The Attorney-Client Privilege and the Work Product
Doctrines – The Boundaries of Protected
Communications Held By Insureds and Insurers
Michael Keeley, Strasburger & Price, LLP
Tracey Archbold, Great American Insurance Company
I.
INTRODUCTION
The complex and concealed nature of employee dishonesty and
other fidelity bond losses necessitates a thorough investigation by both
the insured and insurer in order to determine whether there is coverage
for an insured’s loss. Most insureds, faced with losses caused by an
employee’s dishonesty, diligently review the employee’s work and
attempt to discern how the scheme was committed and how much was
lost as a result. But unfortunately, when it comes time to make a claim
on the bond, too many insureds expect the insurer to simply take the
insured’s word that the dishonesty occurred and the bond claim is
covered. Notwithstanding the cooperation clause in most policies,
insured and insurers too many times find themselves battling, not over
whether coverage exists, but over whether one can shield from the other
documents and other information obtained or generated during the
investigative phase of the claim on the basis of the attorney-client
privilege or the work product doctrine.
The purpose of this article is to analyze these two evidentiary
doctrines with a view toward their applicability to fidelity bond claims.
Once these privileges are understood in proper context, the inevitable
conclusion arises that an insured is rarely justified in shielding from its
Michael Keeley is a partner with the Dallas, Texas office of Strasburger & Price,
LLP. Tracey Archbold is Director of the Fidelity/Crime Division with Great
American Insurance Group in Windsor, Connecticut. This article updates an
earlier article by the lead author at II FID. LAW J. 51 (1996). The authors wish to
thank Michael Feiler, an associate with the Dallas, Texas office of Strasburger &
Price, LLP for his excellent assistance in updating this article.
2
Fidelity Law Association Journal, Vol. XIV, October 2008
insurer any of the information and documentation the insurer requires to
arrive at a proper determination of coverage. The insured will rarely
have a reasonable expectation of privacy over communications made
during the investigation of its claim because the insurer’s counsel acts
primarily as an investigator. Likewise with respect to documents created
or gathered during the investigation, an insured cannot reasonably
anticipate litigation until such time as it becomes evident that the insurer
will deny the claim. Conversely, when the insurer retains outside
counsel to review an insured’s claim and provide a coverage analysis
under the applicable policy, typically the attorney’s primary purpose is
the rendering of legal advice. Thus, her communications with the insurer
should be privileged. And occasionally documents prepared during an
investigation by outside counsel will qualify for work product protection
as well.
II.
THE ATTORNEY-CLIENT PRIVILEGE
A common reason given by insureds objecting to requests for
information by insurers is the attorney-client privilege. Often insureds
refuse to produce their lawyers’ investigative reports or notes of witness
interviews on this ground. Loan files and minutes of directors’ minutes
are also withheld on the same ground if the insured’s lawyer has had any
involvement in the meetings or transactions. Conversely, an insurer is
rarely asked for documents during the investigative stage of a claim.
Instead, the insured usually seeks to obtain the insurer’s claim files and
correspondence with its coverage counsel only in the event that litigation
ensues. With a thorough understanding of the basis for the privilege, an
insurer should be able to determine the circumstances under which it is
properly applicable.
A.
The Privilege Generally
The attorney-client privilege is the oldest of the privileges
known to the common law pertaining to confidential communications.1
Its purpose is to “encourage full and frank communication between
1
Hunt v. Blackburn, 128 U.S. 464, 470 (1888); Upjohn Co. v. United
States, 449 U.S. 383, 389 (1981).
The Attorney-Client Privilege and the Work Product Doctrines
3
attorneys and their clients and thereby promote broader public interest in
the observance of law and the administration of justice.”2 The privilege
recognizes that “sound legal advice or advocacy serves public ends and
that such advice or advocacy depends upon the lawyers being fully
informed by the client.”3 The privilege is, however, contrary to the
general American Rule allowing full discovery of facts, and must
therefore be “strictly confined within the narrowest possible limits
consistent with the logic of its principle.”4 Consistent with the restrictive
nature of the privilege, both federal and state law place the burden of
establishing the attorney-client privilege, including each of its elements,
squarely on the party asserting it.5
Because state law typically governs an underlying claim, the
scope of the privilege in most fidelity cases is determined by state law.
Even if a disputed claim will be resolved in federal court (such as in a
diversity case), state law still typically applies to the privilege issue.
Rule 501 of the Federal Rules of Evidence specifically provides:
[I]n civil actions and proceedings, with respect to an
element of a claim or defense to which State law
provides the rule of decision, the privilege of a
witness… shall be decided in accordance with State
law.6
Thus, in cases filed in state court, or in federal cases where state
substantive law governs, state law will apply to the privilege issue.
Infrequently, cases will involve both state and federal law. In such
2
Upjohn, 449 U.S. at 389; Trammel v. United States, 445 U.S. 40, 51
(1980).
3
Upjohn, 449 U.S. at 389.
NLRB v. Harvy, 349 F.2d 900, 907 (4th Cir. 1965) (quoting 8
Wigmore, Evidence § 2292 (McNaughton rev. 1961); see also United States v.
Nixon, 418 U.S. 683, 710 (1974).
5
See, e.g., U.S. v. Jones, 696 F.2d 1069, 1072 (4th Cir. 1982); Weil v.
Investment/Indicators, Research & Mgmt., 647 F.2d 18, 25 (9th Cir. 1981); In re
Miller, 584 S.W.2d 772, 787 (N.C. 2003); Virginia v. Edwards, 370 S.E.2d 296,
301 (Va. 1988).
6
FED. R. EVID. 501 (2008).
4
4
Fidelity Law Association Journal, Vol. XIV, October 2008
circumstances, it is usually impractical to apply federal law to the federal
claims and state law to the pendant state claims. Therefore, courts
simply apply the federal privilege in such cases.7 Parties
must
be
cognizant of the applicable law, however, because although the federal
privilege is similar to that in most states, it is not identical.
B.
Elements of the Privilege
One of the more commonly quoted statements of the elements of
the attorney-client privilege is that found in United States v. United
States Shoe Machinery Corp.:8
The privilege applies only if (1) the asserted holder of
the privilege is or sought to become a client; (2) the
person to whom the communication was made (a) is a
member of the bar of a court, or his subordinate and (b)
in connection with this communication is acting as a
lawyer; (3) the communication relates to a fact of which
the attorney was informed (a) by his client (b) without
the presence of strangers (c) for the purpose of securing
primarily either (i) an opinion of law or (ii) legal
services or (iii) assistance in some legal proceeding, and
not (d) for the purpose of committing a crime or tort; and
(4) the privilege has been (a) claimed and (b) not waived
by the client.
A review of each of the elements of the privilege demonstrates why the
privilege will seldom apply to an insurer’s request for documents or
other information during the insurer’s investigation of a claim, but is
often applicable to requests for documents generated by coverage
counsel for the insurer and at least parts of the insurer’s claim file.
7
See EDNA SLEAN EPSTEIN & MICHAEL M. MARTIN, THE ATTORNEYCLIENT PRIVILEGE AND THE WORK PRODUCT DOCTRINE 8 (2d ed. 1989) (citing
Perrignon v. Bergen Brusnwig Corp., 77 F.R.D. 455, 458 (N.D. Cal. 1978)
(federal privilege governs all claims raised in litigation involving federal
questions and pendant state claims)).
