The Appellate Division of the Supreme Court of New York, First Department on July 31, 2014 reaffirmed that several insurance companies providing insurance coverage to TransCanada cannot claim attorney-client privilege for communications with outside counsel employed in claims-handling.
A four-judge panel of the Appellate Division unanimously denied a motion by Factory Mutual Insurance Company, National Union (an AIG subsidiary), ACE INA, and Arch for leave to appeal to the Court of Appeals. The court simultaneously issued a new order upholding its prior order of February 25, 2014, which in turn upheld the trial court's ruling denying privilege.
The underlying decision held that pre-denial documents generated as part of an insurance company's determination as to whether to pay or deny a claim are not shielded from disclosure just because they were prepared by counsel. The trial court had conducted an in camera review of the documents and ruled that while some documents were privileged, the majority were not protected by either the attorney-client or work product privileges and had to be produced.
In its July 31, 2014 order, the Appellate Division ruled:
The record shows that counsel were primarily engaged in claims handling -- an ordinary business activity for an insurance company. Documents prepared in 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" (see Brooklyn Union Gas Co. v. American Home Assur. Co., 23 A.D.3d 190, 191 [1st Dept 2005]).
Anderson Kill shareholder Pamela D. Hans, counsel to TransCanada, commented, "The Appellate Division unanimously upheld the vital principle that insurance companies may not shield their claims-handling documents from discovery by employing counsel in the claims-handling process."
John Nevius, John O'Connor, Pamela Hans, Kerry Sheehan, and Carrie DiCanio are counsel for TransCanada.
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