The attorney-client privilege is one of the oldest and most widely-known—if generally misunderstood—common law doctrines. In its broadest outline, it’s a rule that’s fairly easy to grasp and apply: a communication between a lawyer and a client for a legal purpose that is held in confidence is protected from disclosure by privilege. The rule ensures that clients can be candid with their lawyers without fear that their candor is discoverable (and ultimately harmful to their case). But don’t miss the important caveat: the communication must be held in confidence, meaning when there’s another, non-client party in on the conversation, there is no privilege.
This presents an obvious but often missed dilemma, as modern litigation often involves four critical parties sharing communications: the person or entity being sued, their attorney, their liability insurer(s), and their broker. This situation is so ubiquitous that it may be easy to forget that under the traditional rule, when you share information with your insurer or your broker, you’re breaking privilege.
Fortunately, the law has in many ways adapted to the pervasiveness of liability insurance, including through modifications of the traditional rule. Except in a small minority of jurisdictions (notably Missouri, Indiana, and Illinois, which recognize an insurer-insured privilege as a species of the attorney-client privilege), communications between a policyholder or its counsel and an insurance company are by definition still not protected by the attorney-client privilege. In order to keep those communications confidential some other privilege or exception must apply. Knowing what these safe harbors are—and ultimately, whether you should or shouldn’t share particular information with brokers and insurers—is critical in protecting your sensitive information from forced disclosure during discovery.
The common interest doctrine.
The “common interest doctrine” is not a privilege. Rather, it is an exception to the general rule that the attorney-client privilege does not apply to confidential communications. It enlarges the circle of persons to whom clients may disclose privileged information.
While the doctrine is newer and more varied in its application by jurisdiction than attorney-client privilege as a whole, the general rule is that to protect communications under the “common interest” doctrine, you must demonstrate that the communications featured a joint defense at the time of the communications or joint legal interest.
Communications between you (the policyholder) and your insurance company.
When you’ve been sued, ideally, you (or your broker) notify your liability insurance carrier of the claim, the insurance company accepts tender and appoints defense counsel without any hesitation, and you only have only one opposing party and lawsuit to deal with. Under this “ideal” scenario (of course, dealing with a lawsuit is less than ideal!), where the insurance company is controlling the litigation without reservation of rights, your communications with the insurer are likely protected. See, e.g., Continental Casualty Co. v. St. Paul Surplus Lines Ins. Co., 265 F.R.D. 510, 518 (E.D. Cal. 2010) (“under California law communications among retained defense counsel, the insured, and the insurer are protected by the attorney-client privilege when the insurer is defending the insured without reservation”).
But this “ideal” situation might not be your own:
- Not a duty to defend policy?
For one, maybe you’re not dealing with a liability policy with a duty to defend; maybe under the applicable coverage, the insurance company is obligated to reimburse defense costs rather than undertake defense themselves. In that scenario, the privilege might not apply. See Maplewood Partners, L.P. v. Indian Harbor Ins. Co., 295 F.R.D. 550, 603 (S.D. Fla. 2013) (“the Court finds that when an insured has purchased a directors and officers indemnity policy such as the Policy at issue in this case, which provides for the reimbursement of incurred defense expenses. . . and when the insured (or its own counsel) discloses otherwise-privileged materials with the insurer, it is proper to find that the insured has selectively waived its privilege. . . ”).
- Communications prior to acceptance of defense?
Or maybe the insurance company doesn’t accept its defense obligations right away—and a clever plaintiff seeks discovery of any communications you made before the insurance company acknowledges its duty to defend. In that situation, you may be able to argue for an extension of attorney-client privilege, but the specifics of your jurisdiction may come into play. See Miller v. City of Plymouth, No. 2:09-CV-205, JVB-PRC, 2011 U.S. Dist. LEXIS 48481, at *18 (N.D. Ind. May 5, 2011) (granting leave to assert “narrow extension of the attorney-client privilege as to any disclosure by the [policyholder] to its insurance carrier of facts required to show potential liability of the insurance carrier prior to the carrier acknowledging a duty to defend, or in other words, disclosures made in pursuit of legal representation”).
