September 12, 2012 Articles

When a Broker's Presence Breaks the "Cone of Silence" Surrounding Attorney-Client Communications

Policyholders often believe that their communications with the broker on issues related to a claim are protected by both the attorney-client privilege and the work-product doctrine, but some courts have disagreed with that notion

by Louis A. Chiafullo and Stephanie Platzman-Diamant

When coverage disputes arise between a policyholder and its insurer, the policyholder’s broker can become an invaluable resource. Typically, the broker will have knowledge of the placement of the insurance program, but the broker may also have extensive knowledge about the claims being discussed. Because of these factors, policyholders often believe that their communications with the broker on issues related to the claim are protected by both the attorney-client privilege and the work-product doctrine. However, policyholders should tread carefully because some courts have disagreed with that notion. Other courts have correctly determined that policyholder-broker communications should be protected from disclosure in a lawsuit or arbitration between the policyholder and the insurer.

The case law suggests that if the parties intend that the broker share in the attorney-client privilege or work-product protection, the broker’s participation must be necessary to the legal representation. That is, the privilege or protection will be maintained where the broker is present in an effort to assist the lawyer (whether in-house counsel or outside counsel) in gathering factual information, preparing for litigation, or otherwise formulating confidential legal advice to the client.

Courts have been far from consistent in their treatment of this issue. Instead, depending on the specific factual circumstances, courts have come down squarely on both sides of the question. Indeed, courts within the same jurisdiction have reached different results.[1] A review of some of the more recent decisions is instructive and can provide guidance to policyholders who intend to use brokers as a resource in claims handling or claims litigation.

Courts Rejecting Attorney-Client Privilege for  Broker-Policyholder Communications

Some courts have narrowly interpreted the attorney-client privilege and have not afforded such protection to policyholder-broker communications. For example, in SR International Business Insurance Co. v. World Trade Center Properties, LLC, the court held that communications between the policyholder and its broker’s employees during preparation for the broker’s employees’ depositions were not protected from discovery by the attorney-client privilege, the common-interest doctrine, or the work-product doctrine.[2]

In that case, insurers moved to compel deposition testimony regarding post-9/11 conversations between attorneys for holders of leases on the World Trade Center complex and employees of Willis, the insurance brokerage firm that obtained insurance coverage for the World Trade Center.[3] The leaseholders argued that conversations between their counsel and the Willis employees were protected by the attorney-client privilege that exists between the policyholder’s counsel and its agents and employees because Willis was acting as an agent of the leaseholders in placing the insurance for the World Trade Center.[4] Alternatively, the policyholders argued that they shared with Willis a common-interest privilege or that the work-product doctrine protected the communications.[5]

The court reasoned that the facts of the case did not warrant extending the attorney-client privilege to communications between the Willis employees and the leaseholders’ counsel because “the conversations at issue here . . . were between Willis, a multinational corporation with its own retained counsel, and the lawyers for one of its many clients.”[6] The court further reasoned that the leaseholders’ attorneys did not have any ethical obligation “to hold inviolate” information that they received from the broker’s employees.[7] Analyzing the attorney-client relationship from the Willis employees’ point of view, the court found that the broker’s employees “had no reason to believe that they were talking to lawyers who were representing their interest and would hold inviolate [their] confidences and secrets.”[8] The court also regarded the fact that “counsel advised their clients to enter into a joint defense agreement” as further demonstrating that no privilege existed between the Willis employees and the leaseholder’s attorneys.[9]

In addition, the court held that the broker’s communications were not protected by the common-interest doctrine, which it described as “permit[ting] a client to share confidential information with the attorney for another who shares a common legal interest.”[10]

There has been no showing that Willis and the [leaseholders] have an identical legal interest . . . . Willis is not a party to this litigation, and its legal position will be unaffected by the outcome of this case. If it did . . . anticipate litigation after September 11, it would seem that it would have been more likely to be sued by [the leaseholders] than by the insurance companies.[11]