8
89 F. Supp. 357, 358-59 (D. Mass. 1950).
The Attorney-Client Privilege and the Work Product Doctrines
1.
5
Communications Must Be with the Client
It may seem obvious to point out that in order for the privilege to
apply, the allegedly protected communication must be between a lawyer
and the lawyer’s client. But insureds often raise the privilege in an effort
to shield its lawyer’s communications with third parties, such as bank
regulators, law enforcement officials, and even customers of the insured.
Such communications clearly are not between the insured and its lawyer,
and thus fall outside of the privilege.
The identity of a lawyer’s client is clear when the client is an
individual. It is not always so simple when the client is a corporation or
other entity, which will always be the case with fidelity insurance claims.
There is typically no question that communications between an insured’s
executive officers and its lawyer are privileged. But what about
communications between a lawyer and mid or lower level employees of
the insured? In order to answer this question, a party must determine
whether the applicable jurisprudence follows the “control group” test. If
so, the privilege will likely be limited to only those employees within the
corporation’s “control group.”
The control group test was the subject of the United States
Supreme Court’s decision in Upjohn Co. v. United States.9 In Upjohn
the company’s accountants, while conducting an audit of one of
Upjohn’s foreign subsidiaries, discovered that the subsidiary had made
payments for the benefit of foreign government officials in order to
secure government business.10 Outside counsel was retained to assist in
an internal investigation, and prepared a letter containing a questionnaire
that was sent to “All Foreign General Area Managers” over the signature
of Upjohn’s Chairman. The letter indicated that Upjohn’s Chairman had
requested that its general counsel “conduct an investigation for the
purpose of determining the nature and magnitude of any payments,” and
had instructed the managers to “treat the investigation as ‘highly
confidential’ and to not discuss it with anyone other than Upjohn
9
449 U.S. 383, 390 (1980).
Id. at 386.
10
6
Fidelity Law Association Journal, Vol. XIV, October 2008
employees who might be helpful in providing the requested
information.”11
Upjohn voluntarily submitted a report of its investigation to the
IRS. The IRS began an investigation to determine the tax consequences
of the payments, and served Upjohn with a subpoena demanding
production of all files relevant to the investigation, including the written
questionnaires. Upjohn refused, asserting the attorney-client privilege.
On appeal the Sixth Circuit ruled that communications with employees
who are outside Upjohn’s “control group” – those officers and agents of
Upjohn not responsible for directing Upjohn’s actions in response to
legal advice – were not privileged.12 The Supreme Court disagreed,
reasoning that such a limitation upon the attorney-client privilege would
frustrate the purpose of the privilege “by discouraging the
communication of relevant information by employees of the client to
attorneys seeking to render legal advice to the client corporation.”13
Important to the Court was the fact that in order to provide advice to a
corporate client, the attorney must be free to communicate with all
relevant employees, including mid-level and lower-level employees who
have information relevant to the subject matter of the lawyer’s
representation.14
Refusing a request by the parties and various amici to develop a
bright line test concerning the attorney-client privilege, the Court
reasoned that application of the privilege must be determined on a caseby-case basis.15 Some guidance can be obtained, however, from the
emphasis the Court placed on the facts surrounding Upjohn’s
investigation, including the following:
1.
11
Information from middle and lower level employees was
needed to supply the basis for the legal advice;
Id. at 387.
Id. at 388.
13
Id. at 392.
14
Id.
15
Id. at 396.
12
The Attorney-Client Privilege and the Work Product Doctrines
7
2.
The communications concerned matters within the scope
of the employees’ corporate duties;
3.
The employees were sufficiently aware that they were
being questioned in order for the corporation to obtain
legal advice;
4.
The questionnaire identified the person sending the
questionnaire as the company’s general counsel;
5.
A statement of policy accompanying the questionnaire
clearly indicated the legal implications of the
investigation; and
6.
Pursuant to express instructions from Upjohn’s
Chairman, the communications were considered “highly
confidential.”16
Presumably, application of the privilege might be questionable
when one or more of the above factors are not present. For instance, the
privilege might be unavailable if there is not an important need for input
from lower level employees, or if it is not made abundantly clear, as was
the case in Upjohn, that the communications should be treated as strictly
confidential. As the Court pointed out, however, application of the
privilege must necessarily be applied on a case-by-case basis.
While Upjohn is obviously controlling when the federal privilege
is at issue, not all state courts follow Upjohn. Also, some states seem to
have endorsed the control group test through statute.17 Thus, the insurer
must be familiar with the test applicable in the state in which the
investigation is being conducted.
Discussions between an insured’s general counsel, president,
board of directors, and other senior officials are typical in an insurance
claim. However, as in Upjohn, an investigation by an insured’s lawyer
16
449 U.S. at 394-95.
See, e.g., AK. R. EVID. 503(a)(2) (2008); ARK. R. EVID. 502(a)(2)
(2008); ME. R. EVID. 502 (2008).
17
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Fidelity Law Association Journal, Vol. XIV, October 2008
typically also includes communications with lower level employees. If
the claim is being pursued in a state which adopts the control group test,
the lawyers’ communications with such employees might not be
privileged for the sole reason that the employees are not within the
insured’s “control group.” Even in federal cases, the facts in each case
will need to be closely scrutinized to determine whether Upjohn is
controlling.
From the insurer’s standpoint, communications with coverage
counsel will typically be through the insurance company’s claim
representative, who is often a lawyer. Because this person is the one
designated by the company to communicate with the lawyer, this element
of the privilege will be present.
2.
The Privilege Protects Communications Only
Lawyers customarily object to the disclosure of any of their work
product on the basis of the attorney-client privilege and the work product
doctrine. The work product doctrine (discussed more thoroughly in the
following section) extends only to documents prepared in anticipation of
litigation. The attorney-client privilege, on the other hand, is available
even if litigation is not anticipated; however, it extends solely to
communications between the lawyer and the client. It does not protect
disclosure of the underlying facts, nor that part of a document which
does not contain the communication between a lawyer and client. As the
United States Supreme Court noted in Upjohn:
[T]he protection of the privilege extends only to
communications and not to facts. A fact is one thing and
a communication concerning that fact is an entirely
different thing. The client cannot be compelled to
answer the question, ‘what did you say or write to the
attorney?’ but may not refuse to disclose any relevant
fact within his knowledge merely because he
The Attorney-Client Privilege and the Work Product Doctrines
9
incorporated a statement of such fact into his
communication to his attorney.18
In Upjohn the Court was careful to focus on the distinction
between communications between Upjohn’s employees and its counsel
(which included the employees’ responses to the questionnaires and the
notes reflecting responses to interview questions), on the one hand, and
the lawyer’s notes and memoranda of the interviews to the extent they
went beyond recording responses to the lawyers’ questions.19 The Court
recognized that to the extent the lawyers’ notes went beyond
communications with employees, the evidentiary protection potentially
available would be the work product doctrine, rather than the attorneyclient privilege.
