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February 02, 2017 Articles

Coverage Privileges and Protections: Insured vs. Insurer and Claimant vs. Insured

A look at recent cases that reflect scenarios that are becoming more common, as well as steps that insurers and policyholders may take to protect against disclosure of information to third-party claimants

by Karin S. Aldama, Rina Carmel, Sherilyn Pastor, and Beth Zaro Green

The attorney-client privilege is usually defined as applying to, and protecting from discovery, confidential communications between a client and its lawyer (or their respective agents) made for the purpose of obtaining or providing legal advice.[2] But in the liability insurance context, there are often more than two actors: the insurer, the policyholder, insurer-provided defense counsel, the insurer’s coverage counsel, and at least one plaintiff in the underlying action against the policyholder. Under those circumstances, thorny privilege issues can arise, two of which are discussed in this article.

The first of those is the privilege between the insurer and its coverage counsel. Of the thousands of decisions regarding the scope of the attorney-client privilege in that context, many have upheld the privilege. But policyholders engaged in coverage litigation, and particularly ones asserting claims of bad faith, are increasingly arguing that communications between an insurer and its counsel are not necessarily protected from discovery. Some courts have agreed with these arguments, creating exceptions to the privilege or limiting the privilege quite significantly. This article is not exhaustive in discussing the case law on these privilege issues; rather, it reviews some of the key decisions on this point, focusing mainly on recent case law. It also provides practical tips for both sides.

The second issue concerns enterprising third-party claimants that are increasingly seeking discovery of insurance information, including communications between the policyholder, its defense counsel, and the insurer, in an effort to prove liability and damages against policyholders. On that front, this article discusses scenarios that are becoming more common and steps that insurers and policyholders may take to protect against disclosure of that sort of information to third-party claimants.

Privileges and Protections Between an Insurer and Its Coverage Counsel

Courts in most states have held that coverage counsel hired to provide legal advice to assist the insurer in forming an opinion as to its coverage obligations represents the insurer only, so communications between the insurer and its coverage counsel are protected from disclosure.[3] That applies particularly in the context of first-party bad-faith claims by the policyholder against the insurer, where many courts hold that “[t]he attorney-client privilege . . . protects the insurer’s communications with [its coverage] counsel in the same manner as [the communications of] any other client seeking legal advice from an attorney.”[4] These holdings are based on the fact that, in the context of a first-party bad-faith claim, the “insurer and insured are adversaries.”[5] Thus, “when a communication between an insurance company and its attorney deals with the issue of coverage under a policy, including when the communication references the investigation undertaken to facilitate the rendering of legal advice on coverage, such communication is typically privileged.”[6]

But this widely applied rule has seen some erosion as policyholders engaged in coverage litigation are increasingly arguing that communications between an insurer and its counsel should not necessarily be protected from discovery. At times, courts have agreed with this policyholder position.

As discussed in more detail below, the factors that courts have considered in evaluating an insurer’s claim of privilege for communications with its coverage counsel include the following:

· whether the attorney is outside or in-house counsel;
· what the attorney was actually doing in connection with the claim;
· whether the underlying claim is a property or liability claim;
· whether the policyholder or a third-party claimant/assignee is the plaintiff in the bad-faith suit;
· when and why the communication was made;
· whether the communication was made in anticipation of litigation; and
· why the bad-faith plaintiff is seeking the discovery.

Courts also frequently consider relevance and other threshold objections to production. Finally, the cases reflect that, as is true generally, the attorney-client privilege provides broader protection for counsel’s work than the attorney work-product doctrine.[7]

Thousands of decisions have involved these issues in the context of communications between insurers and their coverage counsel. This section of the article focuses primarily on some recent key decisions.

Cases Holding that the Insured Can Discover Communications Between the Insurer and Coverage Counsel

Alabama. A federal court applying Alabama law has recognized that, in the context of a bad-faith suit based on an underlying wrongful death action, the insured “was entitled to discover communications and documents created before the insurance company denied coverage, including the coverage opinion letter” provided by the insurer’s coverage counsel, as the insurer had asserted an advice of counsel defense.[8] After disclaimer, however, litigation was foreseeable, so the court also held that “communications and documents created after coverage was denied [remained] protected by the attorney-client privilege and by the work-product doctrine because they were conducted or prepared in anticipation of litigation.”[9]

Connecticut. Connecticut recognizes the civil fraud exception in the context of bad-faith claims and finds that “there is no justification for the privilege when a communication was made for the purpose of evading a legal or contractual obligation to an insured without reasonable justification.”[10] Therefore:

an insured who makes an allegation of bad faith against his insurer is entitled to an in camera review of privileged materials [in the insurer’s claims file] when the insured has established, on the basis of nonprivileged materials, probable cause to believe that (1) the insurer acted in bad faith and (2) the insurer sought the advice of its attorneys in order to conceal or facilitate its bad faith conduct.[11]

The ability to discover privileged claims file materials thus requires a reasonably founded allegation that the insurer “sought the advice of its attorney in order to conceal or facilitate its alleged bad faith conduct.”[12]

Florida. Communications between an insurer and its coverage counsel are, at times, discoverable, but only in the context of a bad-faith claim by the insured, because

although the third party claimant may stand in the shoes of the insured “for purposes of standing to bring a bad faith action”, that standing does not permit the third party claimant access to attorney-client privileged communications between the insured and his counsel in the absence of a waiver of the privilege by the insured or the insured’s written assignment of the bad faith claim.[13]

Although some courts have held that a stranger to the policy should have fewer rights than the insured to discovery of the insurer’s attorney-client privileged communications, Maharaj specifically allows for such discovery in certain situations. The import of this ruling carries over to third-party claimants’ attempts to discover the insured’s claims information in an effort to prove liability and damages. Those issues are discussed below.

Georgia. In a bad-faith suit brought by the third-party claimant, to whom the policyholder had assigned all claims against the insurer, the court held that the insurer’s communications with its in-house coverage counsel, conducted for the purpose of obtaining legal advice related to the insurer’s coverage obligations and other issues, remained privileged and could not be discovered.[14] At the same time, the court ruled that communications between the policyholder, defense counsel in the underlying action retained by the insurer, and the insurer were discoverable because there had been a common interest between the policyholder and the insurer, and the plaintiff third-party claimant stood in the shoes of the policyholder.[15]

Illinois. In an action for alleged bad-faith failure to negotiate a settlement within policy limits, the insurer’s communications with an attorney hired primarily to address and follow the underlying litigation were discoverable by the policyholder, who had hired counsel to communicate with the insurer in resolving the underlying litigation, because both parties and their counsel shared a common interest.[16] That included even coverage-related communications between the insurer and the counsel it had hired; had the insurer wanted the coverage-related communications to remain privileged, it “should have retained separate, independent coverage counsel to discuss the coverage issues if and when they arose.”[17]

Montana. A federal court applying Montana law held that an insured is entitled to discovery of the insurer’s entire claims file in a first-party bad-faith suit, reasoning that

[u]nder ordinary circumstances, a first-party bad faith claim can be proved only by showing the manner in which the claim was processed, and the claims file contains the sole source of much of the needed information. The time-worn claims of work product and attorney-client privilege cannot be invoked to the insurance company’s benefit where the only issue in the case is whether the company breached its duty of good faith in processing the insured’s claim.[18]

The Montana Supreme Court has, however, narrowed this holding to apply only in situations where the communications at issue are between the insurer and defense counsel provided by the insurer to the policyholder.[19] The court has also held that, to the contrary, in situations where “the insurer’s attorney did not represent the interests of the insured in the underlying case,” a policyholder bringing a first-party bad-faith claim against the insurer is not entitled to discover the privileged communications between the insurer and its coverage counsel contained in the claims file.[20]

Moreover, according to the Montana Supreme Court, such discovery apparently also cannot be had in a bad-faith suit filed by the third-party claimant after resolution by settlement of the underlying claim.[21] It should be noted, however, that, in spite of the apparent breadth of the court’s statement, the actual issue presented in the case cited by the court to support this statement was narrower and concerned communications between the insurer and the defense counsel the insurer had provided for the policyholder; that is, communications subject to the tripartite relationship in which the attorney represented both the insurer and the policyholder.[22] Moreover, although the court in the cited case recognized that the tripartite relationship exists only “[a]bsent a conflict of interest,” it did not address whether there was such a conflict in the context of a bad-faith claim. The scope of application of the attorney-client privilege in third-party bad-faith actions thus may be subject to further argument.

