United States: Check Those Privilege Logs: Attorney Participation Does Not Automatically Cloak Documents In Privilege

Last Updated: September 15 2015
Article by Stephen G. Foresta and Alison K. Roffi

As we have explored in prior posts—privilege can be a tricky thing to navigate in the insured-insurer context. While protecting privileged information is an obvious priority for all parties at all times, privilege gets especially gnarly when all things do—in litigation. In the throes of discovery, plaintiffs and defendants want access to all of their adversary's information that is relevant and material to the prosecution or defense of the case, while protecting their own privileged information from disclosure. A recent case from New York Supreme Court reminds us that attorney participation in the creation of documents does not automatically cloak them in privilege.

Plaintiff insurers in New Hampshire Insurance Co. v. MF Global Finance USA Inc. (Index No. 601621/2009) are seeking a judgment declaring that MF Global is precluded from recovering under financial institution bonds issued by plaintiffs. In the defense of the case, MF Global sought the production of documents prepared during the period preceding the insurers' coverage determination. The plaintiff insurers asserted the attorney-client privilege in refusing to turn over documents concerning their analysis of whether or not coverage should be extended. When faced with determining whether an investigative coverage report is privileged in New York State, the question boils down to whether an insurer's lawyers were acting as claims investigators or attorneys. Claims handling is understood to be an ordinary business activity for an insurance company and not privileged.

The Special Referee in the case conducted an in camera review and determined that prior to the decision to deny coverage, the insurers' lawyers were acting as claims investigators and not attorneys. The Referee recommended production of all documents predating the coverage decision. MF Global moved to confirm the Referee's Report in its entirety and certain plaintiff insurers moved to reject it. The court rejected as overbroad the Referee's conclusion that privilege does not apply to any documents prepared prior to coverage denial. However, the court found that the insurer plaintiffs failed to establish their claim that the services at issue were legal and not investigatory in nature, and rejected the affidavits of the insurers' in house claims examiners stating that counsel were retained to provide legal advices, finding them "conclusory" and "lacking in probative value." At the same time, however, the court acknowledged that in addition to acting as the claims investigators, the insurers' counsel also provided legal advice and legal services prior to the coverage determination, and concluded that such documents were protected from disclosure.

The main takeaway here is the reminder that the "hiring of counsel to perform the ordinary business activity of claims investigation cannot [] serve to cloak [] pre-denial documents with the attorney client privilege." If the documents are relevant, insureds are entitled to production of such documents in discovery and are advised to carefully inspect privilege logs to ensure that insurers are not improperly claiming privilege over documents related to a coverage determination on the basis that an attorney was involved. This New York State court decision reminds us that the retention of counsel is not an automatic shield. Documents must be primarily of a legal character—e.g., include case law or choice of law analysis, reveal legal strategy, or contain other evidence of the provision of legal services—in order to qualify for protection. Even then, the documents may only warrant redactions, and may not be withheld in full, from insureds.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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