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Court Protects Insurance Brokers’ Communications If Used To Render Legal Advice

By Harvard Law School Program on Corporate Governance

On April 5, 2010, the Southern District of Texas issued a decision in In re Tetra Technologies, Inc., No. 4:08-cv-0965, 2010 WL 1335431 (S.D.Tex. April 5, 2010), on the question of whether communications between a company?s employees, its counsel and its insurance brokers were protected as attorney-client communications. The District Court held that as long as the communications were made “for the purpose of facilitating the rendition of professional legal services of the client,” they would be protected as privileged.

I. Background and Decision

In this securities class action filed by Tetra shareholders, the plaintiffs alleged that Tetra misrepresented its likely insurance reimbursements for hurricane-related repairs. The plaintiffs moved to compel discovery of certain communications between Tetra employees and Tetra?s insurance brokers that were identified on a privilege log.

The plaintiffs argued that disclosures and communications made to the insurance brokers, who were third parties, destroyed the attorney-client privilege. Tetra argued that its insurance brokers were its agents and therefore fell within the ambit of the attorney-client privilege. Plaintiffs countered that many of Tetra?s communications with its insurance brokers took place in the context of a dispute between Tetra and its insurer, and that the brokers therefore played the role of dispute facilitators rather than agents.

The Court held that, even in situations where an insured and its insurers are in a dispute, an insurance broker can nonetheless act as the insured?s agent when the purpose of the communication was made “to facilitate the rendition of legal services.” The Court noted that the scope of the attorney-client privilege is shaped by its purposes, and that “what is vital to the privilege is that the communication be made in confidence for the purpose of obtaining legal advice from a lawyer.” The Court ruled that it would review in camera the communications that the plaintiffs suspected did not meet such criteria to determine whether or not that particular communication fell within the attorney-client privilege.

II. Practical Implications

The Court?s reasoning in Tetra reflects well-established case law regarding the applicability of the attorney-client privilege to non-attorney consultants. In addition to insurance brokers, other classic examples include accountants, translators, and financial or other subject matter experts. The case law is clear that communications neither involving attorneys nor made to facilitate the rendering of legal services are discoverable. Therefore, a communication by a non-attorney consultant that does not aid an attorney in providing legal advice will not be protected.

Other key takeaways in this area are:

• A company?s communications with its brokers or consultants that are routine or within the ordinary course of business will likely not be protected. This concern is of particular importance, since the company will often already have a prior relationship with the broker or consultant in question. The relationship with an insurance broker is a typical example here, as the relationship involves a range of ongoing communications that may (or may not) ultimately be pertinent to litigation. Companies should take steps to acknowledge and document any change in its ongoing relationship with an insurance broker that might trigger the applicability of privilege. For example, if a company is served with a complaint that implicates the insurance broker?s knowledge or services, or if the company?s counsel is conferring with the insurance broker with respect to a legal concern based on the litigation, it will be important to contemporaneously document these particular circumstances. This will help distinguish privileged interactions from routine communications reflective of a prior relationship. One way this can be accomplished is through individualized billing statements, which describe the consultant/broker?s work as facilitating legal services. Certainly, all communications with an insurance broker of a privileged nature should be marked “Privileged and Confidential.”
• Tetra also raises the issue of a company?s communications with its insurance broker when there is an underlying dispute between a company and its insurer. Such communications should still be privileged if made for the purposes of facilitating legal services, as the Tetra court found. Again, it is important to acknowledge and document that the insured-broker communications are privileged and confidential.
• It is important to distinguish communications involving third-party agents of the company from those involving non-agent parties. A company?s communications with its insurers, for example, are most likely not protected as attorney-client privileged. Some such communications may still be afforded qualified protection on the basis of the attorney work product doctrine, which provides protection for documents prepared by attorneys in anticipation or because of litigation. Communications that may not immediately facilitate rendering legal advice might still be characterized as prepared “because of the prospect of litigation,” and therefore also protected as attorney work product. Unlike the attorney-client privilege, however, an adversary can ordinarily overcome the protection of the attorney work product doctrine if it can show substantial need and is unable to obtain without undue hardship substantially equivalent material elsewhere.
• To maximize a company?s eventual ability to assert privilege with respect to communications with consultants, company personnel should take some basic steps. Communications with consultants involving information relevant to an area of legal concern should be clearly marked as “Privileged and Confidential.” It is also preferable if consultants are formally retained by attorneys, and the retainer agreement should specify the nature of the work involved as facilitating legal advice, as opposed to providing general consulting services. Further, any work product prepared by the consultant to aid the attorney should be marked “prepared at the direction of a lawyer.”

Of course, courts are the ultimate arbiters as to whether a particular communication in fact facilitated legal advice and is protected by the attorney-client privilege. But taking the steps outlined above permits the company to reexamine its communications in light of all circumstances prevailing when it matters most ? when producing documents at the time of a litigation or investigation ? and to consider the tactical and legal implications of asserting the privilege.

Full post as published by The Harvard Law School Corporate Governance Blog on April 28, 2010 (boomark / email).