We’ve all seen it before. The insured files a claim, the insurance company sends out an adjuster to adjust the loss, the loss is more complex, or a situation arises that the adjuster cannot handle so the insurance company forwards the claim to their legal department. At that point, an attorney becomes involved and the adjustment of the claim, as well as the communication between the parties is limited and calculated.

The decision for an insurance company to involve an attorney in what is commonly understood to be the business function of claims handling has significant implication for the privileges that typically protect against the disclosure of communications with, or work by, such attorneys.

The problem occurs when attorneys, acting as claims handlers (also known as Super Adjusters), improperly undermine policyholders’ interests and cloak such actions behind supposed privileges.

In Otsuka America v. Crum & Forster Specialty Insurance Company,1 the insured sued and filed motions indicating that certain documents that Crum & Forster were withholding as privileged should be discoverable. After conducting an in-camera inspection, the trial court ordered Crum to disclose all documents. Crum moved to reargue the motion citing attorney-client and work-product privileges. The court found that “an attorney’s communication is not privileged when the attorney is hired for business or personal advice, or to do the work of a nonlawyer.” The court also found that “[t]he payment or rejection of claims is a part of the regular business of an insurance company.”

Most importantly, the court ruled that reports prepared by insurance investigators, adjusters, or attorneys prior to the decision on coverage are not privileged even when those reports are multipurpose reports and motivated in part by potential litigation. Additionally, the court stated that a memorandum created by a claims handler allegedly summarizing counsel’s opinion on its investigation of coverage was not protected.

In honor of Breast Cancer Awareness month, I leave you with a quote from author and philanthropist Ann Romney:

Women wear many hats in their lives. Daughter, sister, student, breadwinner. But no matter where we are or what we’re doing, one hat that moms never take off is the crown of motherhood. There is no crown more glorious.

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1 Otsuka America, Inc. v. Crum & Forster Specialty Ins. Co., No. 650463/2018, 2019 WL 4131024 (N.Y. Sup. Ct. August 30, 2019).

  • shirley heflin

    Dear Sir:

    Good ruling! The insured already has an insurmountable task when fighting their insurance company for their benefits. They shouldn’t have the added task of fighting with the carrier’s attorney for “created documents” factored into that equation.

    Respectfully,
    SHIRLEY HEFLIN
    Tampa, FL

  • Edward Fako

    This seems like a sensible conclusion Sir, which now allows the Policy Holder and their chosen team of various representatives or work providers to be able to truthfully see the unobstructed full rationale behind the ongoing disagreements on both Coverage and Scope Issues. Otherwise, they are being unjustly blindfolded, without even knowing which dartboard to aim their rebuttal arguments at.

  • William Cook

    Of equal importance is the legal question…Can an adjuster rise to the ranks of attorney status by advancing the cause and certain legal rights of a third party, in his/her capacity as a public adjuster. This adjuster considers that to be statutorily, the unauthorized practice of law, and the potential of a client lawsuit if he should make a legal blunder in that process. However I will always work with an attorney when I secure written confirmation that the attorney is working as an adjuster for insurers and not representing the insurers legal interest.

    Many times attorneys representing the legal interest of insurers have demanded that I communicate directly with them. The handling adjuster remains my claim contact party under all circumstances.