Protecting Confidential Legal Information

1. Waiver by Consent

The parties to a common defense agreement can waive the privilege voluntarily. However, courts are split over who possesses the actual ability to confer such consent. Some courts hold that each pool member retains the power to waive the privilege with respect to that member's own communications. See, e.g., Great Am. Surplus Lines Ins. Co. v. Ace Oil Co., 120 F.R.D. 533, 536-38 (E.D. Cal. 1988); Western Fuels Ass'n v. Burlington N. R.R. Co., 102 F.R.D. 201, 203 (D. Wyo. 1984); 8 JOHN H. WIGMORE, EVIDENCE § 2328 (J. McNaughton rev. 1961). Likewise, a pool member who did not originate a communication does not have the implied authority to waive the privilege for that communication. See Interfaith Hous. Del., Inc. v. Town of Georgetown, No. 93-31, 1994 WL 17322 (D. Del. Jan. 12, 1994) (in a common defense arrangement, waiver by one person of information shared in the arrangement will not constitute a waiver by any other party to the communication); 8 JOHN H. WIGMORE, EVIDENCE § 2328 (J. McNaughton rev. 1961). If several members' communications have been mixed, then all of them must consent for effective waiver unless the non-consenting members' contributions can be redacted. See 8 JOHN H. WIGMORE, EVIDENCE § 2328 (J. McNaughton rev. 1961); REST. 3D § 76 cmt. g.

Some courts, however, take a different view and require all clients to consent to a waiver. See In re Grand Jury Subpoenas 89-3 & 89-4, 902 F.2d 244, 249 (4th Cir. 1990) (common defense privilege cannot be waived without the consent of all parties); John Morrell & Co. v. Local Union 304A of United Food & Commercial Workers, 913 F.2d 544, 556 (8th Cir. 1990) (same); Metro Wastewater Reclamation Dist. v. Cont'l Cas. Co., 142 F.R.D. 471, 478 (D. Colo. 1992) (under Colorado law, a waiver requires the consent of all parties participating in the common defense).

2. Waiver by Subsequent Litigation

Subsequent litigation also operates to selectively waive the privilege among the members of the common defense arrangement. See Secs. Investor Prot. Corp. v. Stratton Oakmont, Inc., 213 B.R. 433, 439 (Bankr. S.D.N.Y. 1997) (subsequent litigation between members of a common defense group operates to waive the common defense privilege to the extent joint information is at issue in new case); Ohio-Sealy Mattress Mfg. Co. v. Kaplan, 90 F.R.D. 21, 29 (N.D. Ill. 1980); In re Grand Jury Subpoena Duces Tecum etc., 406 F. Supp. 381, 393-94 (S.D.N.Y. 1975). When litigation arises, each member can use shared information against the maker unless another arrangement has been made. Securities Investor Prot. Corp., 213 B.R. at 439. However, the privilege remains effective against persons not within the common defense arrangement. Moreover, in a pooling arrangement there is no duty to share information, and thus information that is not shared as part of the common defense remains privileged even against the pool. See REST. 3D § 76 cmt. e. Similarly, sharing with only certain members of the pool retains the privilege against those members with whom no information was shared.

3. Extent of Waiver

When waiver of the common defense information is demonstrated, the waiver normally extends only to the shared information and not to all relevant matters (i.e., a partial waiver). See REST. 3D § 76 cmt. g. In contrast, waiver under the joint-defense privilege for co-clients normally reveals all relevant matters concerning the same subject matter. (i.e., full waiver, discussed in § II.A.3., above).

4. 
   Insurance Companies and the Common Interest Privilege
   

The vast majority of insurance disputes that are litigated in federal court are in federal court based on diversity jurisdiction. As a result, the courts generally apply state law to issues of attorney-client privilege pursuant to Federal Rule of Evidence 501. See Choice of Law: Identifying the Applicable Law, § X(A), below. There is, therefore, very limited federal common law regarding attorney-client privilege in the insurance context. In the area of insurance, it is important to know what states' laws may apply before communicating with a policyholder, insurer, or reinsurer. For example, a policyholder in Michigan, which does not generally protect communications between policyholders and insurers, may need to be careful about corresponding with its insurer in Illinois, which does generally protect such communications. Whether a communication is discoverable may depend on whether the discovery request emanates from a court in Michigan or one in Illinois. See generally Urban Outfitters, Inc. v. DPIC Cos., 203 F.R.D. 376 (N.D. Ill. 2001) (court in Illinois confronted conflict between Michigan and Illinois law of privilege, but did not decide issue because privilege, to the extent it existed, had been waived).

