Documents Dispute Not Cut-and-Dried

By Don R. Sampen, published, Chicago Daily Law Bulletin
[August 8, 2017]

The 1st District Appellate Court recently denied insurers the production of documents from their insured relevant to the insurers’ late-notice defense. It held that the documents, which arguably were privileged, were not required to be produced under the cooperation clause in the policy or by virtue of the common-interest doctrine.

The insured in Motorola Solutions Inc. v. Zurich Insurance Co., 2017 IL App (1st) 161465 (June 30, 2017), was represented by Jones Day. Hinshaw & Culbertson LLP represented one of the insurers, Zurich, and Tressler LLP represented the second insurer, Associated Indemnity Corp.

Four underlying actions were brought against Motorola, claiming injuries from the underlying plaintiffs’ exposure to various chemicals in “clean rooms” in Motorola’s manufacturing facilities. Motorola brought the instant coverage action against Zurich and Associated in 2011, claiming that they breached their duty to defend in the underlying actions.

Motorola moved for summary judgment on the coverage issues in 2015. In response, the insurers sought documents that were relevant to, among other things, the insurers’ late notice coverage defense.

The documents included materials relating to Motorola’s clean room safety program generated several years before commencement of the underlying litigation. They also included documents concerning a representation Motorola made in an Securities and Exchange Commission filing about clean room risks and illnesses.

Motorola refused to produce the documents on privilege grounds. The insurers moved to compel, arguing that no privileges applied under Waste Management Inc. v. International Surplus Lines Insurance Co., 144 Ill.2d 178 (1991). The trial court granted the motion, and the court entered a “friendly contempt” order against Motorola when it refused to comply. Motorola thereupon filed this appeal pursuant to Illinois Supreme Court Rule 304(b)(5).

Cooperation clause

In an opinion by Justice Robert E. Gordon, the 1st District reversed. He noted initially that, on appeal, Motorola relied only on the attorney-client privilege, and not the work-product doctrine, in arguing that the trial court erred.

He then reviewed the Waste Management case. The Supreme Court there ordered production of insureds’ arguably privileged documents generated in the course of the litigation for which the insureds sought coverage or in which the insurers may have been entitled to contribution. In so doing, the court relied on both the cooperation clause of the relevant insurance policy and the common-interest doctrine.

Gordon proceeded to distinguish Waste Management from the case currently before the court. He found that here, unlike there, the insurers were seeking documents not from the litigation for which the Motorola was seeking indemnification, but those that were created years before any litigation. At most, he said, the documents would bolster the insurers’ late notice defense, and help defeat Motorola’s claims to coverage. Such was not a purpose that the cooperation clause was designed to fulfill.

He noted further that, while the cooperation clause is of great importance to the insurer, the duty imposed under the clause is not boundless. It must remain tied to the language of the clause itself. Here, moreover, the clause required Motorola to assist in making settlements and enforcing the right of contribution or indemnity, but the documents were not being sought for those purposes.

Common-interest doctrine

Gordon also found the common-interest doctrine to be inapplicable. In Waste Management, the insurers and insureds had a common interest in defeating or settling the claim against the insureds. The communications between the insureds and defense counsel, moreover, furthered the common interests of both insureds and insurers.

Here, however, Gordon said, the common interest of the parties would not extend to documents prepared years before the first lawsuit was filed, and Waste Management therefore was inapplicable. He cautioned that its inapplicability did not necessarily mean that the insurers are not entitled to the documents. It meant only that the documents would have to be evaluated in camera by the trial court to determine if they are privileged.

The court therefore reversed, finding that Waste Management was inapplicable and that the attorney-client privilege remained available to shield any appropriate documents from discovery.

Dissent

Justice Bertina E. Lampkin dissented. She argued that Motorola had placed the disputed documents at issue by asking the trial court to find that there was no fact issue concerning its entitlement to a defense. According to her, the documents it withheld bore upon its notice obligations under the policy, and it thereby waived any privilege it may otherwise have had.

She further argued that the majority decision misconstrued Waste Management and that applying “essentially identical cooperation clause language,” the court there found that the attorney-client privilege was not applicable.

Key point

According to the majority, neither a policy’s cooperation clause, nor the common-interest doctrine, may be sufficient to require an insured to produce arguably privileged documents pursuant to Waste Management, if the documents were not generated in the underlying litigation for which coverage is being sought.