On August 31, 2021, the Missouri Court of Appeals for the Eastern District issued an opinion that serves as a stark reminder about the need to keep claims handling and coverage advice separate. In State ex rel. Kilroy Was Here, LLC v. Moriarty, the court reversed the trial court decision regarding the insured right to discovery of “coverage” counsel’s file. 2021 Mo. App. LEXIS 819, *1 (Mo. Ct. App. August 31, 2021). Based on the record, it is apparent that coverage counsel’s role morphed into one of monitoring counsel, but the end result is the same: the court found no privilege will attach to communications between an insurer and outside counsel for matters other than rendering legal advice. The attorney-client privilege does not attach unless the communication is between the attorney and client, “is made to obtain legal services or advice, and involves the lawyer in his capacity as a lawyer – ‘not in some other capacity.'” American Modern Home Ins. Co. v. Thomas, 2017 U.S. Dist. LEXIS 146395, at *6 (E.D. Mo., Sept. 11, 2017) (quoting Diversified Indus., Inc. v. Meredith, 572 F.2d 596, 602 (8th Cir. 1977). Where the attorney is acting “as a claims adjuster, claims process supervisor, or claim investigation monitor and not as a legal advisor, the attorney-client privilege would not apply.” Mo. ex rel. Shelter Mutual Insurance Co. v. Wagner, 575 S.W. 3d 476, 483 (Mo. Ct. App. 2018). “Materials prepared as part of insurance claim investigations are generally not considered work product due to the industry’s need to investigate claims. Centex Homes v. NGM Ins. Co., 2020 U.S. Dist. LEXIS 171800, *9 (D. Ariz. September 18, 2020).
Courts in other jurisdictions have gone further and found that having outside counsel prepare draft documents, such as reservations of rights, is nothing more than “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.” Nat’l Union Fire Ins. Co. of Pittsburgh, Pennsylvania v. TransCanada Energy USA, Inc., 990 N.Y.2d 510 (N.Y. 2014). In Canyon Estates Condo. Ass’n v. Atain Specialty Ins. Co., 2020 U.S. Dist. LEXIS 10915, *3-4, the Washington state court found outside counsel clearly—and arguably, knowingly—engaged in at least some quasi-fiduciary activities, including the authoring of draft letters signed by the insurer and sent to the insured related to coverage and claims processing. Communications surrounding those quasi-fiduciary activities were not privileged. The Washington courts had previously found held that assisting an adjustor in writing a denial letter is not a privileged task. Bagley v. Travelers Home & Marine Ins. Co., No. C16-706-JCC, 2016 U.S. Dist. LEXIS 115028 (W.D. Wash. Aug. 25, 2016). ” Id. The Mississippi Supreme Court recently held that if an adjuster substantially relies on in-house counsel to prepare a denial letter, the attorney-client privilege does not apply, thereby making the reasoning of in-house counsel potentially discoverable. Travelers Prop. Cas. Co. of America v. 100 Renaissance, LLC, 308 So. 3d 847 (Miss. 2020).
In summary, the business of insurance and seeking legal advice are distinct activities. Where those tasks are muddled, the courts are finding that communications are not privileged. The takeaway from these decisions is that maintaining the attorney client privilege depends on clear lines between these activities. The courts have then focused on whether the attorney was retained to provide legal advice, or whether the attorney acted as an extension of the carrier in of reviewing, adjusting, and settling claims? If it is the latter, the courts seem inclined to find communications related to these activities are not protected.
You can read the full opinion here