The Insurance Broker: Considerations on the Assertion of Attorney-Client Privilege (1)
Confidential communication is the foundation of any strong attorney-client relationship. Without the protection of attorney-client privilege, an attorney would agonize to represent clients in both civil and criminal suits, and face an uphill battle when trying to provide advice to a potential client who seeks his or her professional guidance. Likewise, attorney-client privilege plays an important role in the representation of clients in the realm of insurance law. The privilege attaches as early on as the first contact between a potential client and an attorney. However, all too often, clients are caught off guard when they find that certain communications are subject to disclosure to third parties. Without adequate safeguards to ensure its protection, the attorney-client privilege may be subject to waiver. In the realm of insurance law, this can often arise in the context of an insurance broker’s relationship with the insured and insurer.
The Basic Rule
Under the federal common law, communications between a client and an attorney, made in an effort to obtain legal advice or assistance in the attorney’s capacity as a legal advisor, and the resulting advice given by the attorney are protected under the attorney-client privilege.(2)
The Gray Area
Although the rule governing attorney-client privilege may appear to be straightforward, a look at the surrounding case law shows varying interpretations of this rule in the courts. Various courts have held that attorney-client communications made in the presence of a third party or to a third party, such as an insurance broker, do not waive the privilege as long as the communications were made for the purpose of furthering the legal representation of the client.(3) While insurers and insureds have both argued that communications with an insurance broker are privileged, the party asserting the privilege bears the burden of demonstrating that the third party broker was necessary to further the client’s interests.(4)
For example, in its 2010 decision, in In re Tetra Technologies, Inc., the Southern District of Texas granted an in-camera review of communications that shareholders in a Securities Exchange Class Action believed were not subject to the attorney-client privilege.(5) The court recognized that an insurance broker was able to act as an insured’s agent and therefore invoke the privilege where the broker was included in communications for the purpose of obtaining legal advice.(6) Additionally, in Exxon Corp. v. St. Paul Fire & Marine Insurance, an insurer successfully asserted attorney-client privilege over documents in the possession of an insurance broker as a result of communications between the primary insured and the insurer. (7) In Exxon, a party claiming to be an additional insured argued that the broker was not a client or representative of the primary insured and that any documents that may have been sent to the broker were discoverable. The additional insured further argued that, at the very least, the attorney-client privilege was waived when the communications were disclosed to the broker.(8) However, upon conducting an in-camera review, the U.S. District Court for the Eastern District of Louisiana found that the insurance broker was so intricately involved in the defense of the underlying bad faith claim that the attorney-client privilege had not been waived, as the broker was acting as a conduit between the lawyer, the insurer, and the insured.(9)
By contrast, in Cellco Partnership v. Certain Underwriters at Lloyd’s London, an insured was found to have waived the attorney-client privilege with regard to certain communications with its insurance broker.(10) The U.S. District Court for the District of New Jersey reasoned that simply providing information and advice that may have been legally helpful, but that was not necessary to interpret complex issues resulting in the attorney’s ability to provide sound legal advice, did not invoke the attorney-client privilege. As a result, the court found that the broker was not acting as an agent for the insured and that the attorney-client privilege was waived.(11)
Moreover, in Navigator’s Management Co. v. St. Paul Fire & Marine Insurance Co., the U.S. District Court for the Eastern District of Missouri found that the attorney-client privilege was waived where an insurance broker gave information to the insured’s attorneys and insurers and participated in decisions regarding the defense of an insured.(12) In the context of a coverage action against a party claiming to be an additional insured, insurers asserted that communications that were shared by the primary insured and the broker during an underlying liability action remained privileged.(13) Although the court recognized that communications shared between the insured, the broker, and insurers remained privileged during litigation regarding the limits of liability, it found that the attorney-client privilege had been waived with regard to these same communications in the coverage action because the common interest that had previously existed between the broker, the insured, and the insurers had dissipated. Therefore, the communications were producible and neither the insured nor the insurers had the right to withhold them.(14)
