Insurance Law

Ten Most Significant Insurance Coverage Decisions Of 2014 – Opinion-aided: Courts Granting Policyholders Access To Outside Coverage Counsel’s Opinion Letters

Sometimes a coverage case, especially from a trial court, is selected as one of the year’s ten most significant -- but it is not really so. Rather, it is chosen as a representative of a series of similar cases decided that year. In other words, standing alone, the case would not be one of the year’s top ten. But because several like it were decided during the year, involving an important issue, they collectively represent a possible trend. It is the possibility of this trend continuing, and not any particular case itself, that is in fact the top ten selection.

In this category there were several decisions this year, from courts across the country, addressing whether a policyholder, in coverage litigation, is entitled to discover the coverage opinions and other work product, prepared for an insurer, by its outside coverage counsel. Of course not, you say. An insurer’s coverage opinion letter goes to the heart of the relationship between an insurer and its outside counsel. A policyholder surely can’t get that in discovery. But, in several cases this year courts allowed policyholders – either actually or potentially -- to obtain the coverage opinions or other work product prepared for insurers by their outside counsel. One such case is the Eastern District of Pennsylvania’s in Henriquez-Disla v. Allstate Property & Casualty Company, 2014 U.S. Dist. LEXIS 108820, (E.D. Pa. Aug. 7, 2014) [enhanced version available to subscribers]. A list of several more examples is provided below.

At issue in Henriquez-Disla was a discovery dispute in a bad faith case. The policyholder sought discovery from Allstate of unredacted log entries. Specifically at issue were redacted log entries concerning Allstate’s communications with its counsel, Curtin and Heefner. Allstate considered the redacted information to be privileged and protected from discovery.

In an earlier opinion in the case, the court followed a 1986 Minnesota federal court decision which held that the attorney-client privilege drew a distinction between legal work performed by attorneys, which was covered by the attorney-client privilege, and claims investigation performed by attorneys, which was not.

Allstate argued “that it never hired Curtin and Heefner for anything other than legal services. Counsel has attached an affidavit from Holly Kelly, a claims adjuster assigned to Plaintiffs’ claims, in which Ms. Kelly states that Allstate retained Curtin and Heefner ‘to render legal services including the taking of Plaintiffs’ Examinations Under Oath to ultimately render legal/coverage opinions,’ and also states that ‘[a]t no time, did Defendant retain Curtin & Heefner LLP as a ‘Claims Investigator’ or to perform any non-legal claim related functions.’”

The court was not convinced. It described its earlier opinion as follows: “However, the log entries belie the affidavit. Without disclosing their contents, review of the redacted log entries reveals that they contain direction to conduct routine investigation, whether to be done by counsel or by a claims representative[.]” “As explained in my earlier opinion, such activities (investigating subrogation possibilities, determining the cause of the fire, gathering background information on the claimants, and arranging for EUO’s) are ordinary business functions in claims investigation. The fact that they were performed by an attorney at the behest of a claims adjuster does not change the character of the activity—basic claims investigation.”

Now, on reconsideration, the court was persuaded that it may have been too stringent in deciding that certain communications between Allstate and its counsel simply involved basic claims investigation. This time around the court was guided by a 1996 opinion from Judge Wettick, of the Allegheny (Pa.) Court of Common Pleas, that “extoll[ed] the benefits of insurance companies hiring counsel in the decision making process and cautions that open and honest exchanges between company and counsel are less likely if such communications are discoverable.”

Turning to Judge Wettick’s reasoning, the court vacated its earlier opinion and held that certain log entries should remain redacted. The court explained its decision as follows: “Guided by Judge Wettick’s reasoning encouraging open and honest exchanges between counsel and the insurance company, I have again reviewed the log entries that I previously ordered unredacted and will grant Defendant’s motion for reconsideration with respect to eight of them. I believe an argument can be made that Allstate and counsel were participating in the type of information exchange Judge Wettick discussed with respect to these eight entries. Each entry pertains to an actual or contemplated communication with counsel and can be read to touch on strategy or thought process, rather than solely directing an item of basic claims investigation.” [Of note, the court certified the issue for interlocutory appeal to the Third Circuit.]

While the Henriquez-Disla court held that certain log entries were protected from discovery by the attorney-client privilege, the point of the case is why that was so: Because the log entries (at least arguably) involved legal advice and not, per se, because they involved communications between an insurer and its counsel.

Several other decisions in 2014, listed below in no particular order, said something similar.

The take-away from all of these decisions seems to be that insurers that employ outside coverage counsel should insist that counsel provide legal analysis to support its opinions or recommendations. Likewise, counsel, when communicating to its insurer-clients, should be mindful that it must provide legal advice, and not simply be serving as an aide to the insurer in the process of deciding which of the two indicated actions to pursue. However, as the judge in Henriquez-Disla made clear in the decision to grant reconsideration – noting that certain communications with counsel “c[ould] be read to touch on strategy or thought process” – the line between these two functions may not always be bright.

