April 18, 2013 Articles

Erosion of Attorney-Client Privilege and Work-Product Doctrine in Bad-Faith Litigation

In an underlying liability suit, an insurer must keep in mind its tripartite relationship with its insured and outside defense counsel, as well as the long-term effects of this relationship in potential subsequent bad-faith litigation

by Stacey S. Farrell and Alicia G. Curran

Superstorm Sandy is a timely reminder of vulnerability. If recent reports by climatologists are correct, we can expect more and more such reminders, with damages and destruction to people, their property, and their businesses. The consequences of such large-scale climate events may be direct—as when a business’s property is destroyed and it sustains an interruption of its business operations as a result—or indirect—as when there is damage to property and operations on which a business relies, such as damage to its suppliers, customers, or other property the operability of which the business relies on to continue operations.

At the moment of this writing, estimates of economic loss from Superstorm Sandy are as high as $50 billion.[2] As with claims associated with other major coastal storms, claims for coverage arising out of Superstorm Sandy will present a number of complex factual and legal issues for insurance coverage purposes, including the distinction between wind and flood damage,[3] the impact of transportation diversions and shutdowns, and the effect of power outages on otherwise unaffected business operations. Here we look at some of the issues that may arise with respect to contingent business interruption coverage. The centrality of the New York metropolitan area to so much of the country’s commercial operations virtually guarantees that the impact on businesses functioning within that area will spread throughout the national economy, affecting other businesses and operations geographically distant from the site. That impact should be covered under the contingent business interruption insurance that is part of the property insurance policies that most businesses acquire.

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