News
Insurance
Aug. 15, 2002
Insurer Has No Blanket Right to Privileged Information
Focus Column - By Kirk A. Pasich - One issue that frequently arises in disputes between insureds and their insurance carriers relates to carriers' attempts to access information protected by the attorney-client privilege or the work product doctrine.
Focus Column
By Kirk A. Pasich
One issue that frequently arises in disputes between insureds and their insurance carriers relates to carriers' attempts to access information protected by the attorney-client privilege or the work product doctrine.
Many carriers request that their insureds provide information relating to the defense and the insured's potential exposure, as well as communications with defense counsel and defense counsel's work product. They argue that they are entitled to such information in order to assess coverage issues properly. However, they have no blanket right to this information.
When a carrier has acknowledged coverage, without reserving any rights, it may be entitled to such information, if there are no possible coverage issues, on the theory that there is a community of interest because the carrier will be paying for the insured's potential liability. See, for example, Rockwell Int'l Corp. v. Superior Court, 26 Cal.App.4th 1255 (1994) ("When an insurer provides an unconditional defense for its insured, the insured and the carrier share the same goal - minimizing or eliminating liability in the third party action - and no conflict of interest inhibits the ability of one lawyer to represent both the insurer and its insured."); Heffron v. Los Angeles Transit Lines, 170 Cal.App.2d 709 (1959).
However, if a carrier has denied coverage, then it should have no right to information protected by the attorney-client privilege or work product doctrine. After all, in that circumstance, the carrier clearly is adverse to the insured.
A more problematic situation exists when a carrier has agreed to defend an insured under a reservation of rights. Once a carrier has reserved its rights, no confidential relationship entitles it to access confidential information. See First Pacific Networks Inc. v. Atlantic Mut. Ins. Co., 163 F.R.D. 574 (N.D. Cal. 1995) ("At least after [the carrier] reserved its rights, [the insured] simply was not in a confidential relationship with its carrier ... . After it reserved its right to deny coverage, [the carrier] clearly could not consider itself a client of its insured's independent Cumis counsel.").
But a carrier may have a limited right to certain privileged material. Civil Code Section 2860 addresses this issue in the context of an insurance policy that imposes a duty to defend on an insurer.
Under Section 2860(d), when an insured has selected independent counsel because of a conflict of interest, the independent counsel and the insured have a duty "to disclose to the insurer all information concerning the action except privileged materials relevant to coverage disputes, and timely to inform and consult with the insurer on all matters relating to the action. ... Any information disclosed by the insured or by independent counsel is not a waiver of the privilege as to any other party."
However, there is no obligation to provide privileged materials "relevant to coverage disputes." Thus, for example, if an insurance carrier has reserved rights on the grounds that there may not have been an occurrence within the policy period or that the insured intentionally inflicted damage, the carrier is not entitled to any privileged information relating to those subjects.
Notwithstanding this fact, carriers have tried a variety of arguments to obtain access to privileged information. They have argued that their policies contain a "cooperation" clause that waives the privilege, that they have a common interest with the insured and that the insured has placed privileged communications "in issue."
Rockwell rejected each of these arguments. There, the carriers first argued that a standard "cooperation clause," which obligated the insured to cooperate with the carriers in the defense of suits, required an insured to disclose communications that it had with defense counsel. The court disagreed, calling the theory "fanciful."
The court noted that the cooperation clause does not contain "so much as a hint that communications from the insured to its attorney in furtherance of the insured's duty to cooperate in the defense of the underlying action should occur without an expectation of confidentiality." It also noted that the drafters of the clause "did not consider or intend that it would operate as a waiver of the attorney-client privilege in this situation or in any situation."
The Rockwell court next rejected the insurance carriers' argument that they shared a "common interest" with the insured and thus came within the "joint client" exception to the attorney-client privilege: "In California, the 'joint client' or 'common interest' exception applies only where 'two or more clients have retained or consulted a lawyer upon a matter of common interest' ... Assuming the attorneys representing [the insured] in one or more of the underlying actions were selected by the carriers, those attorneys were not 'retained or consulted' by the carriers ... To the contrary, the attorneys were retained to represent [the insured] and only [the insured]."
Finally, the court rejected the carriers' argument that they were entitled to the documents prepared by the insured's defense counsel because the insured had placed in issue its conduct that gave rise to the underlying claims: "The in issue doctrine creates an implied waiver of the privilege only when the client tenders an issue involving the substance or content of a protected communication, not where the privileged communication simply represents one of several forms of indirect evidence in a particular case. ... For this reason, the doctrine has no application in a coverage action between an insured and its carrier where the issues turn on the underlying facts and the insured is not relying on the advice of counsel for any purpose." See also Transamerica Title Ins. Co. v. Superior Court, 188 Cal.App.3d 1047 (1987) ("Privileged communications do not become discoverable simply because they are related to issues raised in the litigation."); Schlumberger Ltd. v. Superior Court, 115 Cal.App.3d 386 (1981).