New York. Several New York cases have indicated that “in actions wherein the insured alleges that the insure[r] failed to provide a defense, or failed to settle the underlying action in bad faith, the insurer cannot shield discovery which would otherwise be protected as an attorney-client communication or attorney work product.”[23] This rule, however, applies only where the policyholder/plaintiff alleges bad-faith refusal to defend or settle (and not in cases such as ones involving alleged bad faith in providing coverage to an entity not covered by the policy).[24]

Moreover, a New York intermediate appellate court has ruled that an insurer’s communications with outside coverage counsel were not privileged because coverage counsel was mostly engaged in claims handling; that is, a non-privileged ordinary business activity.[25] The court stated that, because an insurer’s investigation of whether to pay or deny a claim is an ordinary, non-privileged business activity, it cannot become privileged simply because coverage counsel performed the investigation.[26]

North Carolina. Although addressing communications between the policyholder and its (insurer-provided) counsel regarding coverage issues, the following North Carolina case supports the conclusion that insurer–coverage counsel communications regarding coverage will generally be considered privileged against the policyholder in a bad-faith action. In Nationwide Mutual Fire Insurance Co. v. Bourlon, an action for alleged bad-faith handling of the underlying claims, the court of appeals (affirmed by the North Carolina Supreme Court) held that, although the insurer could, because of the existence of a tripartite relationship, obtain discovery of communications between the policyholder and defense counsel retained by the insurer related to the defense of the underlying action, the attorney-client privilege between the policyholder and insurer-retained counsel prevented (absent waiver) discovery of “[c]ommunications that relate to an issue of coverage . . . because the interests of the insurer and its insured with respect to the issue of coverage are always adverse.”[27]

Ohio. Ohio has long been aggressive in rolling back an insurer’s attorney-client privilege. The trend seems to have started with Boone v. Vanliner Insurance Co.,[28] which involved a bad-faith claim arising out of an underinsured motorist claim. The court held that the policyholder could obtain discovery of attorney-client communications between the insurer and its coverage counsel that were contained in the claims file, were related to the issue of coverage, and were created prior to the denial of coverage. The court reasoned that prior to disclaimer, no coverage dispute existed, so that the insurer and its coverage counsel were not communicating in anticipation of litigation. Post-disclaimer attorney-client communications between the insurer and its coverage counsel remain privileged, and the insured cannot obtain those communications.

The Ohio legislature then enacted an insurer-specific exception to the attorney-client privilege, which provides:

The following persons shall not testify in certain respects:

An attorney, concerning a communication made to the attorney by a client in that relationship or the attorney’s advice to a client, except that if the client is an insurance company, the attorney may be compelled to testify, subject to an in camera inspection by a court, about communications made by the client to the attorney or by the attorney to the client that are related to the attorney’s aiding or furthering an ongoing or future commission of bad faith by the client, if the party seeking disclosure of the communications has made a prima-facie showing of bad faith, fraud, or criminal misconduct by the client.[29]

As explained in more detail in a recent case, the reasoning underlying the Boone rule (as now codified) is that prior to a denial of coverage, “the claims file materials will not contain work product, i.e., things prepared in anticipation of litigation, because at that point it has not yet been determined whether coverage exists,” and that “documents created prior to the denial of coverage that contain information related to the bad faith claim are unworthy of protection” by the attorney-client privilege in any event.[30] This rule has been expanded to also apply to documents protected by the attorney work-product doctrine[31] and to situations where the insurer does not deny coverage outright but defends under a reservation of rights.[32]

Another recent decision suggests that the Boone rule may be expanded to allow discovery of documents generated in defending a bad-faith suit, even if they were created after the insurer delayed and missed payments under a property policy after the insured building was damaged by fire. In Summit Park Apartments v. Great Lakes Reinsurance (UK), PLC,[33] the appeals court held that such documents were protected by the work-product doctrine, but only because they showed no evidence of bad faith. The court remanded to the trial court for a determination as to whether the attorney-client privilege applied. Policyholders are likely to invoke Summit Park to argue that Boone should be extended to hold that privileged insurer–coverage counsel communications are discoverable any time they provide potential evidence of bad faith, regardless of whether they were created before or after the denial of coverage.[34]

Washington State. The seminal Washington case on the discoverability of insurer–coverage counsel communications is Cedell v. Farmers Insurance Co. of Washington.[35] There, the insured sued for bad faith after his first-party property claim had been denied, and he then sought discovery of the insurer’s claims file, including communications with and information provided by the insurer’s coverage counsel. The court held that, “in first party insurance claims by insureds claiming bad faith in the handling and processing of claims, . . . there is a presumption of no attorney-client privilege.”[36] The insurer can overcome this presumption by showing, via an in camera review by the court, that its coverage counsel “was providing counsel to the insurer and not engaged in a quasi-fiduciary function,” but even then, the policyholder can still obtain discovery of the privileged materials by showing that an exception, such as alleged fraud, applies.[37] To evaluate whether the policyholder made that showing, the court conducts a two-step inquiry: First, if there is a showing by the policyholder that a reasonable person would have a reasonable belief that there was bad faith, the court reviews the privileged materials in camera; and, second, if the court finds that there is a foundation to allow a bad-faith claim to proceed, the insurer’s attorney-client privilege with respect to its communications with its coverage counsel is deemed waived.[38] The court suggested that insurers consider segregating their coverage file from the claims file to avoid having to produce coverage-related, otherwise privileged materials.[39]

Cedell stated: “To accommodate the special considerations of first party insurance bad faith claims, except for underinsured motorist (UIM) claims, the insured is entitled to access to the claims file.”[40] One federal court has stated, however, that Cedell applies to third-party liability claims as well.[41] And another federal court has stated that Cedell’s in-camera-review “mandate” does not apply in federal court but that, instead, federal courts have discretion to decide whether to conduct such a review and how extensive it should be.[42]

At least one other out-of-state decision applied Cedell in a situation where Washington law applied to the extra-contractual issues.[43]