Finally, the court held that the work-product doctrine did not preclude deposition questions about conversations between the Willis employees and the leaseholders’ attorneys. The court stated that under the Federal Rules of Civil Procedure, “the work product doctrine applies only to tangible things—not testimony.”[12] Given this limitation, the work-product doctrine protects only “questioning that is either specifically designed to discover the attorney’s work product or for some other reason presents a substantial likelihood that a response to the question will result in a significant disclosure of counsel’s legal strategy and thought processes.”[13] Applying these principles, the court concluded that the work-product doctrine did not preclude (1) questioning the broker’s employees about their conversations with the leaseholders’ counsel prior to their deposition preparation; (2) questioning the broker’s employees about what they said to the leaseholders’ counsel during their deposition preparation; and (3) questions concerning what leaseholders’ counsel said to the broker’s employees during their preparation, to the extent that the lawyers’ statements were necessary to provide an understanding of what the broker’s employee said to the lawyer.[14]

In a 2005 case in the Northern District of California—Sony Computer Entertainment America v. Great American Insurance Co.—the court addressed a situation where the policyholder’s broker was present during meetings between the policyholder and its outside counsel.[15] There, the policyholder sued certain of its insurers after the insurers denied coverage to Sony for two consumer lawsuits.[16] During discovery, two of the policyholder’s in-house attorneys, one of whom was designated as a Rule 30(b)(6) witness, gave deposition testimony.[17]

Because of objections to questions concerning the policyholder’s communications with its attorney in the presence of its insurance broker, one of the insurers filed motions to compel responses to these questions.[18] The insurer argued that the broker’s presence vitiated application of the attorney-client privilege.[19] The policyholder responded by arguing that the communications were confidential and privileged because the broker was “present indisputably to further [the policyholder’s] interest in [in-house counsel’s] consultations.”[20]

The court noted that the burden was on the policyholder to demonstrate that the broker was acting as an agent of the outside counsel or the policyholder during the discussions in order to preserve the confidentiality of the communications.[21] Because the court found that the policyholder failed to provide any admissible evidence from either the broker or the policyholder to support its position (e.g., including declarations by either the policyholder’s in-house attorney or broker), the court granted the insurer’s motion to compel.[22]

The following year, a federal court in New Jersey weighed in on the issue. In Cellco Partnership v. Certain Underwriters at Lloyd’s, London, Cellco sued its insurers after they denied its claim relating to the misappropriation by a former employee of personal identification numbers and calling cards.[23] During discovery, the insurers moved to compel production of communications that were prepared by or transmitted to or that summarized communications with the policyholder’s insurance broker, Aon.[24]

The policyholder sought to withhold these communications pursuant to the attorney-client privilege, claiming that in addition to being its insurance broker, Aon also provided legal counsel; thus, any communications between them were subject to the privilege.[25] The policyholder relied in part on the fact that the Aon employee responsible for handling its claim submission was also a licensed attorney and was providing legal counsel to the policyholder.[26] The court rejected Cellco’s argument, finding that there was no retainer agreement between Aon and Cellco and that Cellco failed to demonstrate sufficiently how Aon functioned as legal counsel.[27] The court also found that the broker/attorney employed by Aon explicitly stated that the information he was providing was not intended to be legal advice.[28]

Alternatively, Cellco argued that Aon acted as an “agent/interpreter” for it and its attorney.[29] The court was unconvinced, reasoning that “Aon did not act as an agent of the attorney or Plaintiff for the purposes of providing or interpreting legal advice.”[30] The court explained that “[w]hile the information and advice provided may have proved helpful, it was not needed to interpret complex issues in order to provide competent legal advice or to facilitate the attorney-client relationship.”[31] Thus, the court concluded that Aon’s communication with Cellco was not protected by the attorney-client privilege.[32]

In another case decided in 2006, J.E. Dunn Construction Co. v. Underwriters at Lloyd’s London, the court ordered production of correspondence among the policyholder, its broker, and its shared counsel.[33] There, the policyholder argued that this correspondence was protected by the common-interest/joint-defense exception to the waiver of the attorney-client privilege.[34] In support of its argument, the policyholder pointed to the broker’s payment of its counsel fees, the broker’s interest in seeing the return of the premium for the policyholder’s allegedly nonexistent coverage, and the common interest and joint defense agreement between the policyholder and the broker.[35] The policyholder further stated that although its broker was at least partially responsible for ensuring that it received the insurance coverage it requested, the policyholder, “realizing that [the broker] was as much of a victim of [the insurer’s] tortious conduct[,] . . .has not made a claim against [the broker] in this litigation.”[36]

