Attorney-Client Privilege

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.
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Merlin Law Group is closely monitoring a case pending before the South Carolina Supreme Court to see how it answers the question: “Does South Carolina law support application of the ‘at issue’ exception to the attorney-client privilege such that a party may waive the privilege by denying liability in its answer?”
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Just last week I spoke on a panel that addressed the role of the attorney during the adjustment of the claim. Our presentation focused on how quickly the line can become blurred between an attorney acting in his/her role as counsel, and acting as the claims adjuster for the insurance company. More and more often, we are seeing counsel for the insurer becoming involved earlier and taking a more active role in the claims investigation. The question then becomes, when that happens are the documents created privileged just because a lawyer was involved?
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Recently, while going through the insurance company claim file on two cases, I saw references to a coverage opinion letter from a lawyer (or referencing emails shared between the adjuster and an attorney about coverage). These communications occurred in the claims handling process before the claim was denied and before the policyholder hired me as their lawyer. At about that point in the claim file there was much redacting where the lawyer defending the case had blacked out (or blanked out) anything having to do with communications between the coverage lawyer and the insurance company. I sent (pre motion to compel) letters to opposing counsel kindly asking them to reconsider their redaction of the documents, and withdraw their objection to my discovery request. The response I got was one of complete disdain that I had the audacity to make such a request. This is because many insurance defense lawyers think that anything done by a lawyer at any point during the claims handling process is absolutely and unquestionably protected by the attorney-client privilege.

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In March I blogged about a Washington case that held an insurer’s communications with their attorney used to determine a denial of a policyholder’s claim was not privileged. In National Union Fire Insurance Co. of Pittsburg v. TransCanada Energy USA, Inc.,1 a New York appellate court continues the trend. Although every state’s insurance laws differ, there are many similarities, and almost all states have ruled that an attorney’s communications with a client is privileged. However, when it comes to attorneys who are outside counsel for an insurer that render opinions during the insurer’s regular course of business of issuing a denial, courts are ruling that this attorney-client communication is one made as a business decision versus a legal purpose.


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Last week I blogged about how the recent Willis v. Swain case ruling out of Hawaii, may impact and shape future cases as we move forward full-steam into 2014. Looking back at the past year, it’s also important to mention a ruling from a Washington state court that will be helpful to insureds in efforts to procure bad faith damages. It is well known in the litigation realm that plaintiffs and their attorneys are continually frustrated when trying to obtain discovery of the claim file – only to find numerous redactions in the file during the adjusting period accompanied by a privilege log stating that these communications are attorney-client privilege.


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It is not breaking news that attorneys retained by insurance companies to adjust claims are susceptible to discovery, including depositions. Indeed, I have blogged about that in the past. This post discusses a recent decision out of the United States District Court of Arizona broadening the discovery susceptibility of carrier attorneys.1


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Generally, any communication between an attorney and client is privileged. I often tell clients that when they want to talk about their claim by someone, they should talk to their attorney only so as not to break any privilege issues. Although I know sometimes discussing the claim outside the attorney-client relationship is a must, those communications (emails, letters, etc.) are usually considered discoverable in the event of a lawsuit, and their insurance company is entitled to those non-privileged communications.


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