Whether the attorney-client privilege will protect a communication between and among policyholders, insurers, reinsurers, and brokers often depends upon whether the common interest doctrine applies to the situation presented. The question, therefore, is often whether the interests of the parties to the communication are sufficiently aligned for the doctrine to apply.

1. Protection of Insurer/Insured Communications From Third Parties

Where an insured communicates with its insurer for the purpose of establishing a defense, several courts have held that an insured's communication with its insurer remains privileged, at least where the communication is made for the specific purpose of obtaining legal advice or the provision of counsel. For example, in Linde Thomson Langworthy Kohn & Van Dyke, P.C. v. Resolution Trust Corp., 5 F.3d 1508, 1515 (D.C. Cir.1993), the Court of Appeals for the District of Columbia held that:

An insured may communicate with its insurer for a variety of reasons, many of which have little to do with the pursuit of legal advice. Certainly, where the insured communicates with the insurer for the express purpose of seeking legal advice with respect to a concrete claim, or for the purpose of aiding an insurer-provided attorney in preparing a specific legal case, the law would exalt form over substance if it were to deny application of the attorney-client privilege.

See also Goh v. CRE Acquisition, Inc., No. 02 C 4838, 2004 WL 765238, at *3 (N.D. Ill. Apr. 6, 2004) ("To assert a privilege for a communication between an insured and an insurer [under Illinois law], one must establish: "(1) the insured's identity; (2) the insurance carrier's identity; (3) the insurance carrier's duty to defend the insured; and (4) that a communication was made between insured and an agent of the insurance carrier."); Am. Special Risk Ins. Co. v. Greyhound Dial Corp., No. 90 Civ. 2066, 1995 U.S. Dist. LEXIS 10387 (S.D.N.Y. July 24, 1995) (holding that because the disclosure of the facts required to show the insured's potential liability may be necessary to obtain that representation, such communications should be deemed in "pursuit of legal representation" and therefore privileged); Lectrolarm Custom Sys., Inc. v. Pelco Sales, Inc., 212 F.R.D. 567, 572 (E.D. Cal. 2002) (holding common interest doctrine applies to communications between insurer and insured); Schipp v. General Motors, Corp., 457 F. Supp. 2d 917, 922-24 (E.D. Ark. 2006) (insured's recorded statement to insurer on the night of accident, for which insured was clearly at fault and which resulted in the death of two people, was "a step in the process of obtaining legal representation pursuant to the insurance contract" and therefore protected by the attorney-client privilege; summary of same and subsequent insurer investigator's report, including notes from witness interviews were protected work product prepared in anticipation of litigation).

Other courts have rejected the proposition that the interests of the insured and insurer are sufficiently aligned for the privilege to be maintained. See Go Med. Ind. Pty, Ltd. v. C.R. Bard, Inc., No. 3:95 MC 522, 1998 WL 1632525 (D. Conn. Aug. 14, 1998) rev'd in part on other grounds, 250 F.3d 763 (Fed. Cir. 2000) ("An insurer's contractual obligation to pay its insured's litigation expenses does not, by itself, create a common interest between the insurer and the insured that is sufficient to warrant application of the common interest rule of the attorney client privilege."); see also SR Int'l Bus. Ins. Co. Ltd. v. World Trade Ctr. Props. LLC, No. 01 CIV. 9291 (JSM), 2002 WL 1334821, at *3-4 (S.D.N.Y. June 19, 2002) (rejecting claim of common interest privilege between World Trade Center lessees and insurance brokers invoked against insurers for lack of identify of interest); Cigna Ins. Co. v. Cooper Tires and Rubber, Inc., No. 3:99CV7397, 2001 WL 640703, at *1 (N.D. Ohio May 24, 2001) (Insured and insurance broker do not share common-interest privilege).

