Insurers’ Pre-Disclaimer Legal Privileges Against Disclosure Still Under Attack

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Otsuka America, Inc. and Pharmavite LLC v. Crum & Forster Specialty Insurance Company[1] is the latest in what looks like ongoing erosion of an insurer’s right to rely on attorney-client privilege and the work product doctrine in connection with a determination of insurance coverage.

The insurer denied coverage to the plaintiffs for a nine million dollar product recall loss. The plaintiffs filed this action to resolve the insurance coverage issue.

The court correctly identified the governing law, recognizing that “attorney-client privilege attaches if information is disclosed in confidence to the attorney for the purposes of obtaining legal advice or service…in the course of a professional relationship.” Likewise, the court observed that attorney work product “applies to documents prepared by counsel acting as such, and to materials uniquely the product of a lawyer’s learning and professional skills, such as those reflecting an attorney’s legal research, analysis, conclusions, legal theory or strategy,” which is prepared for the purpose of litigation. The court further recognized that “[w]here an attorney acts as a claims investigator, and not as an attorney, the communications are not privileged.”

The concern with the court’s ruling is that it appears to have stretched against the insurer the bounds of when an attorney acts as a claim investigator, conflating the material prepared in anticipation of litigation privilege with attorney client privilege. Certain Bates-numbered documents withheld by the insurer, but detailed in its privilege log, were at the heart of the disclosure dispute, and the court reviewed them in chambers before ruling.

The court described some of the documents it reviewed as not having any bearing on anything of a legal nature or character and, accordingly, would not benefit from either privilege. But, in a particularly concerning instance, the court too readily described a pre-disclaimer claim note summarizing the legal opinion rendered by the insurer’s coverage counsel as beyond the protections of attorney-client privilege and the work product. It observed that the claim note was written by someone other than an attorney acting as such, which was not a communication directly between counsel and a client, and was not only of a legal nature. So, even though it was the client’s characterization of the attorney’s opinion and work product, the court did not find it privileged, in part because it was pre-disclaimer.

New York’s intermediate appellate court, the Appellate Division, however, has held that a trial court abuses its discretion in ordering disclosure of the legal opinion of outside counsel, and pre-disclaimer claim notes related to that opinion, where the documents prepared by an attorney are:

  1. “Primarily and predominantly of a legal character”
  2. Made to furnish legal services, because they are absolutely privileged and not discoverable, regardless of whether there was pending litigation at the time they were prepared[2]

New York’s highest court has held that “[s]o long as the communication is primarily or predominantly of a legal character, the privilege is not lost merely by reason of the fact that it also refers to certain nonlegal matters.”[3]

Insurers should remember that they are entitled to invoke privilege like any other corporate defendant and should not be treated as an unprotected class.[4] Insurers should also be assertive with the attorney-client privilege and work product doctrine, where appropriate to prevent further erosion of these important protections. Having faced such issues before, we are uniquely suited to provide proactive solutions to protect privilege.

[1] (N.Y. State Supreme Court, New York County, August 30, 2019).

[2] Celani v. Allstate Indem. Co., 155 A.D.3d 1524, 1526 (N.Y. App. Div. 4th Dep’t 2017).

[3] See Rossi v. Blue Cross & Blue Shield of Greater New York, 73 N.Y.2d 588, 594 (1989).

[4] See id. at 591-92 (“no one questions that corporations, as other clients, may avail themselves of the attorney-client privilege for confidential communications with attorneys relating to their legal matters”).