West Virginia. The West Virginia Supreme Court has held that a third-party bad-faith claimant who has obtained a release from the policyholder “of his/her claim file” is entitled to all communications in the claims file “that were generated prior to the filing date of a third-party’s underlying complaint against the insured,” including communications between the policyholder and its insurer-provided defense counsel.[44] This holding was based on the fact that, in recognizing the tripartite relationship between insurer, policyholder, and defense counsel, courts “artificially clothe[ ] an insurer with the attorney-client privilege,” because, “[i]n reality, the insurer actually hires the attorney to represent the insured” only.[45] Consequently, the insurer has only a “quasi attorney-client privilege relating to communication in the insured’s claim file,” and it may assert that privilege only with respect to communications “generated after the filing date of a third-party’s complaint against an insured” because it would otherwise be too difficult for the third-party claimant to prove its bad-faith allegations.[46]

The court also noted, however, that “[t]raditional attorney-client privileged material is virtually undiscoverable” under normal privilege principles.[47] It is therefore likely that insurer–coverage counsel communications contained in a claims file would remain protected from disclosure to a third-party bad-faith claimant in West Virginia even if the claimant obtained a release of the claims file contents from the policyholder—after all, the policyholder cannot waive the insurer’s privilege. It is, of course, also possible that courts will hold the insurer responsible for not having created a separate file and require disclosure of privileged communications with coverage counsel on that basis, as they have done in other states.[48]

Wisconsin. In an action alleging bad-faith denial of benefits under the insured’s uninsured motorist coverage, the Wisconsin Supreme Court held as follows:

Because a plaintiff must show that the insurer did not have a reasonable basis for its actions in order to prove bad faith, internal information that would otherwise be privileged is subject to discovery. A plaintiff bringing a bad faith claim is entitled to the insurer’s work product as well as attorney-client material related to how the claim was handled.[49]

To be entitled to such discovery, the policyholder/plaintiff must make a threshold showing, predicated on Wisconsin substantive law and likelihood of success.

[T]he insured may not proceed with discovery on a first-party bad faith claim until it has pleaded a breach of contract by the insurer as part of a separate bad faith claim and satisfied the court that the insured has established such a breach or will be able to prove such a breach in the future.[50]

Cases Suggesting that the Insured Might Be Permitted to Discover Insurer–Coverage Counsel Communications

Idaho. Federal courts applying Idaho law have suggested that Idaho might adopt Washington’s Cedell rule. For example, in Stewart Title Guaranty Co. v. Credit Suisse, Cayman Islands Branch,[51] the district court first held that the documents sought by the policyholder/bad-faith plaintiff were not protected under the work-product doctrine. Having cleared that hurdle, and examining the plaintiff’s arguments with respect to the attorney-client privilege, the Stewart Title court reasoned that the Idaho Supreme Court would follow Cedell and consequently stated that the policyholder was presumptively entitled to production of the insurer’s entire claims file. To determine whether the insurer could overcome that presumption, the court ordered the insurer to submit specified documents for in camera review.

Cases in Which the Insurer’s Counsel Acted Primarily as a Claims Adjuster

Where the insurer’s counsel acted primarily as a claims adjuster investigating the policyholder’s claim, counsel-insurer correspondence sent “prior to the Final Denial Letter being mailed” typically is not privileged.[52] The rationale for this rule is that “[t]he attorney-client privilege does not apply to the extent an attorney acts as a claims adjuster, claims process supervisor, or claims investigation monitor” who engages in an insurer’s ordinary business functions, rather than providing legal advice in the role of a “legal advisor.”[53]

A representative case in the bad-faith context is Woodruff v. American Family Mutual Insurance Co.[54] In that case, communications between the insurer and its in-house counsel, who had been “the sole claims adjuster” for the underlying action, were held not to be subject to the attorney-client privilege.[55] Woodruff involved a bad-faith action brought by a policyholder’s bankruptcy estate, alleging bad faith in the handling of a negligence action that was ultimately determined against the policyholder, leading to his bankruptcy filing. The court held that, although the insurer might be able to assert the privilege over communications with its in-house counsel regarding legal issues such as coverage determinations regarding the underlying action, the insurer could not claim as privileged documents generated in the course of normal claims adjusting activities.[56]

Practical Tips

Tip for both sides. While many states continue to recognize an insurer’s attorney-client privilege with its coverage counsel, the changing landscape makes it imperative for any party considering filing a coverage action to add to its venue considerations whether—and, if so, to what extent—the jurisdiction upholds this privilege.

Tips for policyholders.[57] Some insurers retain outside counsel to assist in the claim investigation. Other insurers engage outside counsel to provide a coverage opinion. Some insurers hire outside counsel—often the same outside counsel—to do both. Given the frequency with which insurers retain outside counsel to assist in the claims investigation and adjustment process, there is a good chance an insurer will assert attorney-client or work-product protections, or both, over at least some claim-related documents in coverage litigation. Policyholders need to familiarize themselves with applicable law and develop relevant facts that will, if appropriate, assist them in convincing a court that the insurer’s privilege claims are overbroad.

Such facts include what specifically the insurer’s outside counsel was doing and when. Investigating an insurance claim is part of an insurer’s ordinary business function. Indeed, insurers are obligated under most states’ insurance laws to acknowledge receipt of a claim and to timely investigate and adjust it. Part and parcel of the insurers’ obligation is to provide their coverage determination, and the basis for it, to their insureds. But one need not be a lawyer to investigate and adjust a claim. Non-attorneys often analyze insurance contracts and determine whether a particular claim falls within the scope of a policy’s contractual provisions. When considering whether outside counsel’s communications and analyses are protected, policyholders should consider what specific tasks the outside attorney was performing; whether those tasks are required of the insurer by governing insurance regulations; and whether the insurer has, or could have had, non-attorneys perform these same functions. Was the attorney simply collecting facts, conducting interviews, and carrying out other tasks normally undertaken by claims professionals? If so, a potential assertion of the attorney-client privilege by the insurer could, and should, be challenged.

Policyholders should also give thought to whether the insurer treated the information over which it now claims privilege as protected before the policyholder sought discovery of it in coverage litigation. Who received the allegedly confidential documents? Did the insurer implement internal procedures that limited disclosure of the allegedly protected communications on a “need to know” basis? Or did the insurer treat the supposedly protected documents in precisely the same way it treated other materials that were part of its investigation and adjustment process?

Did the insurer share the involved communications and documents with third parties, such as a reinsurer or outside consultant? Did it do so under an applicable privilege or protection? Insurers often communicate with their reinsurers regarding their insureds’ claims, and some courts have held that information shared by an insurer with its reinsurer is discoverable.[58]

Furthermore, policyholders should demand detailed privilege logs, containing the identity of the author of any allegedly protected document or attachment and a detailed description of each withheld document or attachment. In addition, the log should disclose all recipients of the document or attachment, and the date it was created and shared with each recipient. And each entry should specify which privilege or protection allegedly applies to each document or attachment, and why. Such a privilege log will assist in evaluating an insurer’s claims of privilege or work product, including by allowing consideration of whether any given document was created or shared before litigation was reasonably anticipated. Just because an insurer hired outside counsel does not automatically signify that the insurer somehow anticipated litigation, which would entitle it to seek work-product protection.[59] Counsel may well have been engaged in routine claims processing that the insurer hoped to shield by virtue of having it done by an attorney. And the insurer or outside counsel (or both) may have shared allegedly protected documents with others who had no need for them, waiving protections that may otherwise have applied to the involved documents.