- The insurance company never accepts their defense obligations?
Unfortunately, if the insurance company never accepts their defense obligations, communications between your counsel and the insurance company are not likely to receive protections. See North River Ins. v. Philadelphia Reinsurance Corp., 797 F. Supp. 363 (D.N.J. 1992).
- Or they do defend, but subject to a reservation of rights?
If you’ve handled more than a few claims you’re probably very aware that insurance companies will sometimes defend subject to a reservation of rights. In that situation, unfortunately, courts often deny privilege protections. See Durkin v. Shields (In re Imperial Corp. of Am.), 167 F.R.D. 447, 451 (S.D. Cal. 1995) (where insurer reserved rights and did not pay the legal fees or select counsel under D&O policy, and later brought coverage litigation, communications were not privileged when sought by third party).
While communications with an insurer that is providing an unqualified defense are generally protected, there are a lot of variations on that basic fact pattern—usually with the result that the privilege is far less certain. Do not assume that communications with an Insurer that has reserved its rights to deny is privileged. Instead, assume that forced disclosure to third parties is a possibility and craft communications accordingly. That means sticking to facts and avoiding discussion of analysis and strategy.
And since in most jurisdictions the “common interest” doctrine (and its variants) is the means by which policyholder-insurer communications are protected, get a leg up and enter into common interest/joint defense agreements with your insurance companies. Include in such agreements that you will only disclose factual information rather than counsel’s mental impressions and strategy.
Communications with your agent or broker: a third party that breaks privilege?
Brokers play an important role in the policyholder/insurer relationship, often serving as conduits of information between the insurer and policyholder and acting as trusted advisors to policyholders. But they’re also “third parties” which, under traditional rules, break the attorney-client privilege. The protection of these types of communications has received less judicial treatment than those between insurer and policyholder, but they’re nevertheless critically important. Generally, there are two types of parties that might seek these communications: third party claimants might try to discover them in underlying litigation, while your insurance carriers might try to seek them in coverage litigation.
In 1972, the U.S. Supreme Court transmitted proposed Rules of Evidence to Congress with a more comprehensive (but less flexible) system of privileges. See Paul F. Rothstein, The Proposed Amendments to the Federal Rules of
Evidence, 62 Geo. L.J. 125-173 (1973). Among these was Proposed Federal Rule of Evidence 503 (“Supreme Court Rule 503”), which, while never passed by Congress, was endorsed by the U.S. Supreme Court, and is considered by federal courts to be persuasive guidance. Cf. In re Bieter Co., 16 F.3d 929, 935 (8th Cir. 1994). The Proposed Rule reads in part:
(b) General rule of privilege. A client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made for the purpose of facilitating the rendition of professional legal services to the client, (1) between himself or his representative and his lawyer or his lawyer’s representative, or (2) between his lawyer and the lawyer’s representative, or (3) by him or his lawyer to a lawyer representing another in a matter of common interest, or (4) between representatives of the client or between the client and a representative of the client, or (5) between lawyers representing the client.
A growing body of case law borrows from this basic framework, recognizing the role of brokers in “facilitating the rendition of professional legal services”, and upholding confidential communications shared with brokers as privileged.
Policyholders have been successful protecting those communications from third parties where they have been able to argue that the broker received the communications as “conduit” to facilitate the rendition of legal services.
- Exxon Corp. v. St. Paul Fire & Marine, 903 F. Supp. 1007, 1010 (E.D. La. 1995). In Exxon, the insurance company invoked the privilege on its behalf and the policyholder’s behalf against a third party; the third party claimed the privilege was broken by the broker’s receipt of the communications. The court upheld privilege: the broker received communications as a “conduit” between lawyer, insured, and insurer.
