Arizona, District of Columbia, GeorgiaHawaii, Illinois, Kansas, Michigan, New Jersey, North Dakota, Oklahoma, and Oregon.  The Washington Legal Foundation issued an advocacy piece, which you may access here, that outlines benefits of the privilege in today’s regulatory environment.

Is this privilege on your state legislature’s radar?

Illinois Rejects Self-Critical Analysis Privilege—Will Other States Follow?

In a long-awaited ruling, the Illinois Supreme Court refused to recognize a common law self-critical analysis privilege and ordered production of a company’s quality-review report generated in response to an infant’s death.  Although arguably a narrow ruling, this decision will likely influence other state courts faced with a similar issue—do public-policy considerations warrant recognition of a common law self-critical analysis privilege.  Harris v. One Hope United, Inc., 2015 IL 117200 (Ill. Mar. 19, 2015).  You may read the decision here.

Illinois Supreme Court

Illinois Supreme Court

The Case

An infant died while in her mother’s care and in One Hope United’s family services program. The public guardian, acting as the infant’s estate administrator, filed a wrongful death suit against the mother and One Hope. Discovery revealed that One Hope investigated the death and prepared a post-death “Priority Review” report that evaluated its services.

One Hope refused to produce the Priority Review report on grounds that the self-critical analysis privilege protected its disclosure. The trial court refused to recognize the privilege, held One Hope in “friendly contempt,” and set the stage for appeal. In a decision profiled in this post, the appellate court also refused to adopt the privilege.

Pertinent Issues

As noted in my prior post, a threshold issue was whether the Illinois evidence rules permitted courts to adopt new common-law evidentiary privileges and modify existing privileges, or whether that role fell exclusively within the legislature’s domain.  And if the evidence rules permitted common-law privileges development, did public policy considerations compel adoption of a self-critical-analysis privilege.

The Ruling

The Supreme Court assumed, without directly addressing, that it could adopt new common-law privileges, but only in “rare instances.”  Those instances arise where the privilege proponent sufficiently proves each of four elements: (1) the communications originated in a confidence that they would not be disclosed; (2) confidentiality is essential to the maintenance of the parties’ relationship; (3) the relation at issue is one which “in the opinion of the community ought to be sedulously fostered”; and (4) the injury to the relation produced by disclosure outweighs the benefit of the truth-finding process and “the correct disposal of litigation.”

As to the 4th element, which focuses on public-policy considerations, the Supreme Court noted that adopting new privileges “involves a balancing of public policies which should be left to the legislature” and that the judiciary’s function was not “to promote policies aimed at broader social goals.”

So, the court looked for any legislative evidence to inform whether it should adopt a self-critical analysis privilege in this instance.  Reviewing the Child Death Review Team Act, which governs governmental panels reviewing minors’ deaths, and the Medical Studies Act, which creates a medial peer-review privilege, the court determined that these acts did not favor adoption of a self-critical analysis privilege.  The court reasoned that the Illinois legislature could have extended the peer-review privilege to entities such as One Hope, but did not; and the Child Death Review Team Act arguably encouraged rather than discouraged disclosure.

In sum, the court refused to recognize a common law self-critical analysis privilege because it is a “matter more appropriately a subject for legislative action.”  The court avoided “judicial infringement upon what is principally a policymaking decision for the legislature,” and reviewed whether public-policy expressions in existing legislation “warrant[ed] a ‘rare’ exercise of judicial authority” in recognizing new privileges.  Finding no legislative support, the court rejected the privilege.

PoP Analysis

The court focused on existing legislation relevant to One Hope’s activities and concluded that “the type of information sought in discovery here is not subject to a self-critical analysis privilege.” This limitation indicates that Illinois courts may re-consider a self-critical analysis privilege in other contexts; however, the Harris ruling tells us that adoption of new common law privileges is “rare” and existing legislation must clearly point toward the privilege’s adoption in a particular set of circumstances.

So, how will other states react to Harris when determining whether to adopt a self-critical analysis privilege? The self-critical analysis privilege, a product of the medical peer-review privilege first adopted in Bredice v. Doctors Hosp., Inc. 50 FRD 249 (D.D.C. 1970), encourages entities to undertake candid and unrestrained self-examinations for quality-improvement purposes by promising protection from discovery.  The theory is that entities will not be forthcoming and candid in their self-analyses without confidentiality assurances, and the lack of candidness will thwart improvement.

The Harris court effectively declined to assess whether Illinois common law should encourage self-examinations by adopting the privilege, instead scanning statutes to discern whether the legislature had already made this public-policy determination.  Courts in other states, however, may not feel constrained by existing legislation, particularly when legislatively approved state evidence rules, like FRE 501, permit common-law development of evidentiary privileges.

Illinois interprets this development opportunity narrowly, but other states may not.

My thanks to Jeff Bergman of the Chicago litigation firm of Mandell Menkes for informing me of the court’s release of this opinion.

Engineer’s Investigative Report—Sent to Outside Counsel—Not Privileged 1

The Nevada Supreme Court ruled that the attorney–client privilege did not protect from disclosure a post-accident investigative report by a manufacturer’s engineer.  The Court issued the ruling even though the investigator sent the report to the manufactureconfidential document flush awayr’s outside counsel.  Mega Manufacturing, Inc. v. Eighth Judicial District Court, 2014 WL 2527226 (Nev. May 30, 2014).  You may read the decision here.

Accident Investigation

Following an injury involving a press brake machine, the press brake manufacturer’s chief engineer conducted an investigation and sent his investigation report to the manufacturer’s outside counsel.  The engineer discussed the investigation with outside counsel before conducting the investigation.

The injured plaintiff sued and sought production of the investigation report.  The manufacturer objected, asserting the work-product doctrine and the attorney–client privilege.  The trial court rejected both objections.

Attorney–Client Privilege

One may question the court’s rejection of the attorney–client privilege.  The court applied Nevada’s privilege, which protects confidential communications between the “client’s representative and the client’s lawyer.”  While there was a factual issue whether the manufacturer or an affiliate company actually employed the engineer, there was no dispute that the engineer was the manufacturer’s representative while conducting the investigation.

Yet, the court relied upon federal common law in making its decision and noted that the Supreme Court’s Upjohn decision “largely turns on the issue of employment.”  The Nevada court therefore held the privilege inapplicable because there was some dispute whether the press brake manufacturer employed the engineer.

The court did not address several decisions finding that the privilege applied to consultants and others considered functional equivalent of employees.  See my post regarding a Google case applying the functional equivalent of employee test.

Work-Product Doctrine

The court similarly rejected the work-product doctrine because there was a factual issue whether the engineer prepared the report in anticipation of litigation.  The engineer testified that he spoke with the manufacturer’s outside counsel before conducting the investigation and sent the final report to him. But the court found this factual evidence insufficient to prove the anticipation-of-litigation element.

Other Privileges

The manufacturer also asserted the self-critical analysis privilege, but the court gave this privilege virtually no attention, stating simply that it “considered [the manufacturer’s] other arguments and conclude they lack merit.”

PoP Analysis

The court’s decision lacks a thorough analysis, but, fortunately, the court decided not to publish the opinion, meaning it has no precedential value.  Yet, the case is constructive for lawyers and corporations conducting post-accident investigations.  The evidence in this case appeared equivocal—but what if the manufacturer’s counsel had directed, in writing, that the engineer conduct the investigation because the company anticipated litigation?  And what if the engineer began his investigative report with a statement that he prepared it at the direction of counsel, on behalf of the manufacturer, and for purposes of the manufacturer’s counsel providing legal advice.  I suspect the court would have reached a different outcome.