The Attorney-Client Privilege in Insurance Litigation
My in-box, like most of you I assume, is inundated on a day in, day out basis with offers of webinars, seminars, and the like on every topic under the sun that the sponsors think I might even conceivably have any interest in or professional connection to. Most I ignore without even opening, as not even close to being on point with my professional interests and concerns. Even of that remaining subset of ones that have something to do with my work, or my blogging interests, or my professional development, I seldom pass them along in a post because they often appear to simply be lawyers over-complicating and over-analyzing what should be, and normally is, a relatively simple point or area of law (what, lawyers making something more complicated than is necessary? Who’d have thunk it?). My favorite in this regard are the seminars that are routinely touted to me about the complexities of the tripartite relationship in the insurance context, an area of law in which there is, frankly, little complexity and most of the rules of which I summed up right here in this post some time ago.
A different species of educational opportunity, however, consists of those that actually provide a detailed level of analysis on a question that is in fact complicated, and that presents nuances that need to be dealt with in the day to day hurly-burly of practice. This webinar here, on the attorney-client privilege in the context of insurance coverage counseling and litigation, looks on its face to fall into that category. The privilege, in this context, is a lot of fun for a litigator, like me, who enjoys working with the rules of evidence, and exploiting - or conversely defending against - gaps in the protection provided by the privilege. Two issues that quickly jump to the forefront of my mind even as I write this post - both of which appear to be covered by the webinar - are the interrelationship of the privilege with bad faith litigation, including in particular the impact on whether and how to use an advice of counsel defense, and the possible risk of disclosure by means of discovery from an expert witness. There are many more, but they seem to fall within the broad categories listed in the webinar’s agenda, so rather than my reciting them, you may just want to take a listen.
Electronic Discovery and the Federal Rules
Here is an excellent article on electronic discovery under the federal rules, and efforts to reduce the expense of this process by protecting against inadvertent waiver of privilege. As long time readers know, I have frequently criticized the structure and format of the federal rules, and their application by the courts, concerning electronic discovery, for the extraordinary burden and expense they impose on litigants. Moreover, I have focused on the fact that the major problem is that the scope of relevancy is very broad in discovery, which has not been too big a problem in traditional forms of discovery because the very nature of depositions, producing existing documents held in hard copy form, etc., puts some outside limits on the process and thus, on the expense. Electronic discovery, obviously, doesn’t have the benefit of being limited in this way by such simple physical restrictions of time and space; because the quantity of data that can and is stored is immense - and not as easily confined physically as, say, simply pulling all file folders at a client related to a particular transaction - the broad scope of relevancy, when applied to electronically stored information, can expand discovery obligations exponentially in comparison to traditional forms of discovery. For this reason, I have argued in the past that courts need to leave their past rubric for discovery (which basically consisted of the view that discovery is broad, the parties are expected to work most problems out among themselves, and court intervention is only warranted for outlier type issues) where it belongs, in the past, and create new approaches to dealing with electronic discovery, in which the courts - either pro-actively or in response to motion practice by the parties - attempt to focus electronic discovery in a manner that properly balances the importance of the documents in question with both the benefits of that discovery to the requesting party and the costs of that discovery. I am, sadly, still waiting for this to happen. The reason I like this article is its focus on the fact that electronic discovery is far too expensive, and that the latest attempt to target that problem is at best, a finger in the dyke approach, in that it just isn’t a lasting solution to the bigger problem. Moreover, the article rightly focuses on the construct that rests at the heart of the problem; the incompatibility of the historically broad definition of relevance applied in discovery with the amount of data now available in a technological society.
Litigators who read this blog already understand my obsession with this issue; while trying cases is the joy of the work, discovery - and fights over it - is the heavy lifting that takes up much of a litigator’s time and a client’s money. It’s a particular problem in ERISA cases, where any type of a plan with a significant number of participants is going to create a great deal of electronically stored data, almost none of it of relevance to any particular dispute yet still possibly open to discovery as things currently stand.