This point was also made by the Court, although in a slightly
different manner, in its earlier opinion in Hickman v. Taylor.20 In that
case, the Court held that the protective cloak of the attorney-client
privilege “does not extend to information which an attorney secures from
a [third party] witness while acting for his client in anticipation of
litigation.”21 The Court also explained that the privilege does not extend
to the “memoranda, briefs, communications and other writings prepared
by counsel for his own use in prosecuting his client’s case; and it is
equally unrelated to writings which reflect an attorney’s mental
impressions, conclusions, opinions or legal theories.”22 Thus, an
attorney’s notes concerning his observations about his investigation do
not necessarily fall within the privilege.23
Thus, to the extent the notes or memoranda of a lawyer contain
communications with the insured, they may be privileged. However, to
the extent they contain matters other than communications, such as the
18
449 U.S. at 396 (citing Philadelphia v. Westinghouse Elec. Corp.,
205 F. Supp. 830, 831 (E.D. Pa. 1962)).
19
449 U.S. at 397.
20
329 U.S. 495, 508 (1947).
21
Id. at 302.
22
Id.
23
See, e.g., In re Walsh, 623 F.2d 489, 494 (7th Cir. 1980), cert.
denied, 449 U.S. 994 (1980).
10
Fidelity Law Association Journal, Vol. XIV, October 2008
lawyers’ thoughts and conclusions about the investigation or claim, they
arguably fall outside the privilege.24
An illustrative case is Bird v. Penn Central Co.,25 in which
Underwriters at Lloyds of London attempted to rescind two directors and
officers’ insurance policies based upon misrepresentations in the
insured’s application. The insured sought production of various
documents prepared by underwriters’ counsel on the basis that the
documents established that underwriters had waived their right to
rescission of the policy. The Court found that the attorney-client
privilege was inapplicable to documents which contained information the
lawyers had gathered from other sources.26 According to the district
court: “to the extent the information sought to be discovered was not
conveyed to counsel by his client, the attorney-client privilege is
inapplicable.”27
3.
Acting as a Lawyer
The heart of the attorney-client privilege is protecting legal
advice from a lawyer to his client. In order for the privilege to apply, the
client must have consulted with the attorney for the purpose of obtaining
legal advice or services, rather than nonlawyer services.28 Courts have
held that communications from a client seeking business advice, rather
than legal advice, are not privileged.29 Similarly, communications made
to aid an attorney acting as a business negotiator are not privileged.30
As the Sixth Circuit has noted:
But see, e.g., Cedrone v. Unity Sav. Ass’n, 103 F.R.D. 423, 429
(E.D. Pa. 1984) (lawyer’s memo to another lawyer protected by the privilege).
25
61 F.R.D. 43 (E.D. Pa. 1973).
26
Id.
27
Id.
28
See, e.g., Montgomery County v. Microvote Corp., 175 F.3d 296 (3d
Cir. 1999).
29
See, e.g., United States v. Ackert, 169 F.3d 136 (2d Cir. 1999).
30
See, e.g., United States v. Wilson, 798 F.2d 503, 513 (1st Cir. 1986).
24
The Attorney-Client Privilege and the Work Product Doctrines
11
Once the attorney-client relationship is established,
inquiry will focus upon the nature of the communication
or information sought. The relationship itself does not
create ‘[a] cloak of protection [which is] draped around
all occurrences and conversations which have any
bearing, direct or indirect, upon the relationship of the
attorney with his client.’ The privilege ‘protects only
those disclosures necessary to obtain informed legal
advice which might not have been made absent the
privilege.’31
In the context of a fidelity bond claim, a common issue is
whether the insured’s lawyer was retained to provide legal advice, or to
act as an investigator merely to gather facts. In Seibu Corp. v. KPMG,
LLP,32 the court concluded that investigative documents produced by
KPMG’s in-house counsel were not protected by the attorney-client
privilege:
Although these documents may have been generated
during an investigation undertaken by KPMG’s in-house
counsel, they are not necessarily privileged. The critical
inquiry is not whether the investigation was conducted at
the behest of a lawyer, but whether any particular
communication in connection with that investigation
facilitated the rendition of legal advice to the client. A
review of the documents fails to establish this critical
element of KPMG’s privilege claim.
....
Even if lawyers were involved in making this decision, it
is primarily an exercise of business judgment. The fact
that counsel initiated the investigation that led to
Thompson’s withdrawal does not cloak every
communication made in that context with attorney-client
privilege.
KPMG still must prove that the
31
32
In re Walsh, 623 F.2d at 494 (citations omitted).
No. 3-00-CV-1639-X, 2002 WL 87461 (N.D. Tex., Jan. 18, 2002).
12
Fidelity Law Association Journal, Vol. XIV, October 2008
communication was made for the purpose of facilitating
the rendition of legal services to the client.33
An insured may argue that a communication is privileged merely
because it is made to or from an attorney.34 However, most courts have
concluded that more is needed in order to establish that the
communication was made to or from the lawyer acting in a legal
capacity. For instance, in In re Kearney,35 the bank employed a firm of
accountants to make an extensive investigation of questioned
transactions, including a detailed examination of the bank’s records and
interviews with various witnesses. The accountants submitted a
comprehensive report to the bank, parts of which were a cooperative
effort between the accountants and the bank’s lawyer. Subsequently, the
IRS conducted an investigation and subpoenaed the report. The bank
refused to produce the report, and the IRS filed a motion to enforce its
summons. The court ordered production of the report, reasoning:
The document is not a confidential communication from
the Bank to its counsel for the purpose of securing legal
advice, nor does it, as far as I can see, contain any legal
advice from the counsel to the Bank. It is a report of a
factual investigation.36
Similarly, in In re Texas Farmers Insurance Exchange,37
insureds under a fire policy sought discovery of an investigation report
prepared by an attorney hired by the insurer. There was conflicting
evidence of the capacity in which the attorney was hired. In particular,
the attorney had testified that he was hired solely to conduct
examinations under oath and was not involved in the investigation of the
insured’s claim. The attorney also testified, contradictorily, that he was
hired to conduct the examinations and then provide the insurer with a
legal opinion concerning potential litigation issues. The insurer had also
33
34
Id. at *3.
See, e.g., Diversified Indus., Inc. v. Meredith, 572 F.2d 596 (8th Cir.
1978).
35
227 F. Supp. 174 (S.D.N.Y. 1964).
Id. at 176-77.
37
990 S.W.2d 337 (Tex. App.—Texarkana 1999, pet. denied).
36
The Attorney-Client Privilege and the Work Product Doctrines
13
alleged that the attorney’s “sole responsibility prior to the filing of the
lawsuit was the taking of “Plaintiffs’ Examination Under Oath and report
the results of same to Farmers.”38 The trial court, faced with this
evidence, found that the attorney was acting solely as an investigator, not
as an attorney. On appeal, finding that the trial court findings of fact
were not clearly erroneous, the court held that the attorney could be
questioned at a deposition on his investigation and the examinations he
conducted:
[A]lthough the attorney-client privilege would apply to
communications between Scott and Farmers concerning
legal strategy, assessments, and conclusions, the
privilege does not operate as a blanket privilege covering
all of the communications between the two. For
instance, the privilege would not apply to those
communications concerning bare facts. If we were to so
hold, insurance companies could simply hire attorneys as
investigators at the beginning of a claim investigation
and claim privilege as to all of the information
gathered.39
Although In re Texas Farmers addresses the privilege as raised by the
insurer, it applies equally to the insured’s investigation.