While federal courts from various states may reach differing opinions with regard to the attorney-client privilege in insurance law cases, it is important to recognize that these decisions are made on a case-by-case basis. This is perhaps best illustrated by the differing opinions in Atmel Corp. v. St. Paul Fire & Marine Insurance Co. and Sony Computer Entertainment America v. Great American Insurance Co., both of which were decided by the U.S. District Court for the Northern District of California. In Atmel, an insurer, arguing that insurance brokers are not agents but rather independent contractors, moved to compel the production of attorney-client communications and attorney work product that an insured had sent to the broker.(15) The court reasoned that the broker was in fact the agent of the insured, had negotiated the policies at issue, proved to be a necessary advisor to the insured for questions regarding general coverage as well as with regard to specific claims tendered to the insurer, and was thus a conduit of information between the insurance companies and the policyholder.(16) The court found that neither the attorney-client or work product privileges had been waived by sharing the communications with the broker, as the broker was present in order to promote the insured’s interests and such disclosure of information was reasonably necessary in order for the broker to be able to provide information to the insurers.(17)
In Sony Computer, the Court ruled that the privilege had been waived due to the insured’s failure to establish that the broker was present during the insured’s conversation with counsel in order to further the insured’s legal interests. (18) After certain insurers denied coverage to the insured for various consumer lawsuits, the insured brought legal action against these insurers. (19) Upon the insured’s two in-house counsel being designated as Federal Rule of Civil Procedure 30(b)(6) witnesses who would provide deposition testimony on behalf of the insured, one of the insurers moved to compel counsel to provide responses to specific questions, and to reveal attorney-client communications stated in the presence of the insured’s broker.(20) The court determined that the insured did not meet its burden of demonstrating that the broker was acting as an agent for the insured or the outside counsel during those discussions, and that, therefore, the attorney-client privilege had been waived.(21)
Courts have considered the following factors in assessing whether an broker should be considered an “agent” of the insured or the insurer when considering the extent to which communications should be privileged and confidential: (1) which party set the agent in motion; (2) which party controlled the agent’s actions; (3) which party paid the agent; and (4) which party’s interest the agent was working to advance. However, other courts have found that even where a broker has acted as an agent of the insured in securing insurance coverage and has acted as the conduit for information passed to the insurers, such disclosures to the insurer of such disclosures serve to waive privilege. (22)
Despite the risks that may arise in such a scenario, involving an insurance broker within these communications may be an invaluable resource. Insurance brokers can not only provide a wealth of knowledge about policy placement, but they may also have a great deal of information regarding the claims at issue.(23) It is therefore in a party’s best interests to take precautionary measures well in advance of attorney-client conversations that necessitate the involvement of the party’s broker to ensure that the privilege is not waived. Such measures may include:
1. Confidentiality Agreements – The confidentiality agreement can provide easy evidence in support of an assertion that no waiver of the attorney-client privilege occurred(24);
2. Use of the terms “Privileged and Confidential” – The use of these terms can help to differentiate between routine communications with an insurance broker and communications that are about a pending legal concern (25);
3. Use of descriptive billing statements/attorney time entries – The use of descriptive billing statements can be used as evidence that a broker was helping a client to gain legal advice rather than providing routine work.
Above all, one must always remember, the court holds the power to determine whether or not a privilege is waived. It is best to consult local law and seek the advice of an attorney on the question of privilege before discussions or other communications with the insurance broker take place.
1 Written with Courtney Pasquariello and Jessica Parra.
2 Federal Rules of Civil Procedure 26(b)(3). See also, In re Tetra Technologies, Inc., 2010 U.S. Dist. LEXIS 33012 at *12 (S.D. Tex. Aug. 10. 2010).
3 See Tetra, 2010 U.S. Dist. LEXIS 33012 at *13, Cellco Partnership v. Certain Underwriters at Lloyd’s London, 2006 U.S. Dist. LEXIS 28877, at *5 (D. N.J. May 11, 2006).
4 Cellco, 2006 U.S. Dist. LEXIS 28877, at *5.
5 Tetra, at *14-15, 2.
6 Id. at *13.
7 Exxon Corp. v. St. Paul Fire & Marine Insurance, 903 F. Supp. 1007, 1010 (E.D. La. 1995).
8 Exxon. at 1008.
9 Id. at 1009.
10 Cellco, , at *8-11, 3.
11 Id. at *10-11.
12 2009 U.S. Dist. LEXIS 14021, at *8-9 (E.D. Mo. Feb. 24, 2009).
13 Id. at *8-13.
14 Id. at *9-13. But see, Am. Safety Cas. Ins. Co. v. City of Waukegan, Ill., 2011 U.S. Dist. LEXIS 4854 (N.D. Ill. 2011) (finding that an insurer’s disclosure of claims-related information to its reinsurer through the insurance broker was privileged from disclosure to the insured under the common interest doctrine).
15 Atmel Corp. v. St. Paul Fire & Marine Insurance Co., 409 F. Supp. 2d at 1181.
16 Atmel, 409 F. Supp. 2d at 1181-82.
17 Id. at 1182.
18 Sony Computer Entertainment America v. Great American Insurance Co. 229 F.R.D. 632, (N.D. Cal 2005).
19 Sony, 229 F.R.D. at 633.
20 Id. at 633-34.
21 Id. at 634.
22 See Navigators, 2009 U.S. Dist. LEXIS 14021.
23 Louis A. Chiafullo, Ssshhhhh… There’s an Insurance Broker in the Room!, ABA SECTION FOR LITIGATION 2012 INSURANCE COVERAGE LITIGATION COMMITTEE CLE SEMINAR, Mar. 1-3, 2012, at 2; See Amtel Corp. v. St. Paul Fire & Marine Ins. Co., 409 F. Supp. 2d 1180, 1181 (N.D. Cal. Aug. 31, 2005).
24 Chiafullo, supra note 21, at 6; Your Broker May Be Your Friend – But Ain’t Your Lawyer, ORRICK INSURANCE SCRAWL (Dec. 6, 2005).
25 Chiafullo, supra note 21, at 6; Attorney-Client Privilege – Texas Court Protects Insurance Brokers’ Communications If Used To Render Legal Advice, CLEARY GOTTLIEB NEWS (Apr. 19, 2010).