On Discovery Problems and Solutions
Permalink | Here’s an interesting law review article, passed along in detail by the Workplace Prof, on problems, and potential solutions, in managing discovery. Discovery, to beat what must now be a dead horse, has become infinitely more complicated and expensive - with far more consequences for mistakes - in any type of complex litigation with the adoption of the federal rules governing electronic discovery (and in fact with the rise of computerized data itself). Regular readers know that I have argued before in this space that the courts need to develop a jurisprudence that analyzes the need for and cost of electronic discovery - which can often involve massive amounts of computer generated and/or stored data - in much greater depth than the more superficial analysis of discovery disputes that has historically been the norm: in essence, courts should engage in a more searching inquiry into disputes over electronic discovery, given their costs and how much of such data is likely to be irrelevant in any given case, before granting extensive discovery into electronically stored data. At a minimum, there should be a degree of inquiry that, even if it won’t allow conclusive enough findings to decide to outright not allow such discovery, will still allow an intelligent, reasoned limitation on exactly what the scope of that discovery should be. I would argue that, in cases that warrant it, it would even be appropriate to hold a mini-trial type proceeding, maybe of two or three witnesses, and then to rule on to what extent such discovery is warranted. This approach would be a far cry from how courts have traditionally addressed discovery disputes, but, as the article suggests, it is past time for the courts to begin applying a more systemic and in-depth approach to controlling discovery.
This is particularly important in the areas covered by this blog, ERISA litigation and insurance coverage litigation, where computerized data, communications and information processing, is almost literally the coin of the realm. Electronic discovery is therefore truly a major cost-driver and risk factor in these areas of the law. The development, at the boots on the ground level of magistrate judges (to whom discovery disputes are often assigned), special discovery masters and trial judges, of the law of electronic discovery provides an opening for courts to really address these issues, in the manner suggested by the article and with fresh eyes, and its an opportunity that should be taken advantage of, one that calls for curiosity, innovation and reasoned experimentation. I will give you one example, to make my point. One of my partners was recently handling a massive, multi-party litigation, in which there were numerous interrelated legal and factual issues, some of which may be outcome determinative. Rather than engage in the traditional approach of years of discovery with only minimal court oversight, followed by summary judgment motions, the court instead ordered some discovery, followed by summary judgment motions on the key potentially outcome determinative legal issues, followed by, if any party believed further discovery was needed to resolve those issues, the filing of Rule 56(f) affidavits to justify such discovery; the court would then decide what further discovery would be allowed before it would rule on the legal issues. The end result was order out of what otherwise could have been chaos, and a case that stayed on track towards resolution. It’s a good example of a court proactively using existing procedural tools to narrow the issues, and decide on what issues further and potentially expensive discovery is actually needed. This appears to be exactly the type of use of existing procedural tools and focus on the timing of discovery that the article's author is advocating as the means to improve discovery.
Insurance Bad Faith, Expert Witnesses and Privileged Communications
Permalink | I received a pitch for an interesting seminar on the interrelationship of the federal rules governing expert discovery, the retention of experts in litigation, and the work product doctrine. The issue addressed by the seminar has to do with the fact that expert discovery under the federal rules at this point is very broad, and can result in disclosure to the opposing side of what would otherwise be privileged communications and documents detailing the strategies and thoughts of the attorney retaining the expert. This problem flows from changes to the federal rules governing discovery that make discoverable the documents and information considered by the expert in reaching an opinion in the case.
A significant body of case law, most of it at the federal district court level, now stands for the proposition that all information provided to such an expert is fair game for discovery, even if, absent disclosure to the expert, it would have been protected from discovery as privileged. The majority of the courts that have considered the issue have concluded that the current version of the federal expert discovery rule requires that any material that is reviewed by an expert witness must be disclosed, whether or not it would otherwise be protected from disclosure to an adversary by the work product doctrine or the attorney -client privilege. See Zheng v. Liberty Apparel Co., 2004 U.S. Dist. LEXIS 15026 (S.D.N.Y. Aug. 3, 2004). It has been held that the applicable federal rule requires the “disclosure of all information, whether privileged or not, that a testifying expert generates, reviews, reflects upon, reads, and/or uses in connection with the formulation of his opinions, even if the testifying expert ultimately rejects the information.” Synthes Spine Co., L.P. v. Walden, 232 F.R.D. 460, 464 (E.D. Pa. Dec. 21, 2005). This includes disclosing notes created by an expert witness in the capacity of an expert witness, even if the notes contain information that would have otherwise fallen under the protection of the attorney-client privilege or the work product doctrine. Id. at 464-65 (reasoning that notes authored by expert could contain information that bears on the credibility of the expert, his report, and his trial testimony).
