Felman Prod., Inc. v. Industrual Risk Ins.
(S.D. W.Va. July 23, 2010)
A federal judge ruled that an insured claiming $39 million in business losses waived the attorney-client privilege protecting an enormous number of emails, including an email between the insured’s human resource manager and its attorney. In the email, the human resources manager asked the insured’s attorney whether to ask customers to backdate contracts in order to produce evidence for the purposes of its insurance claim.
The action centers on a business interruption claim arising from a transformer failure at the insured’s smelting plant that rendered the plant’s furnace inoperable. The insured claims $39 million in lost business, a figure that allegedly reflects the projected sale of an amount of the silicon-manganese consistent with the simultaneous operation of three furnaces.
In connection with the litigation, the insured produced more than one million pages of electronically stored information (ESI). In reviewing the ESI, attorneys retained by the defendant insurer, Industrial Risk Insurers, discovered the damaging email between the insured’s human resource manager and its attorney. They also discovered an additional 377 documents otherwise protected by the attorney-client privilege. The insurer immediately filed a motion to amend its answer to add counterclaims for fraud and breach of contract against the insured. Although both parties agreed that the documents were subject to the attorney-client privilege, the insurer refused to return them, arguing that the insured waived the privilege through its disclosure. The Magistrate Judge agreed.
The district court affirmed the Magistrate’s ruling, noting that the “ridiculously high number of irrelevant materials and the large volume of privileged communications produced demonstrate a lack of reasonableness.” The court held that the sheer volume of privileged documents that were inadvertently disclosed weighed in favor of waiver.
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Carrie Appler and Michael Saltzman
https://www.goldbergsegalla.com/attorneys/Appler.html
https://www.goldbergsegalla.com/attorneys/Saltzman.html
case provided courtesy of Lexis