In analyzing work product issues, but also privilege issues, policyholders also should consider what position, if any, the insurer had staked out when particular documents were created and/or shared with third parties. An insurer still investigating a claim cannot credibly argue that there was adversity or anticipation of litigation if it had not yet uncovered the facts on which it would later rely for its denial of coverage.[60] Had the insurer issued its no-coverage determination?[61] Had the insurer issued a reservation of rights? If it issued a reservation of rights letter, did the letter simply request more information, or did it convey that the insurer was going to deny coverage? Policyholders should demand specific evidentiary proof corroborating claims that an insurer reasonably anticipated litigation during the time frame for which it seeks to assert work-product protection. Policyholders should also consider what facts and evidence the insurer had secured by that time and whether those facts and evidence were sufficient to cause the insurer to understand it would deny, or reserve its right to deny, coverage. Just because a document is helpful or important to the coverage suit does not mean it was actually prepared to provide legal advice or in anticipation of litigation. It may well have been prepared for business or non-litigation purposes, such that it must be produced.[62]

Finally, policyholders should consider whether the law permits discovery, despite the allegedly applicable protections, because of the insurer’s alleged misconduct. As discussed above, an increasing number of courts hold that communications between an outside attorney and an insurer cannot be shielded from discovery in disputes involving bad-faith and extra-contractual claims.

Tips for insurers.[63] In the claims-handling stage, insurers may wish to consider carefully defining the roles of all involved. In particular, insurers may wish to segregate coverage evaluation from claims investigation activities, and maintain separate files for each.[64] Insurers may wish to carefully document the claims file. It is usually wise to consider in advance that the policyholder is likely to seek the information, and ask the questions described above.

If a bad-faith claim is filed in a jurisdiction that does not recognize the privilege, insurers may wish to explore intermediate options in an effort to protect some, if not all, communications, including showing (if possible) that the threshold requirements for discovery are not satisfied, redacting documents for other privileges, and seeking in camera review. Conversely, insurers contemplating filing declaratory relief actions—which often spawn bad-faith counterclaims—may wish to add to the list of issues for consideration the venue’s rulings on these privilege issues.

Privileges and Protections Between an Insurer and Its Policyholder

An insurer’s claims file often contains a great deal of information about the claim, not all of which is favorable to the insured’s position in the underlying action. Enterprising third-party claimants increasingly seek to discover the insurer’s claims file to bolster the case against the insured.[65] The insurer and policyholder often share an interest in preventing third-party claimants from obtaining these documents. Many cases have held that communications between an insured and insurer in connection with a claim are protected from disclosure to third-party claimants.[66] The protection has been held to extend to defense counsel hired by the insurer to defend the underlying action, at least where there is a tripartite relationship surrounding a common interest between the insurer, the policyholder, and defense counsel.[67]

Most standard liability policies contain a provision offering the insurer the “right and duty” to defend covered claims in lawsuits against the policyholder.[68] This provision usually allows an insurer to appoint counsel and control defense of the litigation against the policyholder. Where an insurer is able to appoint defense counsel (as opposed to situations entitling the policyholder to independent counsel), courts generally acknowledge that tripartite communications are protected from disclosure by the attorney-client privilege. In that situation, both the insurer and the policyholder may be considered the clients of the defense counsel, such that “an attorney-client privilege is shared among all of them.”[69]

Where the insurer defends under a reservation of rights, denying the duty to indemnify for some or all claims, some states hold that appointed defense counsel represents only the policyholder, and not its insurer.[70] In some situations, a reservation of rights may also create a conflict between the insurer and the policyholder, entitling the latter to a defense by independent counsel, paid for by the insurer. Such independent counsel represents only the policyholder and has no attorney-client relationship with the insurer.[71] The question then becomes whether sharing protected communications with the insurer waives the attorney-client privilege.

Some states, such as California, have statutory provisions relating to the application of the privilege to independent policyholder counsel. Pursuant to California Civil Code section 2860(d), any non-privileged insurance coverage information disclosed by the policyholder or independent counsel to the insurer is “not a waiver of the privilege as to any other party.” Put another way, the insurer does not have a privilege with independent counsel; rather, the policyholder’s attorney-client privilege with its own counsel remains protected, and their confidential communications to the insurer are not deemed a waiver as to anyone else, in particular the third-party claimant.[72]

The attorney work-product doctrine also protects against disclosure of information to the third-party claimant. Where the insurer is defending, where the insurer is paying for the defense, or where a tripartite relationship exists, disclosure of defense counsel’s work product to the insurer or policyholder has been held not to waive attorney work-product protection.[73] Some courts have found no waiver of the attorney-client privilege and the work-product doctrine where the insurer and policyholder share a common or joint-defense interest.[74]

Other courts, however, have held that where the relevant policy includes a duty to defend but the insurer denies that duty, or the policy requires the policyholder to defend itself, communications otherwise protected by the attorney-client privilege as between defense counsel and the policyholder may be subject to production once disclosed to the insurer, as such disclosure may effect a waiver of privilege protection.[75] These courts often reject application of a joint-defense or common-interest privilege in such settings. Although they recognize that the insurer shares the same desire as the policyholder in avoiding or limiting liability to the third-party claimant, they often nonetheless conclude that that common legal goal does not qualify as an “identical legal interest” sufficient to trigger the joint-defense doctrine.[76]

NL Industries[77] and Newmont Mining,[78] in which the courts refused to recognize a joint-defense or common-interest privilege, involved discovery disputes between policyholders and insurers in coverage litigation. Third-party claimants often take note of such cases, hoping to extend the discoverability of insurance information. In In re Imperial Corp. of America,[79] for example, the court addressed the privilege issue in the context of a directors’ and officers’ policy, which provided that the policyholder (not the insurer) was obligated to defend against claims and lawsuits. There, the third-party claimant demanded and obtained production of two status letters written by defense counsel to the involved insurer. In the letters, defense counsel analyzed the claimant’s allegations and provided his analysis of the insured’s exposure. Defense counsel also addressed the claimant’s settlement demand and sought the insurer’s contribution toward a settlement of the suit. The court determined that the letters were not written by or to the counsel’s client and therefore were not protected from disclosure by the attorney-client privilege. The court further found that the letters were not to impart legal advice; instead, they sought contribution toward settlement. In finding the letters discoverable by the third-party claimant, the court noted that under the terms of the policy, the insurer did not have a duty to defend; it played no role in selection of defense counsel; it had paid no legal fees for the policyholder’s defense; and it was represented by its own outside counsel. Under those circumstances, the existence of a joint-defense agreement between the insured and insurer—the stated purpose of which was to enable them to share and maintain confidential information to facilitate defense of the litigation—did not protect the communications from disclosure.[80]

Notably, an additional source of protection in many states may be policyholders’ right of privacy in their insurance information.[81] In California, for example, an insurer, agent, or insurance support organization may not disclose an insured’s private insurance information. Several exceptions exist, one of which is “[i]n response to a facially valid administrative or judicial order, including a . . . subpoena.”[82] Most jurisdictions require disclosure of the existence and terms of insurance that may potentially respond to the underlying suit,[83] and those disclosures provide the third-party claimant with the minimal information needed to issue a subpoena—i.e., the insurer’s name, and perhaps the type of policy issued and a policy number. Armed with that information, it is very easy to issue a subpoena, without any need for the third-party claimant to make any threshold showing that it is entitled to the substantive information in the claims file. Rather, the third-party claimant is hoping for an easy way to obtain admissions favorable to its case. Thus, as a practical matter, insurers often serve objections to the subpoena and do not produce responsive documents unless the policyholder consents.[84]