- In re Tetra Techs., Inc., No. 4:08-cv-0965, 2010 U.S. Dist. LEXIS 33012, at *14 (S.D. Tex. Apr. 5, 2010). Third party sought disclosure of communications which included broker, many of which took place while the Insurer and Insured were in a coverage dispute. The Court held that the documents would be protected as privileged to the extent they were “made to facilitate the rendition of legal services”, but also emphasized the importance of the presence of an attorney on the communications.
Policyholders have also had some success in coverage litigation where the insurance company is the party seeking disclosure.
- Royal Surplus Ins. Co. v. Sofamor Danek Grp., 190 F.R.D. 463, 471 (W.D. Tenn. 1998). Insurer sought extensive discovery from non-party broker, which insured and broker argued was privileged. Court noted that the account manager for broker was “the main conduit of information” between insurer and insured during negotiations for policy, and continued to be involved after issuance; court held him, broker’s in-house counsel, and an administrative assistant “insiders”, justifying extension of attorney-client privilege to communications they shared with insured.
- Navigators Mgmt. Co. v. St. Paul Fire & Marine Ins. Co., No. 4:06CV1722 SNLJ, 2009 U.S. Dist. LEXIS 14021 (E.D. Mo. Feb. 24, 2009). Court extended privilege to communications with broker, based on affidavit from insured noting that marine insurance brokers (such as their broker) are acting “as a conduit for information passed to the insurers of the client, obtaining and furnishing information to attorneys appointed to defend their client, participating in decisions regarding the defense of their client, monetary reserves for the claim, and settlement of the claim”.
- Cty. of San Bernardino v. Pac. Indem. Co., No. EDCV 13-1137 PSG (SS), 2014 U.S. Dist. LEXIS 195542 (C.D. Cal. July 30, 2014). Court considered whether disclosure to third-party broker defeated privilege, and held that it did not as it was reasonably necessary to effectuate insurance-related legal advice (from the legal consultant or other attorneys of the insured). The court discerned four general factors to evaluate whether disclosure to brokers defeats privilege:
(1) the broker was “necessary conduit of information between” insured and insurers;
(2) the broker and the insured worked together to provide relevant information about litigation or claims to the insurers;
(3) the broker’s expertise was necessary to understand general liability, coverage and litigation issues; and
(4) disclosure to the broker was therefore “reasonably necessary to provide information to the insurers“.
But don’t be lulled by the success stories: courts don’t uniformly accept these arguments, particularly where there is no evidentiary support for the role filled by the broker.
- Ace Am. Ins. Co. v. Riley Bros., 30 Mass. L. Rep. 116 (2012). Insured disclosed a memorandum with a factual explanation and legal analysis of underlying incident, copying attorneys. The Court held that disclosure to broker was not reasonably necessary to facilitate legal advice and destroyed privilege. The Court also held that the legal analysis portion was protected as non-waived work product, while the factual background section was waived and had to be disclosed.
- Mt. McKinley Ins. Co. v. Corning Inc., 2017 NY Slip Op 30704(U) (Sup. Ct.). Insured argued that brokerage was acting as its representative and thus argued for a non-waiver of privilege. Court disagreed. Insured provided affidavits of its own employees (rather than from broker), and didn’t “set forth any allegation” that broker’s services were specifically necessary to facilitate legal (rather than brokerage) advice or that brokerage had “unique” information otherwise unavailable given the sophistication of the insured.
On the front end, negotiate as part of your written engagement agreement with your broker that they agree to help “facilitate the professional rendition of legal services.” In that engagement agreement include one or more of the following:
- The broker acts as a representative of the policyholder and that the parties have an expectation of privacy in the claims handling and any coverage strategy and advice.
- The broker and the policyholder will cooperate to provide relevant information about litigation or claims to insurers.
- The broker’s services include consulting on liability, coverage, and litigation issues.
And, outside of the engagement agreement, you can protect your communications by hiring your broker as a non-testifying consulting expert witness.
Jurisdictions vary, and privilege issues are often fact-intensive, so it is important to always proceed with caution when sharing any information with a non-lawyer, including your insurance carriers and your brokers. But with a little front-end preparation and diligence, you can greatly increase your chances of protecting these often sensitive communications.