The court was not convinced, holding that although the policyholder and the broker had a common “commercial” interest, this alignment of interests did not satisfy the requirement of the common-interest exception to the attorney-client privilege, which required that the parties have a common “legal” interest.[37] The court reasoned that the broker’s “interest is in avoiding liability to [the policyholder-]plaintiff,” which was obviously different than that of the policyholder.[38] The court was likewise not persuaded by the existence of a common interest and joint defense agreement between the policyholder and the broker, stating that a party’s beliefs, “subjective or otherwise, about the law of privilege cannot transform an otherwise unprivileged conversation into a privileged one.” [39]

Courts Extending Attorney-Client Privilege and Other Protections

Other courts have examined the relationship between the broker and the policyholder and have held that broker-policyholder communications are protected from disclosure. For example, in Atmel Corp. v. St. Paul Fire & Marine Ins. Co., the insurer moved to compel the production of attorney-client privileged materials that the policyholder, Atmel, had sent to its insurance broker.[40] The insurer argued that brokers are independent contractors and do not act as agents for either the insurer or policyholder.[41] The court rejected that argument, noting that the broker had negotiated the policies at issue and thereafter served as a “necessary advisor” to Atmel on insurance coverage and claim issues.[42] Accordingly, the court ruled that “[g]iven the relationship between [the broker] and Atmel, the attorney-client privilege was not waived because [the broker] was present to further Atmel’s interests and disclosure to [the broker] was reasonably necessary to provide information to the insurers.”[43]

In holding that the relationship between Atmel and its broker triggered the attorney-client privilege for the documents in question, the court likened the factual situation to that in Royal Surplus Lines Insurance Co. v. Sofamor Danek Group, Inc.[44] In that case, the district court upheld the magistrate judge’s discovery orders holding that the attorney-client privilege protected communications between the policyholder and the insurance broker, Sedgwick’s senior vice president. In arriving at this conclusion, the court analyzed the agency relationship between the policyholder and the broker using the factors set forth in Couch on Insurance 3d, Section 45:4—namely, (1) who first set the agent in motion, (2) who controlled the agent’s actions, (3) who paid the agent, and (4) whose interest the agent was attempting to protect. Applying these factors, the court found that “[a]side from the lack of evidence regarding who paid Sedgwick once the coverage was written, it is clear that the remaining factors weigh heavily in favor of viewing Sedgwick as [the policyholder’s] broker for the purposes of this transaction.”[45]

In support of its holding, the Sofamor court pointed to the fact that the policyholder—who had substantial ongoing liability exposure from personal injury suits arising out of the manufacture of orthopedic bone screws—had no employees knowledgeable about complex commercial insurance and, therefore, relied on Sedgwick.[46] Furthermore, Sedgwick’s senior vice president participated in meetings and strategy sessions with the policyholder and its counsel after the policy was issued and the insurer began to question its obligation to cover the costs of additional bone screw claims.[47] Thus, the court concluded that the broker’s vice president “should be deemed an ‘insider’ with respect to communications he shared in both before and after the issuance of the policy,” and those communications were within the attorney-client privilege.[48]

The court in Atmel also rejected the insurer’s reliance on SR International, because “[t]hat case did not describe the relationship between the insurance broker and the policyholder, and did not discuss the necessity of the communications or of the broker’s involvement under California law.”[49] The court further distinguished SR International on the basis that the case involved deposition preparation of the broker’s employees by policyholder’s counsel, which was not an issue in Atmel.[50]

In a more recent opinion, In re Tetra Technologies, Inc., the Southern District of Texas held that as long as the communications between the policyholder and the policyholder’s broker were made “for the purpose of facilitating the rendition of professional legal services to the client,” they would fall within the attorney-client privilege.[51]