Similarly, in 2022 Ranch, LLC v. Superior Court,40 the court
found that in order to determine whether documents produced by the
insurer’s in-house counsel during the investigation of the claim were
attorney-client privileged, the court would have to examine the
documents individually and determine whether the “dominant purpose”
of the document was the provision of legal advice:
Where an attorney is hired both to investigate and to
advise the client, the court may have to review the
attorney’s files in camera to determine which documents
reflect investigative work and which reflect the
38
Id. at 341.
Id.
40
7 Cal. Rptr. 3d 197 (Cal. Ct. App. 2003).
39
14
Fidelity Law Association Journal, Vol. XIV, October 2008
rendering of legal advice . . . . This can be a particular
problem for in-house legal counsel who is often asked to
‘investigate’ or ‘handle’ a matter without knowing
whether legal advice is required.41
And, in United States Fidelity & Guaranty Co. v. Canady,42
USF&G retained a lawyer to assist it in investigating a suspicious fire
claim. During the ensuing litigation USF&G refused to produce its
lawyer’s report to the insured on the basis of the attorney-client privilege.
On appeal the West Virginia Supreme Court recognized that the report
“could be exempted from discovery under the attorney-client privilege,”
but refused to “adopt a per se rule making ordinary investigative
employees, who hold licenses to practice law, attorneys for purposes of
the attorney-client privilege.”43 The court reasoned:
To do so could pose an absolute bar to discovery of
relevant and material evidentiary facts. In the insurance
industry context, it would shield from discovery
documents that otherwise would not be entitled to any
protection if written by an employee who holds no law
license but who performs the same investigation and
duties. To enlarge the scope of protection to those not
performing traditional attorney duties would be
fundamentally incompatible with this State’s broad
discovery policies designed for the ultimate
ascertainment of truth.44
These decisions make perfect sense in the context of most bond
claims. In such cases counsel for the insured is hired or engaged
primarily as an investigator. His main responsibility typically will be to
investigate the facts surrounding the loss and to determine – from a
factual standpoint – whether an employee of the insured has acted in a
dishonest manner. The investigation typically will consist of reviewing
41
Id. at 210 (citing WEIL AND BROWN, CAL PRACTICE GUIDE: CIVIL
PROCEDURE BEFORE TRIAL (the Rutter Group 2003); 8:217.2, p. 8C-58).
42
460 S.E.2d 677 (W. Va. 1995).
43
Id. at 689-90.
44
Id.
The Attorney-Client Privilege and the Work Product Doctrines
15
various documents (often loan or customer files) and interviewing
employees of the insured, as well as third-party witnesses, including
current and former customers or borrowers of the insured institution. It
makes no sense, then, to permit the insured to shield the facts revealed by
such an investigation from the insurer simply because the investigation
was conducted by an attorney. Nor would it make sense, for example, to
shield a summary of a witness interview prepared by the insured’s
lawyer. In fact, it would be counterproductive to do so. Otherwise, two
different entities (the insured and later the insurer) must cover the same
ground, an exercise which benefits no one and unnecessarily increases
the insurer’s costs, which inevitably leads to increased premiums. Also,
if an incorrect coverage decision is made because of a lack of all relevant
facts, one of the parties will be harmed (and premiums again unfairly
affected).
Counsel for the insurer, on the other hand, has an entirely
different role. He or she is primarily retained to advise the insurer as to
whether a questionable claim constitutes a covered loss under the bond.
The lawyer’s advice often includes the best course of conduct for the
insurer to follow, and often involves specific legal analysis and advice.
Although coverage counsel might also “investigate the facts,” any such
investigation is tied directly to the primary task of determining whether
coverage exists under the bond. As a result, the privilege should apply to
all communications between the insurer and its coverage counsel.
A case on point is In re Subpoena of Curran,45 in which the court
quashed the deposition of the insurer’s attorney, finding that the fact the
attorney was extensively involved in the investigation of the insured’s
claim was irrelevant so long as the attorney was conducting the
investigation in furtherance of providing legal services: “[I]f the attorney
performs the task of an investigator or adjuster in the process of
providing legal services, she is still functioning as an attorney.”46 As the
court aptly noted, “It is not possible to give ‘a legal opinion without
performing an investigation or collecting information.’”47 The court also
45
No. 3:04-MC-039-M, 2004 WL 2099870 (N.D. Tex., Sept. 20,
46
Id. at *2.
Id. at *4 (citations omitted).
2004).
47
16
Fidelity Law Association Journal, Vol. XIV, October 2008
noted that an attorney may play an important role in the determination of
coverage for an insured’s claim, “especially since an insurer can be
assessed punitive damages for ignoring its legal obligations to the
insured.”48
An often cited case in this context is Aetna Casualty & Surety
Co. v. Superior Court,49 in which the insured asserted a claim under its
fire and casualty policy when a severe California rain storm touched off a
mud slide which completely destroyed the insured’s home. Aetna
retained a law firm to assist in the investigation of a claim it later denied.
The insured filed suit and sought to depose Aetna’s claim’s counsel and
to obtain its counsel’s investigation files on the basis that the lawyer was
acting “as some form of outside claims adjuster, rather than to render
legal advice.”50 The court of appeals reversed, finding that the cases
relied upon by the insured were ones in which the “client’s dominant
purpose in retaining the attorney was something other than the request
for a legal opinion or advice.”51 In this case, the court found that Aetna
had retained coverage counsel “to investigate [the insured’s] claim and
make a coverage determination under the policy.”52 As a result, the court
reasoned:
This is a classic example of a client seeking legal advice
from an attorney. The attorney was given a legal
document (the insurance policy) and was asked to
interpret the policy and to investigate the events that
results in damage to determine whether Aetna was
legally bound to provide coverage for such damage.53
Similarly, in Dunn v. State Farm Fire & Casualty Co.,54 the
insured argued that the privilege did not apply to documents prepared by
48
Id. at *2.
200 Cal. Rptr. 471 (Cal. Ct. App. 1984).
50
Id. at 476.
51
Id.
52
Id.
53
Id.
54
927 F.2d 869 (5th Cir. 1991).
49
The Attorney-Client Privilege and the Work Product Doctrines
17
State Farm’s attorneys while they were investigating a fire claim. The
Fifth Circuit disagreed, reasoning as follows:
The privilege does not require the communication to
contain purely legal analysis or advice to be privileged.
Instead, if a communication between a lawyer and client
would facilitate the rendition of legal services or advice,
the communication is privileged.
The privilege extends to all communications between
State Farm and the attorneys it retained for the purpose
of ascertaining its legal obligations to the Dunn’s. The
privilege is not waived if the attorneys perform
investigative tasks provided that these investigative tasks
are related to the rendition of legal services.55
These cases highlight and affirm the different nature of the roles
between counsel for the insured and counsel for the insurer. Because the
burden is squarely on the insured to establish the facts of its claim and
prove coverage, when counsel for the insured conducts an investigation,
its lawyer’s primary task is to determine the facts surrounding the loss.
Conversely, the insurer does not have the responsibility to establish the
facts. Instead, the insurer’s primary task is to determine whether the
insured’s loss is covered under the bond based upon the documents and
other evidence provided to it by the insured. If counsel is retained to
assist in this task, it is primarily to make a legal analysis of the claim.
