Insurers and insureds in declaratory judgment actions pending in Illinois courts often assume that their attorney/client communications and attorney work product automatically are protected from discovery in that particular action. But the unique rule of Waste Management, Inc. v. International Surplus Lines Ins. Co., 144 Ill. 2d 178, 579 N.E.2d 322 (Ill. 1991), allows insurers (for purposes of coverage litigation) access to the files of insureds’ separate defense counsel, based on their common interest in the defense. In Western States Insurance Co. v. O’Hara, 357 Ill. App. 3d 509, 828 N.E.2d 842 (Ill. Ct. App. 2005), this rule was extended to allow insureds access to the files of insurers’ separate coverage counsel. In Illinois Emcasco Ins. Co. v. Nationwide Mut. Ins. Co., 2009 Ill. App. LEXIS 760 (Ill. Ct. App. Aug. 6, 2009), another division of the Appellate Court has rejected Western States and protected the communications between an insurer and its own separate coverage attorneys regarding insurance coverage issues. This commentary explores the issue.
In this Emerging Issues Analysis, Daniel E. Feinberg, an associate in the Chicago office of SNR Denton, discusses Illinois Emcasco, wherein the Court appears to have restored order in terms of whether attorney/client communications and attorney work product regarding insurance coverage issues are protected from discovery in a declaratory judgment action.
Mr. Feinberg writes:
The Illinois Emcasco decision is noteworthy because the Appellate Court of Illinois restored the protections that the Supreme Court of Illinois previously placed upon attorney/client communications or attorney work product generated with respect to a pending insurance coverage action. The Waste Management Court was explicit that its ruling against privilege or protection (and hence, in favor of disclosure), applied only to communications or product generated in the course of an underlying lawsuit for which the insured eventually seeks insurance coverage from an insurer. Waste Management, 144 Ill. 2d at 200-01, 579 N.E.2d at 331-32 (“We hold, only, that the attorney-client privilege and work product doctrine are not applicable to bar disclosure of defense counsel’s files in either [of] the [underlying] litigations”). Despite that express limitation, the Western States Courtsomehow found it appropriate to extend the common interest doctrine to communications that an insurer had with its own separate coverage attorneys regarding insurance coverage issues, not underlying defense issues where a common interest is clear (i.e., to minimize or eliminate the insured’s liability for which the insurer ultimately might be liable).
However, some might argue that Illinois Emcasco only serves to further the conflict in the Illinois case law on this topic, which could lead to Supreme Court review:
Moreover, Illinois Emcasco Court created an acknowledged conflict within the Illinois Appellate Court as to the discoverability of communications with or product generated by attorneys retained to represent one party to an insurance coverage dispute. Thus, it is quite plausible that the Supreme Court of Illinois will accept review to resolve that conflict. Should that happen, policyholders could well ask the Supreme Court to re-examine the Waste Management decision as a whole, in light of its failure to find acceptance in other jurisdictions. At a minimum, it would clarify the law on privilege for coverage counsel.