In that case, Tetra shareholders alleged that Tetra misrepresented its likely insurance reimbursements for hurricane-related repairs.[52] The plaintiffs then moved to compel discovery of certain communications between Tetra employees and Tetra’s insurance brokers.[53] In support of their application, the plaintiffs argued that the communication with the brokers, who were third parties, vitiated the attorney-client privilege.[54] In response, Tetra argued that its insurance brokers were its agents and therefore fell within the ambit of the attorney-client privilege.[55] The plaintiffs argued that many of Tetra’s communications with its brokers took place in the context of a dispute between Tetra and its insurer—thus, the brokers were simply facilitators and not agents.[56]

The court held that, even where a policyholder and its insurers are engaged in a coverage dispute, an insurance broker can nonetheless act as the policyholder’s agent when the purpose of the communication is “to facilitate the rendition of legal services.”[57] The court noted that what is vital to the attorney-client privilege is that “the communication be made in confidence for the purpose of obtaining legal advice from a lawyer.”[58] The court ruled that it would review in camera the communications that the plaintiffs alleged did not meet such criteria to determine whether or not that particular communication fell within the attorney-client privilege.[59]

Practice Points for Protecting Policyholder-Broker Communications

Given the inconsistency with which courts have addressed the issue, policyholders and their brokers should consider entering into an all-purpose confidentiality agreement as part of the basic retention arrangement between them. This confidentiality agreement should provide that the broker understands and recognizes that (1) the policyholder may become involved in disputes with its insurers; (2) part of its duty to the policyholder is to maintain documents and information relevant to the policyholder’s coverage; (3) the policyholder and its counsel may communicate with the broker regarding the facts of an insurance dispute; and (4) it should keep such communications confidential.

Although a policyholder engaged in a discovery dispute will still need to make the requisite showing regarding the privilege of the communications at issue, having a confidentiality agreement in place would allow counsel to show that the claim of non-waiver is not a fiction invented by counsel to shield discovery.

In addition, when the policyholder’s counsel confers with the broker about a legal concern related to a pending litigation or claim, it is important to document these particular circumstances contemporaneously. This will help distinguish privileged interactions from routine communications. One way of accomplishing this is to mark “Privileged and Confidential” all communications with an insurance broker that are truly of a privileged nature.

At the same time, when entering into joint-defense and/or common-interest agreements, policyholders should keep in mind that courts do not necessarily view such agreements as dispositive of the existence of joint-defense or common-interest exceptions to waiver of the attorney-client privilege. The court in J.E. Dunn Construction rejected the argument that a common-interest and joint-defense agreement between a policyholder and its broker was evidence that those parties shared a common interest that would shield their communications from discovery.[60] Furthermore, a court may even interpret the existence of such agreements, or the suggestion by counsel that their clients enter into such agreements, as an indicator that broker-policyholder communications are not subject to the attorney-client privilege. For example, the court in SR International viewed counsel’s suggestion that the policyholders and the broker enter into a joint-defense agreement as indicative of the lack of privilege between the policyholders’ attorneys and the broker.[61]

When considering making an argument that policyholder-broker communications are protected by a common interest between the policyholder and broker, counsel for the policyholder should keep in mind that courts have been reluctant to shield such communications from discovery where the nature of the policyholder’s and broker’s common interest was found to be commercial, rather than legal. Policyholders should exercise special caution in advancing this argument in situations where the broker may be liable for negligent placement of the insurance at issue, which would weaken any argument that the policyholder and the broker share a common legal interest.

If a policyholder finds itself litigating whether oral communications made in the presence of a broker vitiate the attorney-client privilege, the policyholder should, at the very least, submit to the court declarations or affidavits by its employees/principals and key employees of its broker detailing why the broker’s presence was necessary to accomplish the purpose for which the attorney was consulted.

Conclusion

Courts are the ultimate arbiters as to whether a particular communication, in fact, facilitated legal advice and is protected by the attorney-client privilege. Policyholders, however, can take the steps outlined above so that they can make the best argument—and have the best factual record—against disclosure when it comes time to produce documents or give testimony during litigation.