Some courts have rejected the extension of a privilege to insurer/insured communications on the additional ground that such communications are made for a business, and not a legal, purpose. See Calabro v. Stone, 225 F.R.D. 96, 98 (E.D.N.Y. 2004) (insured's recorded message giving notice of claim was not made for purposes of obtaining legal advice); Bovis Lend Lease, LMB, Inc. v. Seasons Contracting Corp., No. 00 Civ. 9212, 2002 U.S. Dist. LEXIS 23322 (S.D.N.Y. Dec. 4, 2002) (communications between insured and insurer were either for business purposes or not prepared in anticipation of litigation); Aiena v. Olsen, 194 F.R.D. 134 (S.D.N.Y. 2000) (holding that defendants failed to establish that the advocacy of their position to the insurer was intended either to obtain legal advice or to convey information regarding the claims for the use of potential future defense counsel); In re Imperial Corp. of Am., 167 F.R.D. 447 (S.D. Cal. 1995) ("The letters were written for the purpose of apprising American Casualty of the status of the case, not for seeking or imparting legal advice."); In re Pfizer Inc. Sec. Litig., No. 90 Civ. 1260, 1993 WL 561125 at *8 (S.D.N.Y. Dec. 23, 1993) ("Pfizer's communications are for the purpose of seeking insurance coverage, not legal advice, from its carriers. As such, they do not fall within the scope of the attorney-client privilege.").

2. The Insurer's Access to the Insured's Privileged Communications

In Waste Management, Inc. v. Int'l Surplus Lines Ins. Co., 144 Ill.2d 178, 194, 579 N.E.2d 322, 328 (Ill. 1991), the Illinois Supreme Court upheld an order in a coverage dispute compelling an insured to produce its attorney's files from the underlying action. The court based its decision on the existence of a policy cooperation clause requiring the insured to turn over such documentation, and on the common interest doctrine. Similarly, in Independent Petrochemical Corp. v. Aetna Cas. & Surety Co., 654 F. Supp. 1334 (D.D.C. 1986), the court found that a coverage dispute did not obviate the common interest between the insurer and insured. There, the court held that:

[W]hile those documents may be privileged from discovery by party opponents in the underlying claims, they cannot be privileged from carriers obligated to shoulder the burden of defending against those claims. . . . The documents were generated in anticipation of minimizing something of common interest to both parties in this suit: exposure to liability from tort claimants.

Id. at 1365; see also Dendema v. Denbur, Inc., No. 00-C-4438, 2002 U.S. Dist. LEXIS 3804 (N.D. Ill. Mar. 8, 2002) (holding insurer and insured had a common interest in defending the third-party lawsuit "despite the coverage dispute that developed, so documents created during the lawsuit were not privileged between the parties."); EDO Corp. v. Newark Ins. Co., 145 F.R.D. 18 (D. Conn. 1992) (compelling disclosure of insured's communications because insured could not "demonstrate that its attorneys prepared these documents in anticipation of a lawsuit with the . . . insurers."); Metro Wastewater Reclamation Dist. v. U.S. Fire Ins. Co., 142 F.R.D. 471 (D. Col. 1992) (rejecting insured's claim of privilege and relying upon common interest doctrine to require insured to produce documents arising from settlement with third party where insurer had refused coverage); Truck Ins. Exch. v. St. Paul Fire & Marine Ins. Co., 66 F.R.D. 129, 132-33 (E.D. Pa. 1975) ("It thus seems clear that, in relation to counsel retained to defend the claim, the insurance company and the policy-holder are in privity. Counsel represents both, and, at least in the situation where the policy-holder does not have separate representation, there can be no privilege on the part of the company to require the lawyer to withhold information from his other client, the policy-holder."); Coregis Ins. Co. v. Lewis, Johs, Avallone, Aviles & Kaufman, LLP, No. 01 CV 3844 (SJ), 2006 WL 2135782, at *15-16 (E.D.N.Y. July 28, 2006) (common interest doctrine permitted insurer to use an otherwise privilege report from insured's attorney to deny coverage).