The law in the First Circuit, where this blog has its metaphorical home, is consistent with this rule. In fact, courts in this circuit were out ahead of the curve on this issue. Years before the bulk of authority on this issue was decided, the federal district court for Massachusetts issued its ruling in Suskind v. Home Depot Corp., 2001 U.S. Dist. LEXIS 1349 (D. Mass. January 2, 2001), which holds to this effect and has been repeatedly cited by other courts as an example of the majority rule that requires disclosure of materials considered or created by an expert.
The scope of the obligation to disclose is broad. Information supplied to or reviewed by an expert, in connection with his opinion, is discoverable regardless of whether the expert actually relied upon the information in preparing his expert report. In re Pioneer Hi-Bred Int’l, Inc., 238 F. 3d 1370 (Fed. Cir. 2001). Even more importantly for purposes of the subject of this post, documents considered by a party’s expert are discoverable even if they were supplied to the expert by a party’s attorney. Suskind, 2001 U.S. Dist. LEXIS 1349 (D. Mass. January 2, 2001) (holding that attorney-work product materials considered by an expert are discoverable).
The end result of all of this, and the problem addressed by the seminar, is that it can become difficult to work with an expert, and to inform the expert, without exposing confidential material and information, including quite possibly the entire theory of the case, to discovery. While a relevant problem in all areas of federal litigation, and one that a good lawyer needs to work around in handling experts, this issue is particularly significant in insurance bad faith litigation, one of the topics of this blog. This is because in that area, much more so than others, the theories of the case and the issues to be addressed with an expert are much more amorphous (imaginative rather than fact based, some defense lawyers would say) than they are in other types of cases, making it much harder to discuss an expert’s likely opinion without first disclosing the theory of the case to the expert.
There are ways around this problem, and the simple fact of the matter is that it is the job of a good litigator to know how to do it. Perhaps even more so, it is the job of a good litigator to know how to exploit errors in this regard that an adversary may make, which may open up an otherwise foreclosed area of discovery.
The Tripartite Relationship and the Attorney Client Privilege
Permalink | One of the more unwieldy of legal fictions is the so-called tripartite relationship among the insured, the insurer, and the defense counsel defending the insured against the claim. Duties run every which way in the relationship, and this beast is at its most cantankerous when one gets into the question of how the attorney client privilege fits in. In particular, if the insured and the insurer end up in a coverage dispute, the question of who has access to the communications between the insured and the defense counsel - just the insured, or also the insurer - quickly becomes a bone of contention.
I have talked before about the difficulty presented by this issue, and how it impacts insurance coverage and bad faith litigation. How exactly is an insurer to get at all the evidence of what happened in the underlying case, or at all of the facts that might shed light on whether or not the loss, in truth, is within the scope of coverage, if much of the evidence on that is laid out in the communications of the party who was actually on the scene - the lawyer litigating the case? A quick example highlights the problem. Suppose, for example, the issue presented is whether a settlement entered into by the insured was actually for losses within the scope of the coverage rather than just having been styled in that manner to try to place the loss within the coverage, and was actually paid for uncovered parts of the lawsuit. What more telling evidence could there be than the information communicated, orally and in writing, to the insured from the defense lawyer negotiating the settlement? After all, she is giving the advice on the settlement and structuring its terms - so if there is a question of whether the settlement is actually covered, shouldn’t that evidence both be admissible and discoverable?
Would seem so, but that isn’t necessarily the law. Which leads me to the real point of today’s post, which is to recommend Marc Mayerson’s review of the case law on this question.
The Attorney-Client Privilege in Insurance Coverage and Bad Faith Lawsuits
Like all of you, I am sure, I receive almost daily pitches in my in-box for seminars, podcasts, books and publications that promise to educate me on various topics that the pitchers have decided I must be interested in. Of course, these may be the same marketing wizards who send me twenty pitches a day for on-line pharmacies, so I may be giving them too much credit when I assume they are actually targeting their offerings to my professional interests in such topics as patent litigation, ERISA and insurance coverage. Nonetheless, sort of like playing horseshoes, they do sometimes come close to the mark with the offerings they email me.
