Limitations on Privilege When Attorneys Act as Claim Handlers

Since the mid-1990s, and especially since the rush of insurance claims following the September 11 terrorist attacks and Hurricane Katrina, insurance companies increasingly have turned to outside counsel to assist or supervise the handling of all sorts of insurance claims. On some level, it makes sense for an insurance company to turn to attorneys for help in responding to a set of claims that present common fact patterns and questions of policy interpretation. Yet the decision to involve attorneys in what is commonly understood to be the business function of claims handling has significant implications for the privileges that typically protect against the disclosure of communications with, or work by, such attorneys.

The conflict between an attorney’s obligation to act as a zealous advocate for his or her client (the insurance company) and the obligation of a claims handler to protect the policyholder’s interests can make it difficult, if not impossible, for the attorney to be all things to all parties involved. Policyholders need to be aware of these potential conflicts — and be prepared to challenge insurance company assertions of attorney-client privilege and work-product privilege when the attorney is acting as a claims handler. Ensuring that claims are being handled properly is a challenge when attorneys — acting as claims handlers — improperly undermine policyholders’ interests and cloak such actions behind supposed privileges.