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Insurance Law

Opinion-aided: Courts Granting Policyholders Access To Outside Coverage Counsel’s Opinion Letters

There have been several decisions of late, from courts across the country, addressing whether a policyholder, in coverage litigation, is entitled to discover the coverage opinions (lower case) 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, courts have been allowing policyholders – either actually or potentially -- to obtain the coverage opinions prepared for insurers by their outside counsel.

I have not done a count of the number of these cases that I’ve come across recently. But it is not an insignificant number. Earlier this month the Eastern District of Pennsylvania added Henriquez-Disla v. Allstate Property & Casualty Company, No. 13-284 (E.D. Pa. Aug. 7, 2014) to the list, [enhanced version available to lexis.com subscribers].

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, [enhanced version available to lexis.com subscribers], the court followed a 1986 Minnesota federal court decision, [enhanced version available to lexis.com subscribers], 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 basis 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.

Incidentally, the inaugural issue of Coverage Opinions (October 17, 2012) addressed this issue in the context of Barton Malow Co. v. Certain Underwriters at Lloyd’s of London, No. 10–10681 (E.D. Mich. Oct. 3, 2012), [enhanced version available to lexis.com subscribers]. There the court set out the following test for determining if communications by attorneys, in the insurance claims process, are subject to attorney-client privilege: “The communication itself must be primarily or predominantly of a legal character. The payment or rejection of claims is a part of the regular business of an insurance company. Consequently, reports which aid it in the process of deciding which of the two indicated actions to pursue are made in the regular course of its business. Merely because such an investigation was undertaken by attorneys will not cloak the reports and communications with privilege because the reports, although prepared by attorneys, are prepared as part of the regular business of the insurance company.”

The take-away from 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 her 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.

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 www.coverageopinions.info.

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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