Even though the insurer can object to a subpoena, some recent decisions offer a cautionary note. Young v. Chapman[85] was a motor vehicle case. The defendant driver gave a recorded statement to his employer’s insurer, and an investigator prepared a report on the statement. The parties’ insurers proceeded to arbitration to determine which driver was liable for the accident, and they exchanged documents, including the recorded statement and investigative report. The plaintiff driver subsequently filed suit against the defendant driver and sought production of the recorded statement and investigative report. The court ruled that under Kentucky law, the recorded statement was protected under the attorney-client privilege, reasoning that at the time of making a statement to its insurer, a policyholder is not ordinarily represented by an attorney, and so “may properly assume that the communication is made to the insurer as an agent for the dominant purpose of transmitting it to an attorney for the protection of the interests of the insured.”[86] The investigative report, however, was not protected as work product; the court reasoned that because it was prepared one week after the accident, there were no factors showing that anyone anticipated litigation.[87] The court rejected the plaintiff’s argument that any privileges were waived because the defendant’s insurer produced them in arbitration. But the court also ruled that because the defendant had referred to these documents in his Rule 26 initial disclosures, he had waived the privilege even with respect to the otherwise protected recorded statement.[88]

A defending insurer may be entitled to information regarding the defense of a third-party claimant’s suit, including defense counsel’s assessment of the strength or weakness of the allegations, potential exposure, the cost to defend the action, and details relating to mediation and settlement, including a potential settlement and verdict range. In some states, the insurer’s and policyholder’s joint defense or common interest (or both) in minimizing the insured’s liability may protect these communications from further disclosure to the third-party claimant. But policyholders may fear, depending on the circumstances and controlling law, that such communications may be held unprotected or that protections associated with such documents may be found to have been waived. Before policyholders and their defense counsel share information with an insurer regarding litigation with a third-party claimant, policyholders and their insurers need to carefully consider the applicable law, particularly where the insurer has denied coverage, has no duty to defend, or is not reimbursing defense costs.[89]

A defending insurer can often respond to a refusal to provide information by invoking the policy’s cooperation condition.[90] Given that both parties usually share a desire to defeat the underlying litigation, it may be beneficial to discuss in advance any concerns that the third-party claimant could be entitled to insurance information, in an effort to protect the communications and documents the policyholder shares with the insurer from further disclosure.

Policyholders’ concerns that the third-party claimant could obtain the claims file can make it difficult for insurers to investigate liability claims. For example, policyholders might decline to cooperate with the insurer’s defense of the claim by not providing evaluations of liability and exposure. That may, in turn, make insurers unable to respond to settlement demands. On the other hand, the policyholder’s refusal to provide information needed to investigate a claim, or needed to monitor the defense of the underlying action, may provide a strong defense to a bad-faith claim.

In the context of settling coverage disputes, policyholders’ concerns that third parties might obtain sensitive business information may lead policyholders to refuse to include adequate fact recitals in the settlement agreement.[91] Should the policyholder later sue the insurer, it may be difficult for the insurer to show that the subject matter was released by the earlier settlement agreement.


Privilege issues in the coverage context will continue to be a hotly litigated area, as policyholders and third-party claimants try to push the envelope. Coverage litigators and counsel alike need to know how the protections work, as will counsel defending the underlying action. Insurers and policyholders can then better understand what information may be protected from disclosure, whether and when such information may become discoverable, and the potential impact of discoverability on their respective claims and defenses.

Keywords: insurance, coverage, attorney-client privilege, work-product protection, waiver, third-party claimant, bad faith, common interest

Karin S. Aldama is with Perkins Coie LLP in Phoenix. Rina Carmel is with Zelle McDonough & Cohen LLP in Los Angeles. Sherilyn Pastor is with McCarter & English in Newark, New Jersey. Beth Zaro Green is director of claims litigation management at W. R. Berkley Corporation in Greenwich, Connecticut.