In light of Rockwell, carriers have made other arguments in an attempt to gain access to privileged materials. One argument is that an insured waives the privilege if it cooperates with the carrier's investigation by providing privileged documents during the investigation.
However, there should not be a blanket waiver of privilege. See Raytheon Co. v. Superior Court, 208 Cal.App.3d 683 (1989) (recognizing that privilege is not waived by disclosure of privileged information to another who shares a common interest in the matter); Evidence Code Section 912(d) ("A disclosure in confidence of a communication that is protected by a privilege ... when such disclosure is reasonably necessary for the accomplishment of the purpose for which the lawyer ... was consulted, is not a waiver of the privilege.").
Insurance carriers also may argue that a waiver as to certain documents constitutes a broader waiver (for example, as to all privileged matters regarding the underlying claim) or that a disclosure of information to one carrier constitutes a waiver as to other carriers. Neither of these arguments should be accepted.
Indeed, courts frequently have recognized that a disclosure of some privileged documents does not constitute a waiver as to other privileged documents. See, for example, Owens v. Palos Verdes Monaco, 142 Cal.App.3d 855 (1983) ("a waiver ... relates to the particular communication which has been revealed and not to all communications concerning the subject matter of the lawsuit"); Transamerica.
Likewise, the fact that an insured shares privileged materials with one carrier does not mean that another carrier is entitled to that information.
In fact, the First Pacific court specifically rejected such an argument, explaining, "Recently, California courts of appeal have vigorously defended the sanctity of the attorney-client privilege between the insured and its Cumis counsel. ... These recent decisions reinforce the legitimacy of an insured's expectation that the insured would retain the power to determine whether (or to what extent) to share any otherwise privileged communications with its carrier - and that sharing any such communications would not constitute a waiver of the privilege 'as to any other party.'"
The First Pacific court explained further: "The extent of the insured's power to control disclosure of some privileged communications, without risking waiver, is most visible in the fact that California law seems to permit an insured to pick and choose which of the insured's otherwise privileged communications it will share with a carrier funding a defense under a reservation of rights ... even communications on the same subjects."
Thus, as the First Pacific court realized, an insured's disclosure of some privileged communications to one carrier does not entitle that carrier to access other privileged communications, nor does it entitle another carrier to access the information disclosed to the first carrier. Insurers simply have no blanket right to such information.
Kirk Pasich is a litigation partner in the Century City office of Howrey Simon Arnold & White. He represents insureds in complex coverage matters and is the author of "Casualty and Liability Insurance" (Matthew Bender 2000).
By Kirk A. Pasich
One issue that frequently arises in disputes between insureds and their insurance carriers relates to carriers' attempts to access information protected by the attorney-client privilege or the work product doctrine.
Many carriers request that their insureds provide information relating to the defense and the insured's potential exposure, as well as communications with defense counsel and defense counsel's work product. They argue that they are entitled to such information in order to assess coverage issues properly. However, they have no blanket right to this information.
When a carrier has acknowledged coverage, without reserving any rights, it may be entitled to such information, if there are no possible coverage issues, on the theory that there is a community of interest because the carrier will be paying for the insured's potential liability. See, for example, Rockwell Int'l Corp. v. Superior Court, 26 Cal.App.4th 1255 (1994) ("When an insurer provides an unconditional defense for its insured, the insured and the carrier share the same goal - minimizing or eliminating liability in the third party action - and no conflict of interest inhibits the ability of one lawyer to represent both the insurer and its insured."); Heffron v. Los Angeles Transit Lines, 170 Cal.App.2d 709 (1959).
However, if a carrier has denied coverage, then it should have no right to information protected by the attorney-client privilege or work product doctrine. After all, in that circumstance, the carrier clearly is adverse to the insured.
A more problematic situation exists when a carrier has agreed to defend an insured under a reservation of rights. Once a carrier has reserved its rights, no confidential relationship entitles it to access confidential information. See First Pacific Networks Inc. v. Atlantic Mut. Ins. Co., 163 F.R.D. 574 (N.D. Cal. 1995) ("At least after [the carrier] reserved its rights, [the insured] simply was not in a confidential relationship with its carrier ... . After it reserved its right to deny coverage, [the carrier] clearly could not consider itself a client of its insured's independent Cumis counsel.").
But a carrier may have a limited right to certain privileged material. Civil Code Section 2860 addresses this issue in the context of an insurance policy that imposes a duty to defend on an insurer.
Under Section 2860(d), when an insured has selected independent counsel because of a conflict of interest, the independent counsel and the insured have a duty "to disclose to the insurer all information concerning the action except privileged materials relevant to coverage disputes, and timely to inform and consult with the insurer on all matters relating to the action. ... Any information disclosed by the insured or by independent counsel is not a waiver of the privilege as to any other party."
