Court Rules That Attorney Client Privilege Waived With Ghost Written Disclaimer Letter


Two courts recently held that a disclaimer drafted by an insurer’s in-house or outside counsel and sent from the adjuster may constitute a waiver of the attorney client privilege. 

In  Canyon Estates Condo. Association v. Atain Specialty Ins. Co., No. 18-1761 (W.D. Wash. Jan. 22, 2020),), the court addressed the insured’s attempt to compel the production of unredacted copies of co-defendant, Great Lakes Insurance’s   claim file. The court also confronted the unique situation of an insured seeking to compel the deposition of coverage  counsel.  The insured, Canyon Estates, argued that because coverage counsel took part in claims-handling activities prior to the lawsuit that the attorney-client privilege did not attach to that work.  In partially granting Canyon Estates’ motion, the court held that general claims-handling work performed by an attorney did not allow for the invocation of the attorney-client privilege yet work performed following an Insurance Fair Conduct Act (“IFCA”) notice was performed in anticipation of litigation.

Canyon Estates, a condominium association, sought unredacted copies of Great Lakes’ claims file and invoices for activities performed by its coverage counsel, Michael Hooks, during the claims handling process, which included assisting in the preparation of a coverage denial letter  Great Lakes maintained that these documents were precluded from discovery on account of attorney-client privilege.

First, the court noted that “there is a presumption of no attorney-client privilege relevant between the insured and the insurer in the claims adjusting process.”  However, according to the court, the presumption could be overcome “by showing its attorney was not engaged in the quasi-fiduciary tasks of investigating and evaluating or processing the claim, but instead in providing the insurer with counsel as to its own potential liability; for example, whether or not coverage exists under the law.”

The court’s analysis thus focused on whether Mr. Hooks, as outside coverage counsel, was engaged in evaluating or processing the claim or whether he was he providing the insurer with counsel as to whether or not coverage exists under the law. 

In seeking to protect the documents from disclosure, Great Lakes asserted that “it ‘consciously chose to keep [Michael] Hooks, its outside counsel, separate from the claim investigation, and he did not participate in the investigation or otherwise perform claim handling functions.’”

The court, however, reviewed the documents at issue and considered “Hooks role to be pure amphigory . . . because [he] engaged in at least some quasi-fiduciary activities, including the authoring of draft letters signed by Great Lakes and sent to the Association related to coverage and  claims processing.”

The court’s ultimate decision turned on the fact that outside counsel drafted the letters signed by the insurer noting “assisting an adjustor in writing a denial letter is not a privileged task.”

In Travelers Prop. Cas. Co. of Am. v. 100 Renaissance, LLC, 308 So. 3d 847 (Miss. 2020), the court faced with the similar issue of whether a disclaimer drafted by the insurer’s in-house counsel and sent from the adjuster constituted a waiver of the attorney-client privilege between in-house counsel and the carrier.

Renaissance filed a claim under its auto policy with Travelers after an unidentified driver struck a pole on Renaissance’s property.  Travelers denied the claim because the flagpole was not a covered “auto” as defined under the policy.  In response, Renaissance’s counsel sent a letter to Travelers claims handler detailing why the insured should be afforded coverage. 

Traveler’s claims adjuster, a non-attorney, sought legal advice from Travelers’ in-house counsel before responding that the policy’s terms required damage to a covered auto based on Travelers’ understanding of Mississippi uninsured motorists’ statutes and law. 

Renaissance’s lawyer deposed the claims handler who testified that she had not received any training on the applicable legal standards, and she could not explain the letter’s analysis of Mississippi law.  Shortly thereafter, the court concluded that because the claim handler did not have personal knowledge of the reason for the denial, the insured was entitled to depose the in-house attorney who prepared the letter and to review correspondence between the attorney and the claims handler regarding the claim thus equating to a waiver of the attorney-client privilege.  As the court stated, “[g]enerally, it may be expected that the person who signs a letter has personal knowledge of the matters set forth in the letter.”

Travelers filed a motion for summary judgment, and Renaissance responded asking for a continuance to conduct additional discovery. The additional discovery was the production of the emails between in-house counsel and the claims adjuster and the deposition of the in-house counsel. At the same time, Renaissance filed a motion to compel the emails and the in-house counsel deposition.

Ultimately, the trial court ordered Travelers to produce the emails for an in camera review. The trial court found that, “Travelers ha[d] waived the attorney-client privilege as it relates to attorney Jim Harris.” The trial court ordered Travelers to produce the emails and to produce Harris for a deposition.  The trial court held that “if the claims handler relied substantially, if not wholly, on in-house counsel to prepare her denial letter, the reasoning of in-house counsel should be discoverable.”

The Mississippi Supreme Court based its decision on the fact that the second denial letter, written after in-house counsel’s involvement, was signed by the adjuster.  The dissenting Justices, in highlighting the overreaching opinion by the majority noted that the majority:

appears to impose a requirement that in order to preserve the privilege, a claims handler must be able to explain legal arguments at her deposition—the same legal issues for which she sought advice in the first place. I can find no authority to support this proposition, and I fear it is an unreasonable standard that will have deleterious and chilling effects on the exercise of the attorney-client relationship. [A]n insurance company should be free to seek legal advice in cases where coverage is unclear without fearing that the communications necessary to obtain that advice will later become available to an insured who is dissatisfied with a decision to deny coverage.

Comment:  These decisions show the importance of ensuring that an adjuster has personal knowledge and understanding of the insurer’s coverage position that is independent of an attorney’s input.  A claims adjuster should make the final coverage decision and be prepared to defend it at a deposition, which would include being conversant with the applicable legal standards and coverage analysis  relied upon in coverage letters to prevent a waiver of the attorney-client privilege. However, letters that will be sent by adjusters to insureds should only contain the relevant policy language and no legal citations or case law that the adjuster may not be able to explain at a deposition. A best practice may be for the adjuster to send the initial correspondence to an insured limited solely to policy language, and if the insured or the insured’s counsel disagree with the initial determination, an attorney can be retained to respond once coverage is contested.

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