[1] Except where specifically stated, this article is jointly authored by attorneys who represent policyholders and an attorney who represents insurers. The opinions expressed herein may be compromise views and do not necessarily reflect the opinions of the authors, their firms, or their clients. Portions of this article are from Are Both Sides’ Coverage Privileges Disappearing?, written for and presented at the ABA Insurance Coverage Litigation Committee’s Women in Insurance Networking Seminar held in Washington, D.C., on October 20, 2016.
[2] E.g., State ex rel. Montpellier U.S. Ins. Co. v. Bloom, 233 W. Va. 258, 264 (2014) (per curiam); State ex rel. U.S. Fid. & Guar. Co. v. Mont. Second Judicial Dist. Ct., 240 Mont. 5, 11 (1989).
[3] E.g., Slaven v. Great Am. Ins. Co., 83 F. Supp. 3d 789, 794 (N.D. Ill. 2015) (“In Illinois, as elsewhere, the general rule is that communications between an insurer and its outside coverage counsel are privileged.”); Bloom, 233 W. Va. at 267–69 (in bad-faith action against insurer and its outside coverage counsel, communications such as coverage opinion letters and seminar and training materials were privileged because they contained counsel’s opinions); Geico Gen. Ins. Co. v. Moultrop, 148 So. 3d 1284 (Fla. Dist. Ct. App. 2014) (communications between insurer and its coverage counsel are privileged in subsequent bad-faith action);Aetna Cas. & Sur. Co. v. Superior Court (Pietrzak), 153 Cal. App. 3d 467, 474 (1984) (insurer’s communications with its coverage counsel were privileged because “an insurance company should be free to seek legal advice in cases where coverage is unclear without fearing that the communications necessary to obtain that advice will later become available to an insured who is dissatisfied with a decision to deny coverage.”).
[4] Anastasi v. Fid. Nat’l Title Ins. Co., 137 Hawaii 104, 112–14, 341 P.3d 1200, 1221 (Haw. Ct. App. 2014), aff’d in part, vacated in non-relevant part, 137 Haw. 104, 366 P.3d 160 (2016); see also, e.g., Cudd Pressure Control, Inc. v. N.H. Ins. Co., 297 F.R.D. 495, 498–99 (W.D. Okla. 2014) (insurer’s communications with counsel retained separately to advise insurer on coverage not discoverable in bad-faith case brought by insured); Bertelsen v. Allstate Ins. Co., 796 N.W.2d 685, 701 (S.D. 2011) (in bad-faith action, insurer’s communications with its outside coverage counsel were protected and not discoverable); Everest Indem. Ins. Co. v. Rea, 236 Ariz. 503, 506, 342 P.3d 417, 419-20 (Ariz. Ct. App. 2015) (insurer-coverage counsel communications privileged in context of bad-faith claim unless insurer asserts advice of counsel defense; no waiver unless “subjective belief in the legality of [the insurer’s] actions necessarily included or depended on the advice it received from counsel.”); Pietrzak, 153 Cal. App. 3d at 474 (“[C]onsultations regarding a policy of insurance between an insurance company and its attorney prior to the time the insurance company has accepted its obligations under that policy are protected by the attorney-client privilege vis-à-vis the person insured by the policy.”) (emphasis in original); Moultrop, 148 So. 3d at 1285 (similar).
[5] Bertelsen, 796 N.W.2d at 701.
[6] Anastasi, 137 Hawaii at 112–14, 366 P.3d at 168–70 (also holding that there is no presumption that materials prepared by insurer’s in-house claims counsel prior to insurer’s final coverage decision are not work product; work-product protection available independent of creation date if document created in anticipation of litigation); see also, e.g., Hartford Fin. Servs. Grp., Inc. v. Lake Cty. Park & Recreation Bd., 717 N.E.2d 1232, 1237 (Ind. Ct. App. 1999) (bad-faith claim did not entitle policyholder to discover pre-suit communications between insurer and coverage counsel regarding whether claim fell within policy terms); Bloom, 233 W. Va. at 267 (coverage opinion letter protected by attorney-client privilege because it contained legal advice to insurer; no waiver through communication of coverage counsel’s recommendations regarding coverage to policyholder).
[7] Compare Cal. Civ. Proc. Code § 2018.010 et seq. (attorney work product) with Cal. Evid. Code § 950 et seq. (attorney-client privilege); see Waste Mgmt., Inc. v. Int’l Surplus Lines Ins. Co., 144 Ill. 2d 178 (1991) (attorney-client privilege and attorney work-product doctrine are two different protections, and even if one is destroyed, the other can still protect against disclosure); Bloom, 233 W. Va. at 267 (in bad-faith action against insurer and its outside coverage counsel, retention agreement and billing statements not protected under the attorney work-product doctrine).
[8] Pa. Lumbermens Mut. Ins. Co. v. D.R. Horton, Inc.-Birmingham, Civ. No. 15-00071-WS-B, 2015 U.S. Dist. LEXIS 178393, at *7–8 (S.D. Ala. Oct. 26, 2015) (emphasis in original); see also, e.g., Rea, 236 Ariz. at 506, 342 P.3d at 420 (waiver of privilege if insurer claims, in defense to bad-faith suit, “that it depended on advice of counsel in forming its subjective beliefs regarding the appropriate course of conduct”).
[9] Pennsylvania Lumbermens, 2015 U.S. Dist. LEXIS 178393, at *7 (footnote omitted) (citing Ex parte Nationwide Mut. Ins. Co., 990 So. 2d 355, 355 (Ala. 2008)).
[10] Hutchinson v. Farm Family Cas. Ins. Co., 273 Conn. 33, 41–42 (2005).
[11] Hutchinson, 273 Conn. at 42–43. However, the court concluded that the claims file was not discoverable because the policyholder had not even alleged that the insurer-coverage counsel communications related to alleged bad-faith conduct, but rather the gist of the policyholder’s allegations was that the insurer had sought the good faith advice of counsel, but failed to follow it.
[12] Ridgaway v. Mount Vernon Fire Ins. Co., No. CV116009339, 2012 Conn. Super. LEXIS 3127, at *11 (Conn. Super. Ct. Dec. 24, 2012) (in bad-faith case based on alleged wrongful failure to settle underlying liability claim and retroactive reduction of limits after claim was reported, declining to order production of attorney-client privileged documents in insurer’s claims file absent such an allegation).
[13] Maharaj v. GEICO Cas. Co., 289 F.R.D. 666, 671 (S.D. Fla. 2013) (no exception to attorney-client privilege in context of third-party bad-faith claim) (Florida law), aff’d, No. 12-80582-CIV, 2013 U.S. Dist. LEXIS 68535 (S.D. Fla. Apr. 5, 2013). Interestingly, work-product materials may be discoverable in bad-faith suits under Florida law even in bad-faith actions filed by third-party claimants. Maharaj, 289 F.R.D. at 669–70 (discussing Allstate Indem. Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005)); Boozer v. Stalley, 146 So. 3d 139, 144 (Fla. Dist. Ct. App. 2014) (same).
[14] Camacho v. Nationwide Mut. Ins. Co., 287 F.R.D. 688, 693–94 (N.D. Ga. 2012) (Georgia law), appeal filed, No. 16-14225-GG (11th Cir. 2016).
[15] Camacho, 287 F.R.D. at 693–94.
[16] West Side Salvage, Inc. v. RSUI Indem. Co., No. 3:13-cv-00363-MJR-PMF, 2013 U.S. Dist. LEXIS 166978, at *7–8 (S.D. Ill. Nov. 25, 2013) (Illinois law).
[17] West Side Salvage, Inc., 2013 U.S. Dist. LEXIS 166978, at *8.
[18] Silva v. Fire Ins. Exch., 112 F.R.D. 699, 699–700 (D. Mont. 1986) (Montana law) (citation omitted).
[19] Palmer v. Farmers Ins. Exch., 261 Mont. 91, 109 (1993) (holding that Silva and similar cases are limited to situations where insurer seeks to assert privilege against joint client of same attorney; namely, policyholder).
[20] Palmer, 261 Mont. at 108.
[21] Palmer, 261 Mont. at 107 (“We previously held that the attorney-client privilege applies in the context of third-party bad faith actions, but we have not determined whether the privilege applies to first-party bad faith litigation”; citing with approval State ex rel. U.S. Fid. & Guar. Co. v. Montana Second Judicial Dist. Ct., 240 Mont. 5, 13–14 (1989)).
