This article also appeared in Enforce: The Insurance Policy Enforcement Journal (April 2010).
When policyholders challenge their insurance companies’ claims-handling practices, insurance companies often play a game of Russian roulette, using attorneyclient privilege to shield their factual claim investigations from disclosure and policyholder criticism. By claiming that an attorney performed the claims-handling function, the insurance company may waive the privilege and blow the top off its putative protection, exposing the facts (good and bad) underlying a coverage denial to the cold light of day.
Insurance companies take another deadly spin in the game of chance when they invoke the advice of counsel defense. This occurs when an insurance company — usually unwillingly — claims that its coverage denial was based on the advice of coverage counsel and therefore reasonable, for purposes of defending against allegations of bad faith. Once the insurance company places its attorney’s advice at issue, however, the privilege may be waived.
When conducting discovery in coverage litigation, a policyholder should not be deterred when John Doe, Esq., instead of John Doe, claims department representative, writes the
denial letter. Nor should a policyholder assume that attorney activity on a privilege — or claims — log, or involvement of an attorney in internal communications regarding coverage, will automatically be protected from disclosure. Determining whether an attorney is acting as a claims handler or legal advisor is a fact inquiry that looks to the dominant purpose of the attorney’s function.