Numerous courts have rejected this approach, however, citing a lack of common interest between the parties. See N. River Ins. Co. v. Columbia Cas. Co., No. 90 Civ. 2518, 1995 WL 5792 (S.D.N.Y. Jan. 5, 1995) ("The insurer may have the same 'desire' as the insured that the insured not be found liable for damages in an underlying action, but this does not qualify as an identical legal interest."); First Pac. Networks, Inc. v. Atl. Mut. Ins. Co., 163 F.R.D. 574 (N.D. Cal. 1995) (insurer's reservation of rights injected tension into insurer-insured relationship, entitling insured to withhold communications with attorney); Int'l Ins. Co. v. Newmount Mining Corp., 800 F. Supp. 1195 (S.D.N.Y. 1992) (insurer's desire for successful defense of underlying action an insufficient common interest to warrant invasion of attorney-client relationship); Owens-Corning Fiberglas Corp. v. Allstate Ins. Co., 660 N.E.2d 765 (Ohio Ct. Com. Pl. 1993) (rejecting the application of the common-interest doctrine, because, since this was an embittered dispute over whether coverage applies, the parties could not be more at odds, rendering any reference to a common interest "somewhat laughable."). Other courts have rejected the proposition that cooperation clauses could require the production of privileged materials. Remington Arms Co. v. Liberty Mut. Ins. Co., 142 F.R.D. 408 (D. Del. 1992) (concluding that a cooperation clause did not imply a duty to produce documents otherwise protected by the attorney-client privilege - the insurer did not seek the documents to cooperate on underlying litigation but to succeed in the coverage suit with the insured); Bituminous Cas. Corp. v. Tonka Corp., 140 F.R.D. 381 (D. Minn. 1992) (absent a showing that the parties intended waiver, cooperation clause did not contractually waive privilege); see also Eastern Air Lines, Inc. v. U.S. Aviation Underwriters, Inc., 716 So.2d 340 (Fla. Dist. Ct. App. 1998) (cooperation clause applies only when the insured and insurer are in a fiduciary relationship; where the fiduciary relationship exists, the court may compel production of documents as between the two parties; where it does not exist and the parties are in an adversarial position, the attorney-client privilege is not waived.); Wisc. v. Hydrite Chem. Co., 582 N.W.2d 411 (Wis. Ct. App. 1998) (cooperation clause does not supersede the attorney-client privilege); Rockwell Int'l Corp. v. Superior Court, 26 Cal. App. 4th 1255 (Cal. Ct. App. 1994) (rejecting Waste Management's rule that a cooperation clause imposes a broad duty of cooperation that requires an insured to disclose communications with defense counsel in an underlying action).

3. Privilege Issues Arising Between Insurers and Reinsurers

Insurers have invoked the common interest privilege to shield disclosures made to reinsurers from discovery by insureds. Several courts have found that the insurer-reinsurer relationship involves a common interest sufficient to preserve the privilege. See:

Minn. Sch. Bds. Assoc. Ins. Trust v. Employers Ins. Co. 183 F.R.D. 627 (N.D. Ill. 1999). No waiver of privilege where insurer provided documents to reinsurer intending and expecting confidentiality and protection from common adversaries.

Great Am. Surplus Lines, Inc. v. Ace Oil Co., 120 F.R.D. 533 (E.D. Cal. 1988). Disclosure of documents by insurer to reinsurer did not constitute waiver of privilege because the reinsurer, which had a financial stake in the outcome of the underlying litigation, had a "need to know" the information.

Durham Indus., Inc. v. N. River Ins. Co., No. 79 Civ. 1705, 1980 WL 112701 (S.D.N.Y. Nov. 21, 1980). Privileged information disclosed by insurer to reinsurer not discoverable by policyholder in coverage dispute over surety bond. The common interest privilege applies. "Here, where the reinsurers bear a percentage of liability on the bond, their interest is clearly identical to that of the [defendant insurer.]"

Hartford Steam Boiler Inspection & Ins. Co. v. Stauffer Chem. Co., Nos. 701223, 701224, 1991 WL 230742 (Conn. Super. Ct. Nov. 4, 1991). Disclosure of privileged documents by an insurer to its reinsurer did not waive the privilege. The interests of the insurer and reinsurer were "inextricably linked by the reinsurance treaty" that imposed on obligation on the reinsurer to bear a 7.5% share of any liability imposed on the insurer.

But see:

Reliance Ins. Co. v. Am. Lintex Corp., No. 00 Civ. 5568, 2001 U.S. Dist. LEXIS 7140 (S.D.N.Y. May 31, 2001). Court rejected insurer's argument that it and the reinsurer shared a "unity of interest." While their commercial interests coincided, no evidence demonstrated that the insurer and reinsurer shared the same counsel or coordinated legal strategy in any way.

Front Royal Ins. Co. v. Gold Players, Inc., 187 F.R.D. 252 (W.D. Va. 1999). Insurer sought to shield reports sent to and received from its reinsurer regarding a claim by insured. The court rejected insurer's argument that these reports were shielded by the common interest doctrine, stating that insurer "seeks to use the common interest rule to protect documents which were created in the ordinary course of business under the contractual obligations between insurer and reinsurer."

