London Market Tradition Must Change


London Market System of Communication Waives Attorney Client Privilege

Insurance brokers, by definition, are people who transact insurance with but not on behalf of the insurer. As such the broker’s duty is to the person insured and not to the insurer with whom the broker places insurance.

When I still practiced law I represented many Underwriters at Lloyd’s and insurers doing business in the London insurance market. Because of how insurance was placed with multiple different underwriters and insurance companies by London brokers the insurers wanted me, as their lawyer, to communicate via the brokers who would convey the communications to the various insurers who made up the totality of insurers insuring the risk. I balked because the broker was the agent of the insured with whom my clients, the insurers, disputed coverage. Therefore, I eventually convinced the insurers I represented to let me communicate directly to the leading underwriter (the one in charge of the claim because it had the largest interest in the risk) who would then make certain that the following insurers what they needed to know.

In Certain Underwriters at Lloyd’s, et al v. National Railroad Passenger Corporation — F.Supp.3d —- United States District Court, E.D. New York,2016 WL 739061 (February 19, 2016) the District Court was faced with a motion to compel production of documents and communications from counsel to the London Market insurers because the privilege was waived by using London Brokers who placed the insurance to convey reports from counsel.

Currently pending before the Court are cross-motions to compel discovery. One of the many discovery disputes at issue is whether attorney-client communications listed on certain insurers’ privilege logs are protected from disclosure even though, due to the unique structure of the London insurance market, those communications were shared with third parties.


Plaintiffs in this action are insurers who “did business in the London Insurance Market and who issued or participated in—that is, subscribed to an agreed percentage share of the risk of—” one or more liability insurance policies issued to Amtrak during the period beginning on or about June 1, 1972 and ending in 1986 (the “Policies”).

The London Insurance Market

Before addressing the privilege dispute before the Court, it is helpful to provide background on how the London insurance market operated during the relevant time period. The insurers submitted the declaration of Martin Watson, who claims to have knowledge on the customs and practices of the London insurance market from the 1980s through the present day, based on his experience in that market. According to Watson, a policy for a major corporation like Amtrak would involve “insurance placed in layers, each policy attaching at the exhaustion point of the underlying policy.” Thus, “[a]n insurer might participate in multiple layers at different percentage shares, or might participate on only on [sic] one.” “A single policy might have anywhere from one or two insurers or dozens of insurers.” As such, each policy typically had “one or two ‘lead’ insurers, whose underwriters negotiated policy terms and conditions[.]”

To place its insurance in the London market, Amtrak, through its North American-based insurance broker, engaged two London brokers—Sedgwick and C.E. Heath (“Heath”). The London broker would take Amtrak’s insurance order and walk around to the various syndicates and companies in the London insurance market to “fill up” the policy.

The London brokers did not, however, take action only on behalf of Amtrak. As Watson explains: “With so many insurers, each with its own claims personnel, a system of communication grew up in the pre-computer age that enabled the market to handle claims promptly and efficiently. This system utilized the London broker, which had negotiated with each insurer and maintained the records of each insurer’s participation on each policy, to serve as a conduit for information among the insurers.”

Important to the instant dispute, this “London broker” message delivery system also applied to communications between the insurers and their attorneys.

Amtrak’s Motion to Compel

In its motion, Amtrak challenges the privilege log in two respects: First Amtrak claims that, because the London brokers were neither attorneys nor clients, the distribution of communications from the attorneys (including the Attorney Reports) through the London brokers waived any privilege. Second, Amtrak alleges that by referring to “Underwriters at Interest,” “Interested Insurers,” or “Subscribing Insurers,” the LMI Log inadequately identifies recipients of attorney communications.

The insurers argued that using brokers to distribute privileged communications was “standard” in the London market and not understood to waive the privilege. With respect to the sufficiency of the LMI Log’s identification of the recipients, LMI contends that the participating insurers shared a “common interest in resolving issues correctly and as efficiently as possible and for that reason were represented by the same counsel with respect to Amtrak’s claim.”


Attorney–Client Communications Distributed through London Brokers

As stated above, under certain circumstances, a third party may be privy to attorney-client communications without destroying the protection afforded by the attorney-client privilege. In particular, courts have held that the presence of third parties who are agents of the lawyer or client and whose participation “improve[s] the comprehension of the communications between attorney and client” does not negate the privilege.  Thus, communications from a client to a third-party accountant or foreign-language translator hired to assist a lawyer in providing legal advice to that client are protected under the privilege.

Nothing in the record suggests that the London brokers served any analogous role. The thrust of LMI’s arguments with respect to attorney-client communications sent through the London brokers is that such a practice was “standard” and “necessary” given the London market’s structure. LMI’s position is unavailing for several reasons. First, the fact that a particular method of distributing and/or retaining documents is standard in an industry does not determine whether that method of distribution comports with the law governing attorney-client privilege.

The record is similarly deficient with respect to the extent of the brokers’ agency relationship with the various insurers. The lack of evidence as to the necessity for the role played by the London brokers, as well as to the exact nature of their relationship with the attorneys and/or insurers, is particularly troubling given the dual agency of the London brokers, who represented Amtrak during the negotiation over and purchase of the Policies.

For these reasons, the Court concluded that the insurers failed to establish that attorney-client communications like the Attorney Reports that were distributed through and/or retained by the London brokers were intended to be, and were in fact, kept confidential. Therefore, the documents must be produced.

Essentially, LMI asks this Court to simply trust, in a vacuum, that only the appropriate parties were privy to these communications.  The Court concludes that the insurers have not met their burden of establishing the factual predicate for withholding documents with unspecified Recipient Descriptions on the basis of attorney-client and common interest privilege.


The system used in the London Insurance Market worked well for centuries even though the people maintaining the insurer’s files and distributing them to the various underwriters and insurers were the agent of the insured with whom the insurers were involved in a dispute. As a result, the “gentlemen,” who were the insurers and the brokers kept confidential from their principal communications to the insurers. In essence the insurers put the fox in charge of protecting their hen house. Modern computers and e-mail now allow lawyers to communicate directly with each insurer and this problem will not arise again.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 49 years as an insurance coverage and claims handling lawyer.  He 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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