Although the insurer’s lawyer may actually do some additional fact
investigation, this investigation is secondary to the primary task of
determining whether the loss is covered. Thus, it makes sense that the
privilege attaches to work performed by the insurer’s counsel, but not by
counsel for the insured.
4.
Expectation of Privacy
Central to the attorney-client relationship, and thus the attorneyclient privilege, is the client’s expectation that communications with the
lawyer will remain confidential. How can an insured who has submitted
55
Id. at 875.
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Fidelity Law Association Journal, Vol. XIV, October 2008
a bond claim have an expectation of confidentiality with respect to the
facts pertaining to its loss? Should an insured be permitted to shield
pertinent facts discovered by its counsel merely because a lawyer is
conducting the investigation, rather than an employee of the insured?
Several courts have found that insureds do not have a legitimate
expectation of privacy in such situations. In EDO Corp. v. Newark
Insurance Co.,56 the plaintiff, EDO, refused to produce documents that
had been prepared in connection with claims asserted against it in an
underlying lawsuit arising from EDO’s alleged role in connection with
environmental contamination of certain property. Newark, which had
issued an environmental indemnity policy to EDO, argued that, even if
the privilege were otherwise applicable, EDO’s implied duty of good
faith and fair dealing, and its duty to cooperate, provided in the various
policies, deprived EDO of a reasonable expectation that communications
with, or the work product of, its counsel made in connection with the
underlying EPA action would remain confidential as to the defendant
insurers. The Court agreed, reasoning that, based “upon EDO’s explicit
duty to cooperate with its insurers and its implied duty of good faith and
fair dealing under its contracts for insurance, EDO cannot presently
contend that it expected discussions with its attorneys regarding the
underlying EPA action would remain confidential as to the
defendants.”57
In reaching its decision, the district court relied heavily upon
Carrier Corp. v. Home Insurance Co.,58 involving a similar situation, in
which the court reasoned:
Given the fact that the insured is required to disclose to
its insurer relevant information when it makes a claim
for coverage under an insurance policy, and given the
fact that the insured is required to deal in good faith with
its insurers, the insured cannot, in good faith, entertain a
reasonable expectation at the time the communication is
made that the facts underlying those claims will not be
56
145 F.R.D. 18 (D. Conn. 1992).
Id. at 23.
58
No. CV-35-23-83, 1992 WL 478585 (Conn. Sup. Ct. Aug. 18, 1992).
57
The Attorney-Client Privilege and the Work Product Doctrines
19
disclosed to its insurer once a claim for coverage is
made.59
In Carrier Corp., the court recognized the conflict between the
insured’s duty to disclose and to deal in good faith and the insured’s
assertion that the communications at issue were made in strict confidence
and were not to be disclosed.60 The court reconciled this conflict in favor
of the insurer, reasoning that the communications at issue were not made
“with a reasonable expectation of confidentiality.”61
Both the EDO and Carrier Corp. courts rejected the insured’s
contention that once the insurer denies coverage, the insured may use the
attorney-client privilege to shield confidential communications from the
insurer, reasoning as follows:
It should be kept in mind, however, that the plaintiff
insured is demanding that the insurer be held liable on
the insurance policy. If the plaintiff is successful, the
insurer will be required to fulfill its contractual
obligation to the insured. For that reason, an insurer
does not forfeit its right to full and fair disclosure merely
by denying liability under the policy and, further, the
insured’s expectation of confidentiality as to its insurer
does not become reasonable once the insurer denies
coverage if the insured continues to demand coverage
under its contracts for insurance.62
Fundamental to the coverage decision is a determination of the
complete and true facts relating to the insured’s loss. Even without a
duty of good faith and fair dealing, it is arguable that there should not be
an expectation of privacy when the relationship between the parties is
59
Id. at *3, cited in EDO Corp., 145 F.R.D. at 22.
Carrier Corp., 1992 WL 478585, at *4.
61
Id.
62
Carrier Corp., at *4, cited in EDO Corp., 145 F.R.D. at 23. See also,
Allianz Ins. Co. v. Guidant Corp., 869 N.E.2d 1042 (Ill. Ct. App. 2007) (citing
Waste Management, Inc. v. Int’l Surplus Lines Ins. Co., 579 N.E.2d 322 (Ill.
1992)).
60
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Fidelity Law Association Journal, Vol. XIV, October 2008
contemplated to be one of cooperation, rather than of an adversarial
nature. The insured should not be permitted to screen facts from the
insurer through the guise of the attorney-client privilege.
Another line of cases reaching a similar result, but based upon
slightly different reasoning, hold that in the context of third party
insurance, communications between the insured and his lawyer in
connection with the underlying lawsuit against the insured may be shared
with the insurer without waiving the privilege where the insurer has a
common interest in the subject matter of the communications.63 The
common interest involved in these cases is the minimization of exposure
in the underlying lawsuit, which will benefit both the insurer and the
insured. Under such circumstances, the insured does not have a
reasonable expectation of privacy and documents generated in defense of
the underlying lawsuit.64 As the district court recognized in Metro Waste
Water Reclamation Dist. v. Continental Casualty Co.,65 both the insured
and its insurers had, “and continue to have, precisely the same interest in
(a) preventing further claims against [the insured] …, and (b) defeating
or favorably resolving by settlement any such claims.”
The common interest doctrine is applicable in the context of
fidelity bond claims. In every such claim, the insured and bond carrier
have a common interest in determining all facts relevant to the insured’s
loss, in mitigating the insured’s loss and preventing further loss, and in
taking any appropriate action against other parties, such as in filing
lawsuits against an allegedly dishonest employee or customers of the
insured involved in causing the insured’s loss. The same is true where
the insured has been sued as a result of the facts underlying the insured’s
bond claim, such as in a lender liability lawsuit arising from allegedly
dishonest loans made to the customer suing the bank. In all such
situations, the insured and insurer have a common interest in determining
the underlying facts and preventing any further loss. Thus, for instance,
63
See, e.g., Independent Petrochemical Corp. v. Aetna Cas. & Sur. Co.,
654 F. Supp. 1334, 1365 (D.D.C. 1986); Western States Ins. Co. v. O’Hara, 828
N.E.2d 842 (Ill. Ct. App. 2005).
64
See, e.g., Allianz Ins. Co. v. Guidant Corp., 869 N.E.2d 1042 (Ill. Ct.
App. 2007).
65
142 F.R.D. 471, 471-76 (D. Colo. 1992).
The Attorney-Client Privilege and the Work Product Doctrines
21
the insured should not be permitted to shield from its insurer its lawyer’s
report concerning the insured’s claims against third parties, or the
defense of lawsuits, as the insurer has a common interest in such
information. Similarly, the insured should not be able to protect from
disclosure witness summaries or audit or accounting reports prepared by
its lawyers as there similarly is a common interest in such documents.
Another situation that calls into question the insured’s
expectation of confidentiality arises occasionally when the insured
provides part or all of its investigation reports to either the insurer or
other entities. The author has on several occasions, for instance, been
provided with a report from an insured’s lawyer setting forth the facts
surrounding the insured’s loss and opining that the facts give rise to
coverage. Yet, when a request was made for the documents upon which
the report was based, the insured refused to provide them on the basis of
the attorney-client privilege. In such cases, the underlying documents
are usually highly relevant, and typically more complete than those
provided by the lawyer’s report, which typically is limited to those facts
most favorable to the insured’s claim.
