The recent New York federal court decision in Cadaret Grant & Co. v. Great American Ins. Co., No. 21-6665 (E.D.N.Y. July 25, 2023) addresses a critical aspect that insurers must navigate when coverage litigation is instituted: the discoverability of communications between insurers and coverage counsel.
At issue in Cadaret was coverage under a bond for fraud losses that Cadaret, Grant & Co. sustained. A dispute arose and coverage litigation ensued. During discovery, the court was asked to determine whether the insurer was obligated to produce certain documents – communications between its adjuster and outside coverage counsel – that the insurer had withheld from discovery and listed on a privilege log.
In analyzing the issue, the court noted it “must decide whether documents generated between a claims adjuster and outside counsel are privileged,” and that question turned to whether “counsel is acting as an investigator of a claim (the job of a claims adjuster) or providing legal advice to a client. The latter class of documents is protected by the attorney-client privilege; the former is not.”
The court went on to find that certain communications between the adjuster and outside coverage counsel were not privileged because the communications involved “investigation” and not legal analysis. The court found that the communications involving the adjuster’s requests for coverage counsel’s involvement in the investigation of the claim were not akin to providing a legal opinion.
It’s important to note that the court treated legal advice and investigation as two separate functions. This ignores the fact that factual investigation is a necessary part of the coverage counsel’s role in providing its analysis. However, courts across the country have concluded that attorney-client privilege only applies when outside coverage counsel is provided legal advice to its insurer-client – and does not apply if counsel is performing a claims investigation function.
Insurers should be mindful of the fact that in coverage litigation, withholding the production of communications between the adjuster and outside counsel solely based on the attorney-client privilege may not withstand judicial review. Communications of a pure “investigative” nature may be subject to production.
Sarah Elizabeth Melendez is an associate in Tressler’s Professional Liability and Litigation Practice Groups. Sarah Elizabeth Melendez focuses her practice on complex civil litigation matters, including professional and management liability litigation and other tort matters. Sarah clerked at Tressler LLP for two years before she was an associate. While clerking, she participated in depositions, drafted pleadings and gained experience writing motions and completing research for the Litigation Practice Group. Additionally, Sarah had the opportunity to work with attorneys from all the Tressler offices and across multiple practice groups.