[22] State ex rel. U.S. Fid. & Guar. Co., 240 Mont. at 7–8, 10 (stating facts and holding that defense counsel provided by insurer represents both insurer and policyholder, at least absent conflict of interest).
[23] Fox Paine & Co., LLC v. Houston Cas. Co., 51 Misc. 3d 1212(A), 2016 N .Y. Misc. LEXIS 1485, at *46 (N.Y. Sup. Ct. Apr. 21, 2016) (bad-faith action brought by policyholder).
[24] Fox Paine, 2016 N.Y. Misc. LEXIS 1485, at *46–47.
[25] Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. TransCanada Energy USA, Inc., 119 A.D.3d 492, 493 (N.Y. App. Div. 2014).
[26] TransCanada, 119 A.D.3d at 493.
[27] Nationwide Mut. Fire Ins. Co. v. Bourlon, 617 S.E.2d 40, 47 (N.C. Ct. App. 2005) (citation and internal alterations omitted), aff’d, 625 S.E.2d 779 (N.C. 2006).
[28] Boone v. Vanliner Insurance Co., 91 Ohio St. 3d 209 (2001).
[29] Ohio Rev. Code Ann. § 2317.02(A)(2). In Ohio, both the statute and common law apply to determine the applicability of any privilege between an insurer and its counsel. E.g., Summit Park Apts., LLC v. Great Lakes Reinsurance (UK), PLC, 49 N.E.3d 363, 367 (Ohio Ct. App. 2016).
[30] Mayer v. Allstate Vehicle & Prop. Ins. Co., No. 2:15-cv-2896, 2016 U.S. Dist. LEXIS 54477, at *9 (S.D. Ohio Apr. 22, 2016) (policyholder/bad-faith plaintiff was entitled to relevant materials from insurer’s claims file regardless of insurer’s claims of privilege) (quoting Boone, 91 Ohio St. 3d at 213–14) (internal quotation marks omitted), objections overruled, 2016 U.S. Dist. LEXIS 61881 (S.D. Ohio May 10, 2016).
[31] E.g., Bausman v. Am. Family Ins. Grp., 2016 Ohio 836, ¶ 11 (Ohio Ct. App.) (noting, in context of bad-faith action brought by policyholder, that “[w]e have applied Boone’s holding to work-product materials too”) (citing Garg v. State Auto. Mut. Ins. Co., 2003 Ohio 5960, ¶ 24).
[32] In Re Prof’ls Direct Ins. Co., 578 F.3d 432, 442 (6th Cir. 2009) (Ohio law) (where insurer reserved rights and filed declaratory relief action, cutoff date for determining which attorney-client communications are privileged is date insurer informed policyholder that it was going to seek declaratory relief).
[33] Summit Park Apartments v. Great Lakes Reinsurance (UK), PLC, 49 N.E.3d at 369–70.
[34] “[I]n assessing whether a particular document may cast light on the issue of bad faith, [the court] declines to assess the merits of the case. . . . Rather, if a document is relevant to the issue of coverage, claim processing, or other bases set forth in the party’s bad faith claim, . . . it is discoverable.” Mayer, 2016 U.S. Dist. LEXIS 54477, at *16 (internal quotation marks, citation, and alterations omitted). In applying this principle, a judge need not individually examine every disputed document to assess whether it contains evidence of bad faith; he or she can order disclosure of all privileged and work-product documents created before the relevant date. In re Prof’ls Direct, 578 F.3d at 442 (upholding district court decision to that effect).
[35] Cedell v. Farmers Insurance Co. of Washington, 176 Wash. 2d 686 (2013).
[36] Cedell, 176 Wash. 2d at 700.
[37] Cedell, 176 Wash. 2d at 700.
[38] Cedell, 176 Wash. 2d at 700.
[39] Cedell, 176 Wash. 2d at 699 n.5 (“Where an attorney is acting in more than one role, insurers may wish to set up and maintain separate files so as not to co-mingle different functions.”).
[40] Cedell, 176 Wash. 2d at 697.
[41] Carolina Cas. Ins. Co. v. Omeros Corp., No. C12-287RAJ, 2013 U.S. Dist. LEXIS 53225, at *7 (W.D. Wash. Apr. 12, 2013) (Washington law).
[42] Ingenco Holdings, LLC v. Ace Am. Ins. Co., No. C13-543RAJ, 2014 U.S. Dist. LEXIS 170357, at *9 (W.D. Wash. Dec. 8, 2014) (collecting cases and stating, “It is difficult to conceive of a circumstance in which the court would exercise its discretion to conduct an in camera review of more than 800 pages of documents.”).
[43] Shaw Grp., Inc. v. Zurich Am. Ins. Co., Civil Action No.12-257-JJB-RLB, 2014 U.S. Dist. LEXIS 5058, at *6 n.3 (M.D. La. Jan. 15, 2014) (employing reasoning of Cedell to evaluate whether policyholder could take deposition of insurer’s in-house claims counsel; ultimately finding that insurer overcame presumption of waiver of privilege, so deposition could not go forward).
[44] State ex rel. Allstate Ins. Co. v. Gaughan, 203 W. Va. 358, 372–73 (1998).
[45] Gaughan, 203 W. Va. at 372.
[46] Gaughan, 203 W. Va. at 372–73.
[47] Gaughan, 203 W. Va. at 373.
[48] See, e.g., Cedell v. Farmers Ins. Co. of Wash., 176 Wash. 2d 686, 699 n.5 (2013).
[49] Brethorst v. Allstate Prop. & Cas. Ins. Co., 334 Wis. 2d 23, 54 n.7, 798 N.W.2d 467, 483 n.7 (2011) (citations omitted).
[50] Brethorst, 334 Wis. 2d at 55, 798 N.W.2d at 483.
[51] Stewart Title Guaranty Co. v. Credit Suisse, Cayman Islands Branch, No. 1:11-CV-227-BLW, 2013 U.S. Dist. LEXIS 49804, at *16–17 (D. Idaho Apr. 3, 2013); see also Hilborn v. Metro. Grp. Prop. & Cas. Ins. Co., No. 2:12-cv-00636-BLW, 2013 U.S. Dist. LEXIS 163284, at *6–8 (D. Idaho Nov. 15, 2013) (applying Cedell’s presumption in first-party bad-faith claim and ordering insurer to turn over its entire claims file because counsel for insurer “engaged in the quasi-fiduciary tasks of investigating and evaluating or processing the claim”; also holding that work-product doctrine did not apply because insured had demonstrated substantial need for documents).
[52] Zawadsky v. Bankers Standard Ins. Co., Civ. No. 14-2293 (RBK/AMD), 2015 U.S. Dist. LEXIS 173789, at *18–19 (D.N.J. Dec. 30, 2015) (New Jersey law) (timing of correspondence demonstrated that insurer’s in-house counsel was part of claims investigation and was not providing legal advice); see also, e.g., Henriquez-Disla v. Allstate Prop. & Cas. Ins. Co., No. CIV. A. 13-284, 2014 U.S. Dist. LEXIS 73014, at *6–7 (E.D. Pa. May 29, 2014) (in bad-faith case alleging failure to pay theft and fire claims under property policy, ordering production of counsel’s documents relating to claim investigation (that is, documents created in insurer’s “ordinary business function”); “any communication seeking counsel’s advice remains privileged”) (Pennsylvania law), on reconsideration in part, 2014 U.S. Dist. LEXIS 108820 (E.D. Pa. Aug. 7, 2014); Chevalier-Seawell v. Mangum, 90 Va. Cir. 420, 2015 Va. Cir. LEXIS 146, at *15 (similar); Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. TransCanada Energy USA, Inc., 119 A.D.3d 492, 493 (N.Y. App. Div. 2014) (“[T]he record shows that counsel were primarily engaged in claims handling—an ordinary business activity for an insurance company. Documents prepared in the ordinary course of an insurer’s investigation of whether to pay or deny a claim are not privileged, and do not become so merely because the investigation was conducted by an attorney.”) (internal quotation marks, alterations, and citation omitted).
[53] Kleinrichert v. Am. Family Ins. Grp., No. 1:10-cv-13-JMS-TAB, 2011 U.S. Dist. LEXIS 10715, at *7 (S.D. Ind. Feb. 3, 2011) (Indiana law).
[54] Woodruff v. American Family Mutual Insurance Co., 291 F.R.D. 239 (S.D. Ind. 2013) (Indiana law).
[55] Woodruff, 291 F.R.D. at 245–46.
[56] Woodruff, 291 F.R.D. at 245–46.
[57] “Tips for policyholders” was written by counsel representing policyholders.
[58] E.g., Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Donaldson Co., Inc., No. 10-4948 (JRT/JJG), 2014 U.S. Dist. LEXIS 85621, at *5 (D. Minn. June 24, 2014) (collecting cases from other jurisdictions holding such communications are or are not discoverable); Klein v. Fed. Ins. Co., Nos. 7:03-CV102-D, 7:09-CV-094-D, 2014 U.S. Dist. LEXIS 95482, at *7–8 (N.D. Tex. July 14, 2014).