• Nguyen v. American Commerce Ins. Co., 2014 Ariz. App. Unpub. LEXIS 426 (Ariz. Ct. App. Apr 8, 2014), [enhanced version available to subscribers]; The superior court stated, ‘[t]hough defense counsel did conduct some investigation into Plaintiff’s claim, such investigation does not then render all communication between Defendant and its counsel automatically discoverable.’ This statement was made after two rounds of briefing and two oral arguments on the subject (and after having reviewed the sample documents). The superior court found Perry both involved himself in the claim investigation and provided legal advice in confidence. Ultimately, only portions of the communications within the claim file were redacted or found completely privileged by the special master; the remaining portions of the claim file were disclosed to plaintiffs. This record indicates the superior court correctly applied Arizona's attorney-client privilege to the facts of this case.”

• Amerisure Mut. Ins. Co. v. Crum & Forster Specialty Ins. Co., 2014 U.S. Dist. LEXIS 59265 (M.D. Fla. Apr. 29, 2014), [enhanced version available to subscribers]; [T]o the extent that an attorney acts as a claims adjuster or claims processor and not as a legal advisor, the attorney-client privilege does not apply. . . . In light of this, the Court has reviewed the Luken Affidavit and finds that the documents are not protected by the attorney-client privilege, as the Luken Affidavit does not provide the Court with sufficient information to determine whether the documents are in fact protected. These documents appear to involve claims handling that are dated after C & F’s reservation of rights letter regarding whether the SIR had been satisfied and do not appear to concern legal advice on coverage issues.”

• Hartford Roman Catholic Diocesan Corp. v. Interstate Fire & Cas. Co., 297 F.R.D. 22 (D. Conn. 2014), [enhanced version available to subscribers]; An insurance company may not insulate itself from discovery by hiring an attorney to conduct ordinary claims investigations. To the extent an attorney acts as a claims adjuster, claims process supervisor, or claims investigation monitor, and not as a legal advisor, the attorney-client privilege does not apply.” (citation omitted).

• National Union Fire Ins. Co. v TransCanada Energy USA, 990 N.Y.S.2d 510 (N.Y.A.D. 2014), [enhanced version available to subscribers]; The motion court properly found that the majority of the documents sought to be withheld are not protected by the attorney-client privilege or the work product doctrine or as materials prepared in anticipation of litigation. Following an in camera review, the court determined that certain documents were privileged because they contained legal advice. As for the remaining documents, the court found that the insurance companies had not met their burden of demonstrating privilege. The record shows that the insurance companies retained counsel to provide a coverage opinion, i.e. an opinion as to whether the insurance companies should pay or deny the claims. Further, the record shows that counsel were primarily engaged in claims handling—an ordinary business activity for an insurance company. Documents prepared in the ordinary course of an insurer’s investigation of whether to pay or deny a claim are not privileged, and do not become so ‘merely because [the] investigation was conducted by an attorney.’”

• Barnard Pipeline, Inc. v. Travelers Property Cas. Co. of America, 2014 U.S. Dist. LEXIS 53778 (D. Mont. Apr. 17, 2014), [enhanced version available to subscribers]; While the privilege applies equally in insurance litigation, in insurance bad faith cases when an attorney serves as coverage counsel, the ‘line between what constitutes claim handling and the rendition of legal advice is often more cloudy than crystalline.’ Thus, ‘the question of whether a communication falls within the attorney-client privilege can often be difficult because of the investigatory nature of the insurance business.’ ‘[T]o the extent that an attorney acts as a claims adjuster, claims process supervisor, or claims investigation monitor, and not as a legal advisor, the attorney-client privilege does not apply.’” (citations omitted).

• McAdam v. State Nat. Ins. Co., Inc., 15 F. Supp. 3d 1009 (S.D. Cal. 2014), [enhanced version available to subscribers]; State National argues that Judge Dembin erred in concluding that the dominant purpose of the engagement between [Gordon & Rees] and State National was claims adjustment up until the filing of this lawsuit on June 4, 2012. As evidence of a pre-litigation attorney-client relationship with George Soares of G & R, the objectors point to, e.g., State National’s claims log and a March 13, 2012 reference to ‘GS-cover counsel’ in Optimum Claims Adjuster Wanda Didier’s notes. Additionally, the terms ‘coverage’ and ‘coverage counsel’ are scribbled on printouts of a March 9–13, 2012 email exchange between Mr. Soares and Ms. Didier discussing the claim adjustment. These documents say little or nothing about the existence or scope of an attorney-client relationship, and they are insufficient to establish an attorney-client relationship prior to the inception of litigation.”

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit

The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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