A case involving such a situation is Gottlieb v. Wiles.66 In
Gottlieb, current and former employees of MiniScribe Corporation were
interviewed by the company’s lawyers as part of an investigation. Notes
taken during the interviews served as the basis for interview summaries,
as well as a report. The report cited extensively to the interview
summaries and even attached many of them. While the report was
released, the materials relating to the report were not. In finding that
there was no expectation of privacy in the supporting materials, the
district court reasoned:
[T]he sin qua non for invocation of the privilege is that
the communications in question were intended to be
confidential.
Furthermore, one may not release
documents which pervasively cover a particular subject
matter and then claim that the underlying supportive data
is privileged. These limitations on the scope of the
66
143 F.R.D. 241 (D. Colo. 1992).
22
Fidelity Law Association Journal, Vol. XIV, October 2008
privilege are consistent with the principle that the
attorney-client privilege is to be strictly construed.67
C.
Offensive Use of Privilege
An important doctrine that arises occasionally in bond claims is
the offensive use doctrine. The offensive use doctrine recognizes that a
privilege is meant to be used defensively, as a shield against divulging
privileged information, rather than offensively as a sword.68 Thus, when
information otherwise protected by the privilege is placed at issue
through some affirmative act of the owner of the privilege for the
owner’s benefit, the privilege is deemed to have been waived, to hold
otherwise would be manifestly unfair to the party seeking disclosure.69
The doctrine makes sense when it is remembered that the purpose of a
privilege is the “protection of interests and relationships which, rightly or
wrongly, are regarded as of sufficient social importance to justify some
sacrifice of availability of evidence relevant to the administration of
justice.”70 Thus, once the holder of the privilege places the information
at issue, the essential function of the privilege – to protect a confidence –
is no longer served.71
A good discussion of the doctrine is contained in the D.C.
Circuit’s opinion in In re Sealed Case.72 In this case, the court
recognized that even though privileges usually provide categorical
protection from discovery, implied waiver – or the offensive use doctrine
– is one of two common law doctrines which give courts a limited ability
to make sure that privileges do not serve ends to which they were not
67
Id. at 249 (citations omitted).
See, e.g., McGrath v. Nassau County Healthcare Corp., 204 F.R.D.
240, 243 (E.D.N.Y. 2001); Savoy v. Richard A. Carrier Trucking, Inc., 178
F.R.D. 346 (D. Mass. 1998); Rubenstein v. Rubenstein, 851 A.2d 1262, 1267
(Conn. Sup. Ct. 2004).
69
See, e.g., McGraff v. Nassau County Healthcare Corp., 204 F.R.D. at
243 (holding, “accordingly, under the fairness doctrine, parties waive the
attorney-client privilege by ‘asserting a claim that in fairness requires
examination of protected communications.’”).
70
1 MCCORMICK ON EVIDENCE, 269 (4th Ed. 1992).
71
Id. at 342.
72
676 F.2d 793 (D.C. Cir. 1982).
68
The Attorney-Client Privilege and the Work Product Doctrines
23
intended.73 In the court’s words, the doctrine “deals with an abuse of a
privilege itself rather than of a privileged relationship. Where society
has subordinated its interest in a search for truth in favor of allowing
certain information to remain confidential, they need not allow that
confidentiality to be used as a tool for manipulation of the truth seeking
process.74 Quoting Dean Wigmore, the Court continued:
[R]egard must be had to the double elements that are
predicated in every waiver, i.e., not only the element of
implied intention, but also the element of fairness and
consistency. A privileged person would seldom be
found to waive, if his intention not to abandon could
alone control the situation. There is always also the
objective consideration that when his conduct touches a
certain point of disclosure, fairness requires that his
privilege shall cease whether he intended that result or
not. He cannot be allowed, after disclosing as much as
he pleases, to withhold the remainder.75
In Savoy v. Richard A. Carrier Trucking, Inc.,76 the district court,
in the context of an insured having refused to undergo an examination
under oath claiming advice of counsel, is illustrative of the doctrine:
The party is considered as having waived its privilege if
(1) assertion of the privilege was a result of some
affirmative act, such as filing suit, by the asserting party;
(2) through this affirmative act, the asserting party put
the protected information at issue by making it relevant
to the case; and (3) application of the privilege would
have denied the opposing party access to information
vital to his defense.77
73
Id. at 807.
Id.
75
Id. (quoting 8 J. WIGMORE, EVIDENCE IN TRIALS AT COMMON LAW, §
2327, at 636 (J. McNaughton rev. 1961)).
76
178 F.R.D. 346 (D. Mass. 1998).
77
Id. at 350.
74
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And in Pavlinko v. Yale-New Haven Hospital,78 the reasoning of
the Connecticut Supreme Court, in the context of a litigant claiming the
Fifth Amendment privilege, is illustrative of the doctrine:
The privilege against self-incrimination is a
constitutional shield against the person being compelled
to convict himself out of his own mouth. It may not be
used as a sword to deny others information which is
rightfully theirs. A plaintiff cannot use one hand to seek
affirmative relief in court and with the other lower an
iron curtain of silence against otherwise pertinent and
proper questions which may have a bearing upon his
right to maintain his action.79
Finally, in McGrath v. Nassau County Health Care Corp.,80 the
employer retained a lawyer to investigate a sexual harassment complaint
by one of its employees. In the lawsuit that was subsequently filed
against the employer in district court, it defended, in part, on the ground
that it had fully investigated the complaint raised by the plaintiff and had
“exercised reasonable care to prevent and promptly correct any sexually
harassing behavior.”81 Based upon this evidence, the plaintiff sought
discovery of the lawyer’s investigation file. The employer refused to
allow any substantive discovery of the lawyer’s investigation on the basis
of the attorney-client privilege and the work product doctrine. In finding
that the employer had waived its attorney-client privilege and work
product protection, the court reasoned:
Where, as here, an employer defends itself ‘by relying
upon the reasonableness of its response to the victim’s
allegations, the adequacy of the employer’s investigation
becomes critical to the issue of liability. The only way
that Plaintiff, or the finder of fact, can determine the
reasonableness of [the employer’s] investigation is
through full disclosure of the contents thereof.’ And, the
78
470 A.2d 246 (Conn. 1984).
Id. at 251.
80
204 F.R.D. 240 (E.D.N.Y. 2001).
81
Id. at 248.
79
The Attorney-Client Privilege and the Work Product Doctrines
25
fact that the employer ‘chose to enlist its attorney to act
with dual purpose does not provide sufficient basis to
overcome the unfairness of limiting the information it
provides.’ 82
A common issue in fidelity bond claims is determining when the
insured discovered its loss. This determination impacts several issues,
such as which of several bonds is applicable to the insured’s claim,
whether the insured’s notice of loss was timely, and whether coverage
previously terminated as to the allegedly dishonest employee.
