ARE BOTH SIDES’ COVERAGE PRIVILEGES DISAPPEARING? Karin S. Aldama, Perkins Coie LLP Rina Carmel, Zelle McDonough & Cohen LLP Sherilyn Pastor, McCarter & English Beth Zaro Green, W. R. Berkley Corporation

OVERVIEW – THE CONE OF SILENCE

PRIVILEGES AND PROTECTIONS BETWEEN AN INSURER AND ITS COVERAGE COUNSEL

USUAL RULE Coverage counsel assisting insurer re coverage obligations represents insurer only  attorney-client privilege (“ACP”) protects communications.

BUT ... Policyholders increasingly argue that such communications are not protected.

FACTORS TO EVALUATE ACP In-house or outside attorney? What was attorney actually doing? Property or liability claim?

FACTORS TO EVALUATE ACP Timing and/or purpose of the communication? Distribution of communication? In anticipation of litigation?

FACTORS TO EVALUATE ACP Who is the plaintiff – the policyholder? Or the third-party claimant (“3PC”) / assignee? Plaintiff’s purpose in seeking this discovery?

Fox Paine (N.Y. Sup. Ct. 2016) Where insurer allegedly did not defend or did not settle in bad faith, info that is otherwise ACP or attorney work product (“AWP”) becomes discoverable.

Ohio Rev. Code §2317.02(A)(2) Attorney cannot testify re ACP – except if client is an insurer and: Plaintiff makes a prima facie showing of bad faith, fraud, or criminal misconduct Re communications aiding bad faith Subject to in camera review

Cedell (Wn. 2013) In first-party claims alleging bad faith, there is a presumption of no ACP. Insurer can overcome by showing coverage counsel not engaged in quasi-fiduciary function.

Cedell (Wn. 2013) Policyholder can overcome insurer’s showing by showing an exception applies. Inquiry: Reasonable belief of bad faith  in camera review, and Foundation to allow bad faith claim to proceed. ACP deemed waived.

HYPOTHETICAL

HYPOTHETICAL On the claim: Adjuster In-house counsel Outside coverage attorney retained to assist with coverage issues

HYPOTHETICAL Outside attorney writes letter “on behalf of Insurer” to request info the insurer needs to investigate coverage. The issue – will ACP apply?

PRIVILEGES AND PROTECTIONS BETWEEN AN INSURER AND POLICYHOLDER

USUAL RULE Policyholder has a right of privacy in its insurance info. Extends to defense counsel, if there is a tripartite relationship. ACP and AWP may also protect info. Cal. Civil Code § 2860 – independent counsel statute. Info disclosed to insurer remains protected against the rest of the world.

BUT ... Enterprising 3PCs seek claims info to bolster case against the policyholder..

Cal. Ins. Code § 791.13(h) Insurer may not disclose policyholder’s private insurance info. Exception: in response to an admin or judicial order, including a subpoena. This exception risks eviscerating the privacy protection, because in litigation, any attorney can simply issue a subpoena.

Imperial Corp. (S.D. Cal. 1995), aff’d (9th Cir. 1996) Defense counsel’s status letters to insurer, which included evaluation of allegations and exposure, had to be produced to 3PC.

Imperial Corp. (S.D. Cal. 1995), aff’d (9th Cir. 1996) Reasons: Not written to defense counsel’s client. Purpose was to request settlement contribution.

Young (W.D. Ky. 2016) 3PC sought discovery of policyholder’s recorded statement and insurer’s investigative report.

Young (W.D. Ky. 2016) Recorded statement held ACP, thus not discoverable. Reason: Policyholder assumes insurer will use statement to hire defense counsel.

Young (W.D. Ky. 2016) Investigative report was not AWP. Reason: When made – one week after accident – no one anticipated litigation.

Young (W.D. Ky. 2016) Investigative report was not ACP. Insurer’s producing it in company arbitration did not waive ACP. But policyholder’s referring to it in Rule 26 disclosures waived ACP.

HYPOTHETICAL T-Corp. sued over its use of other companies’ logos in its T-shirt design. Insurer accepts defense under a ROR, but seeks info about strength of the allegations, potential exposure, and T-Corp.’s profits and contracts with retailers.

HYPOTHETICAL Considerations in investigation and cooperation: Applicable law on joint defense, common interest, and waiver Policy requirements Is insurer defending, vs. reimbursing defense costs? Enforceability of non-disclosure agreement

A FINAL THOUGHT Policyholders have successfully argued against insurers’ ACP with their coverage counsel. How successful will 3PCs be in using those arguments to contend they are entitled to policyholders’ claim info?