P R O F E S S I O N A L L I A B I L I T YPrivilege and WorkProduct IssuesBy Scott D. Braunand Jenna L. BudaInsurers’Retention ofOutside CounselWhile courts routinelycategorize claiminvestigation and analysisby outside counselas ordinary businessfunctions, you can stilltake measures to establishelements of privilege inyour communications.In most cases, in-house claims professionals, some ofwhom may be lawyers, adjust insurance claims. However,insurers also retain outside counsel to manage complex orhigh- exposure claims. In these situations, in addition tofunctioning in the traditional manner byproviding legal advice, an outside counselmay wear several hats, serving as claimsadjuster, investigator and coverage counsel.This lawyer may investigate the facts ofa particular claim or series of claims; evaluatepotential liability and damages; formulateclaim- handling or trial strategy;and make reserve recommendations. Insome cases, this lawyer may evaluate thepotential for coverage litigation with aninsured or “bad-faith” exposure. Accordingly,whether communications and materialsprepared by the outside lawyer haveattorney- client privilege or work productdoctrine protection becomes paramount.As detailed below, the specific role playedby the lawyer is of principal importance indisputes over the production of communicationsprepared by an outside counsel.While the law regarding the role ofcounsel in other business contexts is generallywell settled, determining how theattorney- client privilege or work productdoctrine applies to protect communicationswith an attorney and attorney workproduct in the insurance context is not soclear. As one court has said:In the insurance context, the question ofwhether a communication falls withinthe attorney- client privilege can oftenbe a difficult one because of the investigatorynature of the insurance business.<strong>The</strong> line between what constitutesclaim handling and the rendition oflegal advice is often more cloudy thancrystalline.HSS Enterprises, LLC v. AMCO Ins. Co., 2008U.S. Dist. Lexis 11841 (W.D. Wash. 2008).This article will address the generalrules regarding the attorney- client privilegeand work product doctrine and theirapplication to outside counsel retainedby an insurance company, not as defensecounsel, but to assist in investigating oradjusting a claim. As detailed below, mostcourts have determined that communicationsand materials prepared by outside■ Scott D. Braun is a shareholder and Jenna L. Buda is an associate in the Chicago office of Johnson & Bell,Ltd. Mr. Braun focuses his practice in counseling domestic and foreign insurers on a wide range of issuesfrom claims handling to litigation. He serves on <strong>DRI</strong>’s Professional Liability Committee Steering Committee.Ms. Buda concentrates her practice in insurance coverage and litigation with an emphasis in representing domesticand international insurers and reinsurers with respect to their North American risk exposures.64 n <strong>For</strong> <strong>The</strong> <strong>Defense</strong> n <strong>July</strong> <strong>2010</strong>
counsel in the role of a “claims handler”are not privileged because an insurancecompany is in the business of investigatingclaims. In other words, certain communicationsor materials prepared by a lawyerare not privileged simply because a lawyercreated them. However, communicationsand materials containing legal advice orcreated in anticipation of litigation remainprivileged. We will also address the interestsunderlying the rules governing discoveryin federal and state courts, whichcourts generally construe broadly, generallypromoting the fullest possible disclosureof information, and rules regardingprivilege, which courts generally construenarrowly, as they can “obstruct the searchfor the truth.” In re Grand Jury Investigation,599 F.2d 1224, 1235 (3d Cir. 1979).<strong>The</strong> Role of Outside CounselIt is well settled that an attorney may actin a capacity other than that of an attorney.U.S. v. Davis, 636 F.2d 1028, 1044 (5thCir. 1981). In the insurance context, insurersoften retain outside counsel to servemany roles, including acting as a claimsadjustor, a claim process supervisor, ora claim investigation monitor. Harper v.Auto- Owners Ins. Co., 138 F.R.D. 655, 671(S.D. Ind. 1991). Further, an outside counsel’srole can range from directing defensecounsel how to handle a specific claim toadvising the company on coverage issues.Outside counsel handle claims for manyreasons, including expertise, experience,geographic location, or something as simpleas workload of the in-house claims staff.Privilege and how it is applied to communicationsand materials prepared byoutside counsel usually becomes an issuein the event of litigation with an insured.In that situation, an insured seeks productionof