Keywords: coverage disputes, attorney-client privilege, work product doctrine, broker-policyholder communications

Louis A. Chiafullo and Stephanie Platzman-Diamant are with McCarter & English, LLP, Newark, NJ.

 

[1] Compare Atmel Corp. v. St. Paul Fire & Marine Ins. Co., 409 F. Supp. 2d 1180  (N.D. Cal. 2005), with Sony Computer  Entm’t Am. v. Great Am. Ins. Co., 229 F.R.D. 632 (N.D. Cal. 2005).

[2] See SR Int’l Bus. Ins. Co. v. World Trade Ctr. Props., LLC, 2002 U.S. Dist. LEXIS 10919, *11–16 (S.D.N.Y. June 19, 2002).

[3] See SR International, 2002 U.S. Dist. LEXIS 10919, at *4–5.

[4] See SR International, 2002 U.S. Dist. LEXIS 10919, at *5.

[5] See SR International, 2002 U.S. Dist. LEXIS 10919, at *5.

[6] See SR International, 2002 U.S. Dist. LEXIS 10919, at *8.

[7] SR International, 2002 U.S. Dist. LEXIS 10919, at *10.

[8] SR International, 2002 U.S. Dist. LEXIS 10919, at *10–11 (internal quotation marks omitted).

[9] SR International, 2002 U.S. Dist. LEXIS 10919, at *11.

[10] SR International, 2002 U.S. Dist. LEXIS 10919, at *12.

[11] SR International, 2002 U.S. Dist. LEXIS 10919, at *14–15.

[12] SR International, 2002 U.S. Dist. LEXIS 10919, at *19.

[13] SR International, 2002 U.S. Dist. LEXIS 10919, at *19–20.

[14] See SR International, 2002 U.S. Dist. LEXIS 10919, at *20.

[15] Sony Computer Entm’t Am.  v. Great Am. Ins. Co., 229 F.R.D. 632 (N.D. Cal. 2005).

[16] See Sony Computer Entertainment America, 229 F.R.D. at 633.

[17] See Sony Computer Entertainment America, 229 F.R.D. at 633.

[18] See Sony Computer Entertainment America, 229 F.R.D. at 632–33.

[19] See Sony Computer Entertainment America, 229 F.R.D. at 633.

[20] Sony Computer Entertainment America, 229 F.R.D. at 633 (internal quotation marks omitted).

[21] See Sony Computer Entertainment America, 229 F.R.D. at 633.

[22] See Sony Computer Entertainment America, 229 F.R.D. at 634.

[23] See Cellco P’ship v. Certain Underwriters at Lloyd’s, London, 2006 U.S. Dist. LEXIS 28877, at *2 (D.N.J. May 11, 2006).

[24] See Cellco Partnership, 2006 U.S. Dist. LEXIS 28877, at *2–3.

[25] See Cellco Partnership, 2006 U.S. Dist. LEXIS 28877, at *8–9.

[26] See Cellco Partnership, 2006 U.S. Dist. LEXIS 28877, at *9.

[27] See Cellco Partnership, 2006 U.S. Dist. LEXIS 28877, at *9–10.

[28] See Cellco Partnership, 2006 U.S. Dist. LEXIS 28877, at *9.

[29] See Cellco Partnership, 2006 U.S. Dist. LEXIS 28877, at *10.

[30] Cellco Partnership, 2006 U.S. Dist. LEXIS 28877, at *11.

[31] Cellco Partnership, 2006 U.S. Dist. LEXIS 28877, at *11.

[32] See Cellco Partnership, 2006 U.S. Dist. LEXIS 28877, at *11.

[33] See J.E. Dunn Constr. Co. v. Underwriters at Lloyd’s London, 2006 U.S. Dist. LEXIS 26694 (W.D. Mo. Apr. 25, 2006).

[34] See J.E. Dunn Construction Co., 2006 U.S. Dist. LEXIS 26694, at *3.

[35] See J.E. Dunn Construction Co., 2006 U.S. Dist. LEXIS 26694, at *4.

[36] J.E. Dunn Construction Co., 2006 U.S. Dist. LEXIS 26694, at *4–5.