Occasionally an insured will discover a loss as a result of the
investigation by the insured’s lawyers. The authors have had the
opportunity to consider more than just an occasional claim in which the
insured argued that discovery of its loss did not occur until the insured
received the investigation report of its outside counsel, often at a board
of directors meeting, notwithstanding the fact that it appeared discovery
should have occurred long before such time. Under such circumstances,
the insured can hardly hold a reasonable expectation that its counsel, or
the applicable board minutes, will remain privileged. To refuse
production in such a situation would clearly constitute an offensive use
of the privilege as a sword, rather than merely as a shield, by attempting
to protect information that the insured has otherwise placed in issue.83
This was precisely the case in Leucadia, Inc. v. Reliance
Insurance Co.84 in which an insured’s loss was reportedly discovered
during an investigation conducted by its lawyers. Reliance Insurance
Company maintained that any privilege applicable to the report was
overcome by “the critical importance of these documents to the
82
Id. (citing, inter alia, Harding v. Dana Transp., Inc., 914 F. Supp.
1084, 1099 (D.N.J. 1996)).
83
See, e.g., Leucadia, Inc. v. Reliance Ins. Co., 101 F.R.D. 674
(S.D.N.Y. 1983) (holding that the insured waived the attorney-client privilege as
to its counsel’s report by relying on that report to establish the date it discovered
its loss (Id. at 679-80)); see also Apex Mun. Fund v. N-Group Sec., 841 F. Supp.
1423, 1431 (S.D. Tex. 1993); Charlotte Motor Speedway, Inc. v. Int’l Ins. Co.,
125 F.R.D. 127, 129 (M.D.N.C. 1989).
84
101 F.R.D. 674.
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litigation.”85 The court recognized that, “[e]ven where the technical
requirements of the privilege are satisfied, it may, nonetheless, yield in a
proper case, where strong public policy requires disclosure.”86
Interestingly, even though the court found that evidence tending to
demonstrate late notice and prior knowledge by the insured which might
have terminated the bond as to the dishonest employee constituted
relevant evidence. Reliance did not demonstrate a “need” for the
documents rising to the level of a strong public policy that would justify
overcoming the privilege. However, the court found a waiver of the
attorney-client privilege to the extent the insured relied upon its
counsel’s report to establish the date it discovered its loss.87 The court
went on to conclude that the report constituted “a necessary element in
plaintiff’s case, or is in any event so critical to plaintiff’s case, that the
privilege must yield.
In the context of this case, counsel’s
communication with plaintiff constituted an important disputed fact
essential to plaintiff’s proof. It cannot be withheld.”88
Similarly, in Apex Municipal Fund v. N-Group Securities,89 the
plaintiff sued a law firm for fraud, alleging that its lawyer had made
misrepresentations when acting as legal counsel to Drexel, Burnham &
Lambert, Inc. in issuing revenue bonds. Plaintiffs attempted to obtain
from the law firm the underlying documents used to prepare certain
public offering statements. The law firm maintained that the attorneyclient privilege protected the documents because they were prepared to
facilitate the rendition of legal services. In response, the plaintiffs
argued that the law firm waived the attorney-client privilege with respect
to all communications regarding the public offering statement through
selective disclosures by the lawyers during their depositions. For
instance, in response to a question during a deposition of one of the
lawyers asking whether competitive bidding was required on the
underlying projects, the lawyer responded by explaining that he had
asked this same question of another one of the lawyers in his firm. Also,
in response to the plaintiff’s allegation that the law firm knew or should
85
Id. at 679.
Id.
87
Id.
88
Id. at 680.
89
841 F. Supp. 1423.
86
The Attorney-Client Privilege and the Work Product Doctrines
27
have known of material misrepresentations and omissions in the public
offering statements, the lawyer maintained it was the view of all lawyers
working on the transaction that they were not required to make any
disclosures.
The district court found that the defendant lawyers did not
merely deny the plaintiff’s allegations, but also injected into the case
their own understanding and interpretation of the law in order to deny
any fraudulent intent on their part. The court ruled that because the
defendants inserted their own understanding of the law as a basis for the
reasonableness of its actions, the attorney-client privilege had been
waived with respect to those topics.90 The court reasoned: “When
confidential communications are made a material issue in a judicial
proceedings, fairness demands treating the defense as a waiver of the
privilege.”91
The offensive use doctrine has also been relied upon in the
context of directors and officers insurance cases to require directors and
officers to divulge advice they received from their counsel in settling an
underlying lawsuit against them. For instance, in Charlotte Motor
Speedway, Inc. v. International Insurance Co.,92 the minority
shareholders of Charlotte Motor Speedway sued the directors of the
company for various security law violations following a merger.
Following settlement of the case, International was sued on its policy to
recover the amount paid in settlement. International defended on various
grounds, including the ground that the settlement of the underlying
lawsuit was not reasonable. The issue before the court was whether
International would be permitted to obtain the work product of the
lawyers representing the defendant directors in the underlying action in
order to determine their views concerning the reasonableness of the
settlement. Plaintiff took the position that production was not required
because of the work product doctrine (although they could have also
have argued application of the attorney-client privilege). The court
found an implied subject matter waiver, reasoning that, “the activities
and advice of plaintiff’s counsel in settlement of the underlying action
90
Id. at 1431.
Id. (quoting Conkling v. Turner, 883 F.2d 431, 435 (5th Cir. 1989)).
92
125 F.R.D. 127 (M.D.N.C. 1989).
91
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are inextricably interwoven with the issue of International’s liability
under the Policy. Specifically, the discovery of the nature of these
activities of counsel goes to whether [the insured] met its obligation
under the policy in constructing the settlement agreement and whether it
reached the agreement in good faith.”93 The same reasoning is
applicable to litigation in the context of fidelity bond claims.
D.
Conclusion
In summary, the attorney-client privilege will seldom constitute
a valid basis for an insured to withhold information from its insurer
during the investigation of a fidelity bond claim. As discussed above,
there simply can be no legitimate expectation of privacy concerning facts
pertinent to an insured’s loss. Retaining a lawyer to conduct the
investigation neither changes this point nor magically provides protection
over facts which fall outside the privilege in most cases. Importantly, the
insured certainly should not be permitted to utilize the privilege as a
shield to hide behind in order to protect from discovery information used
to establish its claim.
III.
THE WORK PRODUCT DOCTRINE
The other significant evidentiary privilege most often relied upon
by insureds and insurers alike is the work product doctrine. An insured
might invoke the doctrine in order to protect from discovery those
documents created by its lawyers, either during the investigation stage of
a claim, in the ordinary course of its business while protecting itself
against fraud, or because it anticipated litigation with the insurer or with
a third party, such as a dishonest employee or possibly a former
customer. But as with the attorney-client privilege, there are very few
fidelity bond claims in which an insurer can justifiably raise the work
product doctrine in order to protect from disclosure to the insurer
documents that could have an impact on the insurer’s determination of
93
Id. at 129; see also Chevron Corp. v. Pennzoil Co., 974 F.2d 1156,
1162 (9th Cir. 1992); Potomas Elec. Power Co. v. Calif. Union Ins. Co., 136
F.R.D. 1, 4-5 (D.D.C. 1990); United States v. Mierzwicki, 500 F. Supp. 1331,
1335 (D. Md. 1980).
The Attorney-Client Privilege and the Work Product Doctrines
29
coverage. Similarly, with regard to an insurer’s invocation of the work
product doctrine, those materials created by it before the insured’s claim
is denied are generally considered not protected, and fully discoverable.
