Ramifications of Broker Being Present When Injured Consults with Counsel

It is not uncommon for the broker to be very involved when a coverage dispute arises between the insured and insurer. With an intimate knowledge of the insurance program as well as possessing the history for the claims at issue, the broker can be an invaluable resource.

In Sony Computer Entertainment America v. Great American Ins. Co., et al., 229 F.R.D. 632 (N.D. Cal. 2005), the court was confronted with several questions involving the assertion of attorney-client privilege by the insured and how the broker’s presence in meetings between the insured and its outside counsel may affect the operation of the privilege.

In Sony, the insured was engaged in insurance coverage litigation with its insurers arising out of the insurers’ denial of coverage for two consumer lawsuits. As part of the litigation, two in-house counsel for the insured were designated as the individuals to serve as Rule 30(b)(6) deposition witnesses to provide testimony on behalf of the corporation.

After objections were advanced at the depositions based upon the attorney-client privilege, one of the insurers filed motions to compel seeking to require the corporation to provide answers to some of the insurers’ questions. The motions presented three distinct issues: (1) whether the insured’s communication with outside counsel in the presence of the insurance broker was privileged; (2) the scope of a waiver of the attorney-client privilege when the insured disclosed privileged information to a third-party; and (3) how to identify whether the insured’s in-house counsel were conducting themselves in a business or legal role when they were performing their job functions.

As an initial matter, the insurer sought to compel deposition testimony regarding statements made by the insured’s representatives to outside counsel in the presence of the insured’s insurance broker. The insurer argued that the presence of the third-party, the broker, vitiated any potential application of the attorney-client privilege.

In response, the insured argued that the communications were confidential and privileged because the broker was “presented indisputably to further [the insured’s] interest in [in-house counsel’s] consultations.”

The court noted that the burden was on the insured to demonstrate that the broker was acting as an agent of the attorney or the client during the discussions in order to preserve the confidentiality of the communications. However, the insured failed to step forward with any admissible evidence from either the broker or the insured to support its position. Thus, the insured failed to carry its burden and the motion to compel with respect to this issue was granted.

The court was also confronted with the question of a waiver of the attorney-client privilege when the broker’s notice to the insurers included a piece of correspondence from the insured’s outside counsel directed to the insured’s in-house counsel. The communication was included at the direction of the insured, but the question was how far to extend the waiver of the attorney-client privilege. The insured maintained that the waiver should be limited to the content of the correspondence at issue, while the insurer argued that there was a waiver of all communications with outside counsel.

After examining the relative merits of the arguments advanced by each of the parties, the court extended the waiver to the contents of the correspondence and any follow-up discussions between the insured and its outside counsel addressing the correspondence in question. However, the court did not find that the broker’s act of forwarding the privileged communication to a third-party as a waiver of the privilege for all of the insured’s discussions with the outside counsel.

Finally, the court was confronted with questions involving the assertion of the attorney-client privilege at the depositions of several of the insured’s in-house counsel with respect to substantive questions. The insurer argued that despite being attorneys, the insured’s in-house counsel were serving in business (as opposed to legal) roles when they were administrating the claims at issue. In turn, the insurers argued that the assertion of the attorney-client privilege was misplaced. The court was not persuaded that handling the claims did not involve some legal related functions.

However, the court also noted that the insurer was entitled to ask a 30(b)(6) witness what the insured’s understanding was with respect to its legal obligations under the policy in question. Thus, the attorney-client privilege could be used as a shield for questions asked of the deponents concerning their individual mental impressions, but the corporation was still obligated to answer questions concerning the corporation’s understanding.

This is a case that addresses some important issues.

With respect to the presence of insurance brokers, or other third-parties, the burden is on the party attempting to maintain the protection of the attorney-client privilege to demonstrate why the broker’s presence did not destroy the privilege. Second, the court also provided some guidance as to the extent of a waiver of the attorney-client privilege when a privileged communication is provided to an adverse party.

Finally, the court allowed the 30(b)(6) deposition of in-house counsel where there would be questioning involving the client’s legal positions but not as to particular privileged communications those same in-house counsel may have had with their corporate clients.

Interestingly, the operation of in-house counsel is often an issue for insurers when in-house attorneys administrate claims.

Andrew S. Boris is a partner in the Chicago office of Tressler Soderstrom Maloney & Priess. His practice is focused on litigation and arbitration of insurance coverage and reinsurance matters throughout the country, including general coverage, directors and officers liability, professional liability, environmental, and asbestos cases. Questions and responses to this article are welcome at aboris@tsmp.com.