McLean v. Cont'l. Cas. Co., No. 95 Civ. 10415 HB HBP, 1996 WL 684209 (S.D.N.Y. Nov. 25, 1996). "[T]he relationship between insurer and reinsurer is simply not sufficient to give rise to the common interest privilege."

N. River Ins. Co. v. Columbia Cas. Co., No. 90 Civ. 2518, 1995 U.S. Dist. LEXIS 53 (S.D.N.Y. Jan. 5, 1995). "The interest of the ceding insurer and the reinsurer may be antagonistic in some respects and compatible in others."

Allendale Mut. Ins. Co. v. Bull Data Sys., Inc., 152 F.R.D. 132 (N.D. Ill. 1993). While noting that the common interest doctrine could exist between an insurer and its reinsurers, the court held that the insurer's and reinsurer's interests were not identical in this case. "In general, different persons or companies have a common interest where they have identical legal interest in a subject matter of a communication between an attorney and a client concerning legal advice. The interest must be identical, not similar, and be legal, not solely commercial." [internal citations omitted] Here, there was no consultation between the attorneys for the purpose of developing a joint defense against a litigation opponent or for the purpose of maintaining a common legal interest; the communications were normal communications between parties with a contractual obligation to keep each other informed about insurance claims.

N. River Ins. Co. v. Phil. Reins. Corp., 797 F. Supp. 363 (D.N.J. 1992). In a dispute over reinsurance coverage, reinsurer sought privileged documents that were created by primary insurer in proceedings with its insured. The court refused to compel disclosure under the common interest doctrine, finding that reinsurer had no input into the relationship between insurer and its counsel and did not control the relationship.


III. Recommendations for Preserving the Attorney-Client Privilege

The following are some suggestions to maximize the protection of the attorney-client privilege.

1. 
   Legal Communications
   

- Do not disclose the contents of privileged communications or documents beyond those who have a need to know.

- Keep all privileged communications and documents segregated from business documents.

- Clearly mark each privileged document as an "attorney-client communication" and instruct all recipients concerning the need for confidentiality.

- Avoid mixing business advice with legal advice in a privileged communication.

- When communicating via e-mail or on the internet, use an encrypted format to prevent disclosure to unintended recipients.

B. WITNESS INTERVIEWS

- In deciding whether to have employees sign interview statements or transcripts, consider the requirement under Fed. R. Civ. P. 26(b)(3) that signed statements and transcripts be produced, upon request, to the person making the statement.

- All interviews should be conducted by legal personnel. If notes are taken at all, they should be taken by legal personnel. Notes should incorporate impressions, analyses and opinions of counsel which would be protected by the work product privilege. Where a witness to the content of the interview may be required, an investigator working for the attorney should be present. Keep a record of all persons present during oral interviews with employees.

- Do not use privileged information to refresh the recollection of a witness.

C. EXPERTS

- If non-legal experts are necessary, the attorney, and not the corporation, should hire them. Express authority to hire non-legal experts should be given in a directive to in-house counsel or in the retention letter to outside counsel. It may be desirable to use experts who are not regularly retained in a business capacity by the corporation.

- The attorney should send a letter of retention to each non-legal expert, setting forth the nature of the expert's obligation and the necessity of expert information in rendering legal advice. The letter of retention also should state the confidential nature of all communications and information.

- Do not provide an expert with privileged information.

D. CORPORATE EMPLOYEES

- Where corporate employees will be interviewed, an appropriate high-ranking corporate executive should send a letter to the employees emphasizing the importance of the investigation, the need for full cooperation from all employees, and the confidential nature of the investigation. The letter also should state that the purpose of the investigation is to provide legal advice to the corporation.

- If an investigation will include the questioning of middle or lower level employees, the attorney should memorialize the fact that the information sought is not available from higher level employees and the reasons why it is not available.

- The attorney should restrict communications with lower level employees to matters within the scope of their employment.

- The attorney or corporation should inform employees who are interviewed or questioned that the attorney does not represent them individually.

E. DISCLOSURE TO GOVERNMENT AGENCIES

- Where disclosure of privileged communications to a government agency is required or advisable, attempt to obtain a specific written commitment from the agency to maintain the confidentiality of all communications in perpetuity.

- Be aware of statutes and regulations regarding agency disclosure. Take advantage of statutory or regulatory schemes that decrease the risk of further disclosure.

- If possible, maintain custody and control of any privileged documents disclosed to government agencies by allowing the agencies access to the documents without relinquishing possession.