[37] See J.E. Dunn Construction Co., 2006 U.S. Dist. LEXIS 26694, at *5–6.

[38] J.E. Dunn Construction Co.,2006 U.S. Dist. LEXIS 26694, at *5–6.

[39] J.E. Dunn Construction Co., 2006 U.S. Dist. LEXIS 26694, at *6.

[40] Atmel Corp. v. St. Paul Fire & Marine Ins. Co., 409 F. Supp. 2d 1180, 1181  (N.D. Cal. 2005).

[41] See Atmel Corp., 409 F. Supp. 2d at 1181.

[42] See Atmel Corp., 409 F. Supp. 2d at 1182.

[43] Atmel Corp., 409 F. Supp. 2d at 1182; see also Miller v. Haulmark Transp.  Sys., 104 F.R.D. 442, 445 (E.D. Pa. 1984), where the court upheld the policyholder’s claim of attorney-client privilege by finding that the broker’s presence was necessary to assist counsel in preparing an answer to a complaint. As the court explained:
[T]he presence of [the broker] at the meeting does not constitute a waiver of the privilege as to the contents of that meeting, or the other material sought. [The broker] was instrumental in arranging that coverage, and his purpose at the meeting was to aid in the preparation of an answer. The presence of one so closely related to [the policyholder] and this [coverage] lawsuit for the limited purpose of aiding the attorneys involved in defending the lawsuit does not void the privilege.

[44] Atmel Corp., 409 F. Supp. 2d at 1182 (citing Royal Surplus Lines Ins. Co. v. Sofamor Danek Grp., Inc., 190 F.R.D. 463 (W.D. Tenn. 1999)).

[45] See Sofamor Danek Group, 190 F.R.D. at 471.

[46] See Sofamor Danek Group, 190 F.R.D. at 471.

[47] See Sofamor Danek Group, 190 F.R.D. at 471.

[48] See Sofamor Danek Group, 190 F.R.D. at 471.

[49] See Atmel Corp. v. St. Paul Fire & Marine Ins. Co., 409 F. Supp. 2d at 1182 n.3 (N.D. Cal. 2005).

[50] See Atmel Corp., 409 F. Supp. 2d at 1182 n.3.

[51] In re Tetra Techs., Inc., 2010 U.S. Dist. LEXIS 33012, at *13–14 (S.D. Tex. Apr. 5, 2010). See also Navigators Mgmt. Co. v. St. Paul Fire & Marine Ins. Co., 2009 U.S. Dist. LEXIS 14021 (E.D. Mo. Feb. 24, 2009). There, the court held that the insurance agency was acting as the policyholder’s “representative” to the extent that its communications were made for the purpose of “facilitating the rendition of professional legal services”; thus, such communications were protected by the attorney-client privilege. However, the agency was not the policyholder’s “representative” to the extent that its communications did not involve an attorney or were not made to facilitate legal services.

[52] In re Tetra, 2010 U.S. Dist. LEXIS 33012, at *3.

[53] See In re Tetra, 2010 U.S. Dist. LEXIS 33012, at *2–3.

[54] See In re Tetra, 2010 U.S. Dist. LEXIS 33012, at *12.

[55] See In re Tetra, 2010 U.S. Dist. LEXIS 33012, at *12.

[56] See In re Tetra, 2010 U.S. Dist. LEXIS 33012, at *13.

[57] In re Tetra, 2010 U.S. Dist. LEXIS 33012, at *13–14.

[58] In re Tetra, 2010 U.S. Dist. LEXIS 33012, at *12.

[59] See In re Tetra, 2010 U.S. Dist. LEXIS 33012, at *14–15.

[60] See J.E. Dunn Constr. Co. v. Underwriters at Lloyd’s London, 2006 U.S. Dist. LEXIS 26694, at *6 (W.D. Mo. Apr. 25, 2006).

[61] See SR Int’l Bus. Ins. Co. v. World Trade Ctr. Props., LLC, 2002 U.S. Dist. LEXIS 10919, at *11 (S.D.N.Y. June 19, 2002).

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