Coverage Counsel or Claims Adjuster? The Discovery Obstacles Facing Insurance Companies Trying To Protect Privileged Communications With Their Counsel

By Colleen A. Beverly

The recent New York federal district court decision, Cadaret Grant & Co. v. Great Am. Ins. Co., 2023 U.S. Dist. LEXIS 128370, 2023 WL 4740184 (July 25, 2023), highlights a trend in courts to find that certain information exchanged between an insurance adjuster and its coverage counsel is not privileged.

Cadaret involved a coverage dispute under the terms of a financial institution bond issued by Great American Insurance Company (“GAIC”). The policyholder Cadaret Grant & Co. (“Cadaret”) brought a breach of contract and declaratory judgment action against GAIC with respect to losses suffered by its clients as a result of a fraudulent investment scheme by one of its employees. GAIC denied Cadaret’s claim. The decision at hand involved Cadaret’s motion to compel documents from GAIC pre-dating its denial of coverage. The documents involved communications with GAIC’s outside coverage counsel. GAIC claimed that these documents were privileged based upon both the attorney-client communication privilege and the attorney work product doctrine. Id. at *7.

In determining whether an attorney-client privilege exists with respect to documents generated between outside counsel and insurance claims adjusters, the court analyzed whether the outside counsel was performing the role of a claims investigator or that of an attorney offering legal advice. Id. at *8. With respect to the attorney work product doctrine, the court noted that this doctrine is intended to give an attorney a “zone of privacy” to prepare and develop legal theories and strategy with an eye towards litigation. Id. at 9.

The court noted that documents reflecting claims investigation activities are not privileged and subject to discovery even if the activities were performed by outside coverage counsel. The court concluded that documents in which outside counsel prepared requests for information for the adjuster to send to the policyholder were not privileged because this was part of conducting a claims investigation prior to providing a coverage position. Id. at *13. Further, any documents between the adjuster and outside counsel regarding the status of the requests for information, explaining the process of uploading documents, or explaining what was said by the policyholder’s counsel were not privileged communications but, instead, work performed by the outside counsel as a claims investigator according to the court. The only document that the court did find privileged was the legal opinion written by coverage counsel showing his legal analysis as to whether the claim was covered. Id. at *15.

Learning Lesson: Insurers must be mindful that their communications with outside coverage counsel can be discoverable in coverage litigation. The fact that the claims adjuster is communicating with an attorney is not enough. Courts will look specifically to the role of this attorney – whether the attorney was acting as a claims investigator or legal counsel. Communications regarding documents needed to evaluate a claim or communications created during the investigation prior to arriving at a coverage decision may not be privileged. Consequently, insurers and their counsel must be cognizant of this distinction and the possibility that certain communications may be discoverable.