[59] See, e.g., St. Paul Reinsurance Co., Ltd. v. Commercial Fin. Corp., 197 F.R.D. 620, 638 (N.D. Iowa 2000) (“because the hiring of outside counsel does not, by itself, indicate a determination to litigate,” record must be reviewed; if insurer was continuing to conduct “claims investigation in the ordinary course of business” after counsel was hired, work-product doctrine did not apply from date coverage counsel was retained).
[60] St. Paul Reinsurance Co., 197 F.R.D. at 638 (“until the investigating party determines on a course of action, no work product protection attaches, and . . . even after the parties ‘stake out’ their positions, they do not necessarily ‘anticipate litigation’ if they continue to explore amicable resolution and/or the documents in question were still collected in the ordinary course of business”).
[61] See, e.g.,Moe v. Sys. Transp., Inc., 270 F.R.D. 613, 625 (D. Mont. 2010) (whether insurer has issued formal denial of coverage is factor to be considered when insurer asserts it may withhold documents in anticipation of litigation); Ring v. Commercial Union Ins. Co., 159 F.R.D. 653, 656 (M.D.N.C. 1995) (“[O]nly documents accumulated after the claim denial will be done in anticipation of litigation.”).
[62] Insurers acting in anticipation of litigation should, therefore, keep detailed logs as to why certain documents are generated, and be prepared to demonstrate to a reviewing court their reasonable and objective basis for anticipating litigation should their claim of work-product protection be challenged.
[63] “Tips for insurers” was written by counsel representing insurers.
[64] Cf. Cedell v. Farmers Ins. Co. of Wash., 176 Wash. 2d 686, 699 n.5 (2013) (“Where an attorney is acting in more than one role, insurers may wish to set up and maintain separate files so as not to co-mingle different functions.”).
[65] Federal and many state procedural rules require the parties to provide initial disclosures regarding insurance. E.g., Fed. R. Civ. P. 26(a)(1)(A)(iv); Pa. R. Civ. P. 4003.2. Other states allow discovery requests seeking insurance information. E.g., Cal. Civ. Proc. Code § 2017.210.
[66] E.g., Soltani-Rastegar v. Superior Court, 208 Cal. App. 3d 424, 426–28 (1989) (insured’s communications to insurer in reporting claim prior to suit were protected).
[67] E.g., O’Brien v. Tuttle, 21 Pa. D. & C.3d 319 (1981) (privilege not waived where defense counsel communicated with insurer without copying insured).
[68] E.g., Insurance Services Office Form No. CG 00 01 04 13, Commercial General Liability Coverage Form, § 1, Coverage A, ¶ 1.a, and Coverage B, ¶ 1.a.
[69] See, e.g., Cont’l Cas. Co. v. St. Paul Surplus Lines Ins. Co., 265 F.R.D. 510, 519 (E.D. Cal. 2010).
[70] E.g., State & Cty. Mut. Fire Ins. Co. v. Young, 490 F. Supp. 2d 741, 745 (N.D. W.Va. 2007).
[71] Lectrolarm Custom Sys., Inc. v. Pelco Sales, Inc., 212 F.R.D. 567, 571 (E.D. Cal. 2002).
[72] Compare Lectrolarm, 212 F.R.D. at 571, with Enns Pontiac, Buick, & GMC Inc. v. Flores, No. CV-F-07-01043 LJO BAM, 2011 U.S. Dist. LEXIS 143151, at *15 (E.D. Cal. Dec. 13, 2011) (stating, where third-party claimant asked deposition questions regarding coverage for underlying action, “Enns’ insurer is defending under a reservation of rights and thus there is a ‘common interest’ between Enns and its insurer. However, for Enns’ deposition answers to be protected, the communications must have been protected by some other privilege in the first instance”).
[73] E.g., Bank of Am., N.A. v. Superior Court, 212 Cal. App. 4th 1076, 1083 (2013).
[74] E.g., Vicor Corp. v. Vigilant Ins. Co., 674 F.3d 1, 19 (1st Cir. 2012) (Massachusetts law) (even though insurer agreed to defend under reservation of rights, its funding of defense and paying portion of settlement was sufficient to establish common interest with policyholder); Liberty Mut. Fire Ins. Co. v. Kaufman, 885 So. 2d 905, 909 (Fla. Dist. Ct. App. 2004) (insurer and policyholder retained common interest in underlying action even though insurer defended under reservation of rights).
[75] E.g., NL Indus., Inc. v. Commercial Union Ins. Co., 144 F.R.D. 225, 231–32 (D.N.J. 1992) (where insurer disclaims defense of policyholder, insurer’s legal interest conflicts with that of policyholder, and joint-defense doctrine may not apply); accord Int’l Ins. Co. v. Newmont Mining Corp., 800 F. Supp. 1195 (S.D.N.Y. 1992).
[76] NL Industries, 144 F.R.D. at 225.
[77] NL Industries, 144 F.R.D. at 225.
[78] Newmont Mining, 800 F. Supp. at 1195.
[79] In re Imperial Corp. of America, 167 F.R.D. 447 (S.D. Cal. 1995), aff’d, 92 F.3d 1503 (9th Cir. 1996).
[80] In re Imperial Corp., 167 F.R.D. at 455–56 (opining that allowing parties to “normal business transactions” to “exchange privileged information for any reason, at any time, without third parties ever being allowed access to the information . . . is not a logical result”).
[81] E.g., Cal. Ins. Code § 791 et seq.; cf. N.Y. Ins. Law. § 3420(d)(2) (if policy was issued or delivered in New York, accident occurred in New York, claim involves bodily injury or wrongful death, and insurer does not copy plaintiff on letter, reservation of rights letter is invalid).
[82] Cal. Ins. Code § 791.13(h).
[83] See, e.g., Va. Code Ann. § 8.01-417.
[84] In California, serving objections is procedurally sufficient for a nonparty to avoid producing documents—i.e., the nonparty need not file a motion to quash the subpoena. Cal. Civ. Proc. Code § 1987(c). The policyholder can also serve objections. Of course, the propounding party can seek to compel production once objections have been served.
[85] Young v. Chapman, No. 3:14-CV-666-JHM-CHL, 2016 U.S. Dist. LEXIS 56409 (W.D. Ky. Apr. 28, 2016).
[86] Young, 2016 U.S. Dist. LEXIS 56409, at *5.
[87] Young, 2016 U.S. Dist. LEXIS 56409, at *7–8.
[88] Young, 2016 U.S. Dist. LEXIS 56409, at *5–6.
[89] Policyholders also need to be mindful of disclosures to their brokers, which may be argued to constitute a waiver of otherwise applicable protections. See Sony Comput. Entm’t Am. v. Great Am. Ins. Co., 229 F.R.D. 632 (N.D. Cal. 2005) (information shared with broker was discoverable where insured failed to demonstrate that confidential information was supplied in furtherance of policyholder’s interests); but see Atmel Corp. v. St. Paul Fire & Marine Ins. Co., 409 F. Supp. 2d 1180 (N.D. Cal. 2005) (no waiver of privilege where broker was policyholder’s “necessary advisor”).
[90] When making this argument, policyholders need to be mindful of case law holding that an insurer’s invocation of a cooperation clause may entitle it to compel all of a policyholder’s privileged information relating to an underlying claim. See, e.g., Waste Mgmt., Inc. v. Int’l Surplus Lines Ins. Co., 144 Ill. 2d 178, 192–95 (1991); but see In re Imperial Corp. of Am., 167 F.R.D. 447, 452 (S.D. Cal 1995) (noting that Waste Management “has been criticized and rejected by most courts that have had the opportunity to visit the issue presented there”); Rockwell Int’l Corp. v. Superior Court, 26 Cal. App. 4th 1255, 1266 (1994) (refusing “to read into the cooperation clause an unintended implied waiver of the attorney-client privilege”); Steven Plitt et al., 17A Couch on Insurance § 250:59 (3d ed. 2012) (“The standard cooperation clause included in a third-party liability insurance policy does not operate as a contractual waiver of the insured’s attorney-client privilege in the event of coverage litigation between the insured and its insurer.”).
[91] See, e.g., Cal. Evid. Code § 622 (“The facts recited in a written instrument are conclusively presumed to be true as between the parties thereto, or their successors in interest; but this rule does not apply to the recital of a consideration.”).

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