Coverage Memoranda Protected by Attorney Client & Work Product
The reason courts apply the attorney client privilege and the work product protection to keep one party from reading the plans and recommendations of the lawyer for the opponent. The protection is available to make litigation fair and keep strategy and plans of one party from the other.
Insurance coverage lawyers write opinions to help the client – whether insured or insurer – to make decisions regarding how to apply available insurance coverage to a dispute and are, usually, not involved in actions claiming tort damages. The coverage lawyer provides advice about coverage, the amounts available and the interpretation of the policy wording. The work is prepared only for the client.
In Baxter International, Inc. v. AXA Versicherung, United States District Court, N.D. Illinois 2016 WL 7231929 (12/13/2016) Defendant AXA Versicherung (“AXA”) filed a motion to compel Plaintiff Baxter International, Inc. (“Baxter”) to produce certain documents. The only issue now before the Court is whether Baxter must produce the redacted portions of several memoranda written by one of its insurance coverage attorneys and a few emails to which the memoranda were attached when they were sent to Baxter and attorneys representing Baxter in underlying tort litigation.
This lawsuit stems from the settlement of a multi-district litigation (“MDL”) involving product liability lawsuits brought against Baxter and other drug companies seeking damages for allegedly contaminated blood products. Throughout the MDL, which the parties refer to as “the Second Generation Litigation,” Dechert LLP (“Dechert”) served as Baxter’s defense counsel. At the same time, Baxter employed Shapiro Rodarte & Forman LLP, (“the Shapiro firm”) as its insurance coverage counsel. In this role, one of the Shapiro firm’s attorneys, Carl Shapiro, wrote a memorandum titled “Settlement Options re ‘Second Generation’ Claims.” During the drafting process, Mr. Shapiro produced several versions of the memorandum (collectively, “the Shapiro Memos” or “the Memos”) that he emailed to Baxter and Dechert.
During discovery in this case, AXA issued requests for production that encompass both the Shapiro Memos and what Baxter refers to as “the cover emails” to which the Memos were attached. Baxter initially withheld these documents in their entirety. Later, Baxter produced all of them but with redactions. According to Baxter, it only redacted portions of these documents that constitute its insurance coverage counsel’s privileged coverage analysis.
Baxter argues that the attorney-client privilege and the work product doctrine protect the redacted portions of the Shapiro Memos and the cover emails.
The Illinois Attorney-Client Privilege
The parties’ dispute with respect to the Illinois attorney-client privilege is narrow. Baxter asserted that it redacted from the Shapiro Memos and emails only material that is protected by the Illinois attorney-client privilege. AXA responds by arguing that the attorney-client privilege does not cover Baxter’s communications with Dechert, its defense counsel in the underlying Second Generation Litigation, under settled Illinois law, and the fact that Baxter’s insurance coverage counsel was involved in those communications for the purpose of providing insurance coverage analysis related to the underlying claims in the lawsuit Dechert was defending does not change the analysis.
In Waste Management, Incorporated v. International Surplus Lines Insurance Company, 579 N.E.2d 322 (Ill. 1991), the Illinois Supreme Court held that, in this situation, the attorney-client privilege had no application to the withheld portions of the underlying litigation file. The Illinois Supreme Court first ruled that the insureds’ contractual duty to cooperate with their insurers, contained in their insurance policies, rendered any expectation of privilege unreasonable with respect to the communications and that the insureds and the insurers had a common interest in defeating or settling the underlying litigation and the communications were of a kind reasonably calculated to protect or to further those common interests.
Right of Counsel to Communicate with Clients About All Issues
As a practical matter, attorneys may communicate with their clients about both issues related to the underlying litigation and issues related to insurance coverage. That is so even when parties hire separate coverage counsel. The Waste Management court did not address communications made for the purpose of both the underlying claims and the insurance issues. Courts have continued to assess the nature of the communication at issue. Under this approach, if the communication contains only protected coverage analysis, it may be withheld; if it contains in part protected coverage analysis, that information may be redacted.
The Court reviewed, in camera, the Shapiro Memos and the cover emails. The Memos discuss extensively the underlying litigation, i.e., the Second Generation Litigation. Much of the content of the Memos have nothing to do with coverage. Baxter redacted almost entirely two separate sections both titled “Insurance” and three lines in the “Germany and Italy” section. The final set of redactions is spread throughout the last third of the Memos, which discusses alternative settlement proposals for the Second Generation Litigation. As this description indicates, Baxter has not redacted text on a sweeping, unprincipled basis. The targeted nature of its redactions supported Baxter’s contention that it was trying to distinguish between coverage analysis and other matters.
The Court’s review of the redacted text indicated that Baxter succeeded in that effort. The redacted portions present Mr. Shapiro’s analysis of what coverage Baxter may or may not have from its insurers for the Second Generation Litigation and how Baxter may or may not be able to ensure in the future that its insurers meet their coverage obligations. The mere fact that an attorney, who is serving to some extent in the defense of the underlying action, is involved in the communication or discussion of insurance coverage analysis does not necessarily have a determinative effect.
The Court found, as a result, that Waste Management does not mandate the production of the Shapiro Memos and the cover emails.
The Federal Work Product Doctrine
The parties’ dispute over the federal work product doctrine also is confined to one issue. Baxter claimed that the work product doctrine protects the sought-after portions of the Shapiro Memos and the cover emails. AXA responded, arguing that the Memos and the emails are not federally-protected work product because they were not prepared in anticipation of litigation.
The record before the Court indicates that, as of 2005, when the Shapiro Memos were written and distributed, Baxter had an articulable claim against AXA that reasonably was likely to lead to litigation. That claim, arising from its insurers’ continued refusal to acknowledge or defend the tort claims in the Second Generation Litigation, was the primary reason for the coverage analysis in the Shapiro Memos and the cover emails.
The Court found, therefore, that the work product doctrine protects the Shapiro Memos and the cover emails because they were prepared at a time when Baxter reasonably anticipated the possibility of litigation with AXA concerning its coverage obligation for the claims raised in the Second Generation Litigation.
Therefore, AXA’s Motion to Compel Baxter to Produce All Communications with Dechert was denied.
When an insured has a dispute over coverage with his, hers, or its insurer or an insurer has a dispute over the applicability of coverage to a particular factual situation, it is reasonable to retain an insurance coverage lawyer to opine on the applicability of coverage and how to deal with the dispute to obtain the most coverage for defense or indemnity available or to determine there is no coverage available. The opinions from the coverage lawyer are written to allow the client to make a proper decision. It is private and not available to the opponents to use against the coverage lawyer’s client.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide
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