This one caught my eye the other day, for a teleconference on the attorney-client privilege, with the hook that the privilege is supposedly under assault in the context of insurance coverage litigation. The short version pitch that was sent to me goes like this:
The sanctity of attorney-client privilege has been shaken by court decisions allowing discovery of attorney-client communication in the context of certain insurance lawsuits. Attorneys and clients must always be conscious of preserving the privilege, but insurance disputes gives rise to unique areas of concern.
In insurance cases, counsel often become involved prior to litigation, during the claims process - for coverage advice or to assist with investigations. These pre-litigation communications often end up subject to discovery.
Some courts have found the privilege waived in bad-faith suits where the insurer relies on an advice-of-counsel defense - sometimes even without that defense being raised. Insured's counsel also argue that attorneys who participate in insurance investigations are not providing legal advice but are acting as adjusters whose communications with the insurer are not privileged.
Now, I have litigated these issues a number of times. While I have sometimes won these disputes outright, more often than not, the court finds a way to split the baby and give some limited and controlled discovery while at the same time imposing some restrictions intended to protect the primary communications at the heart of the attorney-client relationship, namely those in which actual legal advice itself is transmitted.
There are a couple of points that jump out at me about this whole issue that I wanted to mention. The first is that there is some truth to the argument that it is hard to investigate the facts at issue in both insurance coverage and bad faith litigation because of the attorney-client privilege and work product doctrine, and it is often necessary to carve out some exceptions to those protections against discovery to allow discovery in those kinds of cases to proceed. This often holds true for both insurers trying to learn the underlying facts of the claim over which coverage is being disputed and for insureds trying to learn the facts of what the insurer did with regard to coverage, or the denial of coverage, for such claims. The simple fact is that lawyers for the insured, in defending and settling the underlying claim, and lawyers for the insurer, in providing coverage analysis and recommendations, are participating in activities that are at the heart of insurance coverage and bad faith litigation, but do so while engaging in what would normally be privileged communications. Effective prosecution and defense of these types of lawsuits therefore often raises the question of the extent to which discovery is proper in light of, or instead precluded by, the attorney-client privilege.
The second point that jumped out at me is that this is another one of those issues that is, much like what I talked about in my post yesterday, deja vu all over again. It seems like every several years - maybe it works out to be once every generation of seminar presenters - the books and the articles and the seminars appear declaring the attorney-client privilege to be under assault as a result of discovery rulings issued in the context of insurance coverage and bad faith litigation. I don't know for sure, but it sure seems to me that, despite these periodic "the sky is falling" pronouncements, the attorney-client privilege is still alive and well, and being raised in response to all sorts of discovery requests.
Discovery of Reserves and Other Repetitive Events
Here is a nice post on whether claim reserves are discoverable in insurance coverage or bad faith litigation, with some case law on the topic as well. The discovery of claim reserve information is one of those issues that is a consistent point of dispute from one coverage or bad faith action to the next. In fact, given how much it comes up, it is kind of amazing the amount of time and money spent - some would say wasted - in insurance coverage and bad faith litigation over discovery issues such as this one. Some of that, it is fair to say, is driven by the fact that insureds and claimants in such lawsuits are often convinced there is some document somewhere in the insurer's files that is the key that will unlock the entire case, and are determined as a result to obtain every single piece of paper possessed by the insurer that they can grab hold of. In truth, there almost never is such a key stone document, and even when there is, you can be pretty certain it isn't going to be found in the claim reserves or in similar information, such as reinsurance documents, that are likewise routinely the source of a tug of war over production and discovery in coverage and bad faith litigation.
But the other part of the problem is that what we may really need is some sort of federal rules of evidence, insurance coverage and bad faith subsection (hopefully then adopted by the states as well as part of their own evidence codes, in states like Massachusetts that don't automatically follow the federal rules of evidence), that synthesizes all the case law on these types of issues that arise repetitively in coverage or bad faith litigation, and sets down a rule once and for all on them. In this tidy little daydream for a Friday morning, we could then all stop relitigating the same discovery points over and over again, frequently with little more than a change of judge and forum from the last time we argued over them.