materials prepared by outside counselin discovery, and the insurer asserts thatthe materials are protected from disclosurebecause of the attorney- client privilege orthe work- product doctrine. Most often, atrial judge will decide whether the materialsat issue have protection or an insurermust produce them after an in camerainspection. In determining whether aninsurer will produce disputed materials,the judge will balance the interests of thediscovery rules of most states, requiringproduction of anything relevant to anyissue and the case, with the rules regardingprivilege, mandating that the judge construethe privilege narrowly. Some communicationsand materials are easily classifiedas protected by privilege and withheld fromproduction. With others, it is easy to determinethat privilege does not apply, and aninsurer must produce the materials. Stillother materials may contain both privilegedand non- privileged information.Because an insurer is in the business ofevaluating and adjusting insurance claimsand making coverage determinations shortof litigation, an insured frequently willargue that neither the attorney- client privilegenor the work product doctrine shieldscommunications or documents preparedby outside counsel that would have beencreated in the normal course by an insurerin adjusting a claim.General RulesOver time, the courts have developed somegeneral rules about the privileges affordedattorneys when representing clients toserve the public interests of the law.Attorney-Client Privilege<strong>The</strong> attorney- client privilege is the oldestprivilege recognized at common law.Upjohn Co. v. United States, 449 U.S. 383,389 (1981). Case law generally providesthat the attorney- client privilege protectsconfidential communications by a clientto an attorney acting as a legal adviserand the advice furnished by the lawyer inthe course of representing the client. <strong>The</strong>privilege applies not only to communicationsmade by a client to a lawyer, but alsoto communications from the lawyer to theclient. Schwimmer v. U.S., 232 F.2d 855 (8thCir.), cert. denied, 352 U.S. 833 (1956). <strong>The</strong>privilege also extends to written materialsreflecting the substance of an attorneyclientcommunication. Green v. IRS, 556 F.Supp. 79, 85 (N.D. Ind. 1982). <strong>The</strong> purpose ofthe privilege is to encourage full and frankcommunication between lawyers and theirclients and to promote the broader publicinterests in the observation of law and theadministration of justice. Upjohn at 389.Specifically, the courts have determinedthat a lawyer’s ability to provide soundlegal advice depends on obtaining completeand full information from a client, whichrequires alleviating the client’s fear.<strong>The</strong> elements of the attorney- client privilegeare as follows: “(1) Where legal adviceof any kind is sought; (2) from a professionallegal advisor in his capacity as such;(3) the communications relating to thatpurpose; (4) are made in confidence; (5)by the client; (6) are at his instance permanentlyprotected; (7) from disclosure byhimself or by the legal advisor; (8) except<strong>The</strong> privilege maynot protect legal adviceif it was “incidental” toa business purpose.if the protection is waived.” U.S. v. El PasoCo., 682 F.2d 530, 539 n.9 (5th Cir. 1982)(citing 8 J. Wigmore on Evidence §2292at 554 (J. McNaughton rev. 1961). Significantly,the privilege does not protect communicationsregarding underlying factsbut only the legal advice regarding facts.Upjohn at 389. Further, the privilege maynot protect legal advice if it was “incidental”to a business purpose. United States v.International Business Machines, 66 F.R.D.206 (S.D.N.Y. 1974).Work Product Doctrine<strong>The</strong> work product doctrine protects fromdiscovery documents and tangible thingsprepared in anticipation of litigation by orfor a party, or by or for that party’s representative.U.S.A. v. Patrick J. Roxworthy, 457F.3d 590 (6th Cir. 2006) (citing the Fed. R.Civ. Proc. 26 (b) (3)). <strong>The</strong> doctrine is “distinctand broader than the attorney- clientprivilege.” Hickman v. Taylor, 329 U.S. 495,508 (1947). <strong>The</strong> purpose of the doctrine is“to preserve a zone of privacy in which alawyer can prepare and develop legal theoriesand strategy ‘with an eye toward’ litigationfree from unnecessary intrusion by hisadversaries.” United States v. Adlman, 134F.3d 1194, 1196 (2d Cir. 1998) (citing, Hickmanv. Taylor, 329 U.S. 495 (1947)).In applying the doctrine, courts considerthe nature of the document for whichprotection is sought, as well as the factssurrounding its creation and distribution.<strong>For</strong> <strong>The</strong> <strong>Defense</strong> n <strong>July</strong> <strong>2010</strong> n 65
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