However, there is no obligation to provide privileged materials "relevant to coverage disputes." Thus, for example, if an insurance carrier has reserved rights on the grounds that there may not have been an occurrence within the policy period or that the insured intentionally inflicted damage, the carrier is not entitled to any privileged information relating to those subjects.
Notwithstanding this fact, carriers have tried a variety of arguments to obtain access to privileged information. They have argued that their policies contain a "cooperation" clause that waives the privilege, that they have a common interest with the insured and that the insured has placed privileged communications "in issue."
Rockwell rejected each of these arguments. There, the carriers first argued that a standard "cooperation clause," which obligated the insured to cooperate with the carriers in the defense of suits, required an insured to disclose communications that it had with defense counsel. The court disagreed, calling the theory "fanciful."
The court noted that the cooperation clause does not contain "so much as a hint that communications from the insured to its attorney in furtherance of the insured's duty to cooperate in the defense of the underlying action should occur without an expectation of confidentiality." It also noted that the drafters of the clause "did not consider or intend that it would operate as a waiver of the attorney-client privilege in this situation or in any situation."
The Rockwell court next rejected the insurance carriers' argument that they shared a "common interest" with the insured and thus came within the "joint client" exception to the attorney-client privilege: "In California, the 'joint client' or 'common interest' exception applies only where 'two or more clients have retained or consulted a lawyer upon a matter of common interest' ... Assuming the attorneys representing [the insured] in one or more of the underlying actions were selected by the carriers, those attorneys were not 'retained or consulted' by the carriers ... To the contrary, the attorneys were retained to represent [the insured] and only [the insured]."
Finally, the court rejected the carriers' argument that they were entitled to the documents prepared by the insured's defense counsel because the insured had placed in issue its conduct that gave rise to the underlying claims: "The in issue doctrine creates an implied waiver of the privilege only when the client tenders an issue involving the substance or content of a protected communication, not where the privileged communication simply represents one of several forms of indirect evidence in a particular case. ... For this reason, the doctrine has no application in a coverage action between an insured and its carrier where the issues turn on the underlying facts and the insured is not relying on the advice of counsel for any purpose." See also Transamerica Title Ins. Co. v. Superior Court, 188 Cal.App.3d 1047 (1987) ("Privileged communications do not become discoverable simply because they are related to issues raised in the litigation."); Schlumberger Ltd. v. Superior Court, 115 Cal.App.3d 386 (1981).
In light of Rockwell, carriers have made other arguments in an attempt to gain access to privileged materials. One argument is that an insured waives the privilege if it cooperates with the carrier's investigation by providing privileged documents during the investigation.
However, there should not be a blanket waiver of privilege. See Raytheon Co. v. Superior Court, 208 Cal.App.3d 683 (1989) (recognizing that privilege is not waived by disclosure of privileged information to another who shares a common interest in the matter); Evidence Code Section 912(d) ("A disclosure in confidence of a communication that is protected by a privilege ... when such disclosure is reasonably necessary for the accomplishment of the purpose for which the lawyer ... was consulted, is not a waiver of the privilege.").
Insurance carriers also may argue that a waiver as to certain documents constitutes a broader waiver (for example, as to all privileged matters regarding the underlying claim) or that a disclosure of information to one carrier constitutes a waiver as to other carriers. Neither of these arguments should be accepted.
Indeed, courts frequently have recognized that a disclosure of some privileged documents does not constitute a waiver as to other privileged documents. See, for example, Owens v. Palos Verdes Monaco, 142 Cal.App.3d 855 (1983) ("a waiver ... relates to the particular communication which has been revealed and not to all communications concerning the subject matter of the lawsuit"); Transamerica.
Likewise, the fact that an insured shares privileged materials with one carrier does not mean that another carrier is entitled to that information.
In fact, the First Pacific court specifically rejected such an argument, explaining, "Recently, California courts of appeal have vigorously defended the sanctity of the attorney-client privilege between the insured and its Cumis counsel. ... These recent decisions reinforce the legitimacy of an insured's expectation that the insured would retain the power to determine whether (or to what extent) to share any otherwise privileged communications with its carrier - and that sharing any such communications would not constitute a waiver of the privilege 'as to any other party.'"
The First Pacific court explained further: "The extent of the insured's power to control disclosure of some privileged communications, without risking waiver, is most visible in the fact that California law seems to permit an insured to pick and choose which of the insured's otherwise privileged communications it will share with a carrier funding a defense under a reservation of rights ... even communications on the same subjects."
Thus, as the First Pacific court realized, an insured's disclosure of some privileged communications to one carrier does not entitle that carrier to access other privileged communications, nor does it entitle another carrier to access the information disclosed to the first carrier. Insurers simply have no blanket right to such information.
Kirk Pasich is a litigation partner in the Century City office of Howrey Simon Arnold & White. He represents insureds in complex coverage matters and is the author of "Casualty and Liability Insurance" (Matthew Bender 2000).
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