Attorney/Client Privilege and the Insurer/Insured in the Twenty-First Century 2014 Attorney/Client Privilege and the Insurer/Insured in the Twenty-First Century 2014 Houston Marine Insurance Seminar Robert G. Clyne President The Maritime Law Association of the United States Vice President, General Counsel & Corporate Secretary American Bureau of Shipping 1

Agenda I.Basics of Attorney/Client Privilege II.Who May Claim the Privilege III.Exceptions/Waiver of Attorney/Client Privilege IV.Privilege in the Insurance Context V.Attorney Work Product Doctrine VI.Application of Privilege to Brokers VII.Attorney/Client Privilege and Modern Technology VIII.Challenges IX.Tips for Preserving the Privilege 2

The attorney/client privilege “recognizes that sound legal advice or advocacy …depends upon the lawyer being fully informed by the client.” Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). Attorney/client privilege protects from disclosure: ―Communication ―Made in confidence ―Between an attorney ―And a client ―For purposes of seeking legal advice 3 Attorney/Client Privilege (Basics)

Privilege belongs to the Client and Lawyer may not waive it without client’s informed consent Intention of confidentiality is key-broad distribution may lead to waiver 4 Attorney/Client Privilege (Basics)

Who is the client? ―Control Group Test: Members of senior management with decision-making authority. ―Subject Matter Test: Where communication is made to seek or receive legal advice to the organization; where the information was not available from the control group; where the employee was directed by his/her supervisor to seek or receive legal advice: and where the communication with the lawyer was within the scope of the employee’s duties. Former employees ―Privilege can extend to former employees when communications; (1) concern knowledge obtained or conduct which occurred during course of former employee’s employment; OR (2) relate to communication that were privileged and occurred during the employment relationship. 5 Attorney/Client Privilege (Basics)

Who is the Attorney? In-House Counsel ―In-House Counsel typically has responsibilities that require both business and legal advice. ―If the primary purpose of the communication is to solicit or provide legal advice the Courts will treat it as privileged. Claim Adjusters ―Claim Adjuster’s conduct not privileged because he/she happens to be a lawyer. 6 Attorney/Client Privilege (In-House Counsel/Adjusters)

Internal Corporate Investigations ―Not all investigations are privileged ―Where investigations are routine and there is no meaningful oversight by attorneys or request for legal advice, privilege may be denied ―Courts have discounted the Self-Evaluative Privilege ―Better practice to shield investigation is to use outside counsel 7 Attorney/Client Privilege (Internal Investigations)

Communication used to further crime or fraud or to prevent bodily injury or harm. Party puts communication at issue (e.g., Advice of Counsel defense) Fiduciary Exception Court determines “good cause” to require production of otherwise protected materials. 8 Exceptions/Waiver of Attorney/Client Privilege

Protecting the Attorney/Client Privilege in the triparite relationship of insured, insurer and attorney. Common Interest Doctrine/Joint Defense Doctrine is not an independent privilege; rather, it is a limited exception to the general rule that disclosure of privilege communications to a third-party waives the privilege. ―Requires insured and insurer to share genuine common and legal interest. ―Common Interest Doctrine does not apply to communications between insured and insurer without involvement of counsel. ―Common Interest Doctrine does not apply where the insurer has denied coverage on a claim because there is no common interest. ―The application of the Common Interest Doctrine is less clear in the circumstances of a Reservation of Rights or in cases that are still under investigation and a coverage determination has not been made. 9 Attorney/Client Privilege (Insurance Context)

In Declaratory Judgment actions there is no common interest and privilege does not apply in reverse to allow the insurer access to privileged communications between the insured and the attorney. ―Some courts differ on the basis that there was a common interest prior to the filing of the Declaratory Judgment Action (i.e. at the time the privileged communications were made). Where a third-party seeks discovery of privileged communications between the insured and insurer, the protection of such communications are assessed on a case by case basis. ―Was there a joint interest and attorney involvement at the time the communications were made? ―Has coverage been denied or disputed? 10 Attorney/Client Privilege (Insurance Context)

First Party Coverage Subrogation Matters ―Privilege is straight forward except when facts are adduced in the recovery action that call coverage into question. Liability Defense Cases ―Common Interest Doctrine/Joint Defense Doctrine will typically apply vis- à-vis third-parties but not necessarily in a subsequent action between insured and insurer ―Same rules apply to Excess Liability Insurers Bad Faith Litigation ―Courts differ on application of Attorney/Client Privilege in the bad faith context ―If insured can make a prima facie showing of a bad faith claim, some Courts have applied the fraud exception to otherwise privileged communications between counsel and the insurer (“the facts are in the file”). ―Other courts have expressly rejected the notion that evidence of bad faith is tantamount to fraud and reject the exception to privilege. 11 Attorney/Client Privilege (Insurance Context)

Attorney work product doctrine applies to protect communications from disclosure when there is an “Anticipation of Litigation”. Insurer’s duty to evaluate, investigate and adjust claims raises question of when is there “An Anticipation of Litigation”. ―Investigation of claims is typically considered to be in the ordinary course of business of the insurer ―Events that potentially trigger work product protection 1.Report of claim to insurer (not likely unless third-party claim is imminent) 2.Issuance of Reservation of Rights (more likely when a coverage position is taken) 3.Retention of Coverage Counsel (depends on whether the attorney’s role is investigative in nature or associated with the insurer’s defense) 12 Work Product Doctrine (Insurance Context)

Broker’s communications with insured may be protected if Broker’s participation is necessary to the legal representation (e.g., assisting attorney with gathering factual information and/or preparation for litigation). ―SR International Business Insurance Co. v. World Trade Center Properties LLC (Post 9/11 communications between the attorneys for the lease holders and Willis were not protected by the attorney/client privilege, the common interest doctrine or the work product doctrine). ―For Common Interest Doctrine to apply requires that insured and broker have a common “legal” interest as opposed to a common “commercial” interest (i.e. payment of the claim). ―Privilege is more likely to apply when the insured can demonstrate that the Broker was acting as agent and communications sought concerned facts involving the Broker’s work as agent (best example is outsourcing insurance services). 13 Attorney/Client Privilege/Work Product (Broker)

―Sheer volume of communications and amount of dissemination makes inadvertent disclosure/waiver of attorney/client privilege more likely. Texting/Instant Messaging Social Media (Facebook, Twitter, Blogs, Chat Room, etc…) all provide an available mechanism for disclosure of communications that should remain confidenti al Mobile Devices Public WiFi MetaData Cloud Computing Hacking 14 Attorney/Client Privilege (Challenges of Modern Technology)

Courts have struggled in applying traditional principles of attorney/client privilege to modern communications (e.g., Vioxx Multi-Jurisdictional Litigation) Government investigations and the threat of prosecution without voluntary waiver has had a chilling effect on the attorney/client privilege ―Indictments ―Plea Bargains 15 Attorney/Client Privilege (Challenges)

1.Retain an attorney that is well-versed in the intricacies and pitfalls of the Attorney/Client Privilege 2.Insurer/Insured confidentiality and joint defense agreements should be executed early in the claim process. 3.Separate Legal Services (e.g., Coverage Opinions) from non-legal services (e.g., Adjusting, Investigations, etc….) 4.Mark confidential materials/communications with Counsel “Attorney/Client Privilege” or “Attorney Work Product” 5.Be cautious as to the recipients included on communications 6.Avoid confidential communications via social media 16 Attorney/Client Privilege (Tips)

Questions? 17