A.
Work Product in General
Although often intertwined, the attorney-client privilege and
work product doctrine are independent principles which are applied quite
differently. Whereas the attorney-client privilege was founded to
encourage free and frank discussions between the lawyer and his client,
the work product doctrine is premised on ensuring that a party and a
party’s representatives, including its lawyers, are encouraged to carefully
and thoroughly prepare for or anticipate litigation. Thus, the work
product doctrine is broader in scope than the attorney-client privilege in
that all of the work product of an attorney after anticipation of litigation
is protected, not merely communications, as with the attorney-client
privilege. But as noted, the work product doctrine applies only to those
documents prepared in anticipation of litigation.
As with any
evidentiary privilege, the burden of establishing the proper application of
the work product doctrine is squarely on the party asserting it.94
Any analysis of the work product doctrine must begin with the
seminal United States Supreme Court opinion in Hickman v. Taylor.95 In
that case, representatives of five deceased crew members of a tug boat
that sank sued the owner and its insured. The plaintiffs sought, by
interrogatories, to obtain witness statements obtained by the defendants’
attorney. The defendants refused to turn over any written witness
statements and refused to set forth the details of oral statements, and
continued to refuse to produce this information even after the district
court ordered them to on the plaintiffs’ motion to compel. The district
court was reversed by the Third Circuit Court of Appeals, which held
that the statements constituted work product of the defendants’ attorney.
The Supreme Court disagreed, finding a great divergence of opinion
among the district courts on whether an attorney’s work product, as
94
See, e.g., In re Columbia/HCA Healthcare Corp. Billing Practices
Litig., 293 F.3d 289, 294 (6th Cir. 2002).
95
329 U.S. 495 (1947).
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opposed to confidential communications, was protected by the Federal
Rules of Civil Procedure.
The court acknowledged that the Federal Rules of Civil
Procedure were adopted in order to change the way litigation proceeded
in the federal courts. Trial by ambush would no longer be tolerated:
“mutual knowledge of all the relevant facts gathered by both parties is
essential to proper litigation.”96 The Court also found that the witness
statements were not covered by the attorney-client privilege and were not
protected from discovery on that ground:
The protected cloak of this privilege does not extend to
information which an attorney secures from a witness
while acting for its client in anticipation of litigation.
Nor does this privilege concern the memoranda, briefs,
communications and other writings prepared by counsel
for its own use in prosecuting his client’s case; and it is
equally unrelated to writings which reflect an attorney’s
mental impressions, conclusions, opinions or legal
theories.97
Nevertheless, the Court recognized the importance of an attorney’s
privacy in developing these materials: “not even the most liberal of
discovery theories can justify unwarranted inquiries into the files and the
mental impressions of an attorney.”98
According to the Court, the proper preparation of a client’s case
requires that the attorney be “free from unnecessary intrusion by
opposing parties and their counsel.”99 Proper preparation includes
assembling information, sifting it for what is relevant and important, and
preparing legal theories and planning strategy based on that information.
The Court recognized, at least implicitly, the two strains of work product
currently recognized; so called “ordinary” work product and “opinion” or
“core” work product. According to the Court, without protection for
96
Id. at 507.
Id. at 508.
98
Id. at 510.
99
Id. at 511.
97
The Attorney-Client Privilege and the Work Product Doctrines
31
these tasks, especially the mental impressions of the attorney, much of
the attorney’s work would not be written down, and an attorney’s
thoughts, which the Court found should be held inviolate, would not be
the attorney’s own.100 The effect on the profession, said the Court,
would be demoralizing, and the interest of “clients and the cause of
justice would be poorly served.”101
Of course, not all written materials obtained or prepared by
counsel are, by the fact that they are in an attorney’s file and compiled in
anticipation of litigation, to be free from discovery in all cases. The
Court found that, in extreme circumstances, production of attorney work
product would be warranted: “where relevant and nonprivileged facts
remain hidden in an attorney’s file and where production of those facts is
essential to the preparation of one’s case, discovery may properly be
had. . . . And production might be justified where the witnesses are no
longer available or can be reached only with difficulty.”102 The Court
placed this heavy burden on the party seeking production to come
forward with sufficient reason to justify production:
The general policy against invading the privacy of an
attorney’s course of preparation is so well-recognized
and so essential to an orderly working of our system of
legal procedure that a burden rests on the one who would
invade that privacy to establish adequate reasons to
justify production through a subpoena or court order.
That burden, we believe, is necessarily implicit in the
rules as now prosecuted.103
Three main points follow from Hickman: (1) material collected by
counsel in the course of preparation for possible litigation is protected
from disclosure; (2) that protection is qualified, in that the adversary may
obtain discovery by showing sufficient need for the material; (3) the
attorney’s thought process is at the heart of the adversary system and
privacy is essential for the attorney’s thinking; thus the protection is
100
Id.
Id.
102
Id.
103
Id. at 512.
101
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greatest, if not absolute, for materials that would reveal the attorney’s
opinions and thought processes.
B.
Applicable Law
The work product doctrine, as the Supreme Court pointed out in
Hickman, is not a true evidentiary privilege.104 Rather, it is a common
law doctrine that recognizes that certain requests for documents, if
granted, would “contravene the public policy underlying the orderly
prosecution and defense of legal claims.”105 In cases in federal court, the
doctrine has been codified by Rule 26(b)(3) of the Federal Rules of Civil
Procedure.106 Cases grounded on diversity jurisdiction are governed by
the Federal Rules, rather than by state principles of privilege as provided
by Rule 501 of the Federal Rules of Evidence.107 Most state rules of civil
procedure are similar to Rule 26, which provides, in pertinent part, as
follows:
(A) Documents and Tangible Things. Ordinarily, a
party may not discover documents and tangible things
that are prepared in anticipation of litigation or for trial
by or for another party or its representative (including
the other party’s attorney, consultant, surety, indemnitor,
insurer, or agent). But, subject to Rule 26(b)(4), those
materials may be discovered if: (i) they are otherwise
discoverable under Rule 26(b)(1); and (ii) the party
shows that it has substantial need for the materials to
prepare its case and cannot, without undue hardship,
obtain their substantial equivalent by other means.
(B) Protection Against Disclosure. If the court orders
discovery of those materials, it must protect against
disclosure of the mental impressions, conclusions,
104
Hickman, 329 U.S. at 509-510.
Id. at 510.
106
FED. R. CIV. P. 26(b)(3).
107
Fed. R. Evid. 501.
105
The Attorney-Client Privilege and the Work Product Doctrines
33
opinions, or legal theories of a party’s attorney or other
representative concerning the litigation.108
The Rule differs from the doctrines set forth in Hickman v. Taylor in
several key respects: (1) its application is limited to pretrial discovery;
(2) it protects materials prepared by a party’s representative, other than
the party’s attorney; and (3) it relates only to discovery of “documents
and tangible things.”109
In sum, Rule 26(b)(3) provides qualified immunity from
discovery where materials are: (1) documents and tangible things
otherwise discoverable; (2) prepared in anticipation of litigation or for
trial; and (3) by or for another party or by or for the other party’s
representative. To overcome the qualified immunity, the party seeking
discovery must make a showing of (1) substantial need for the materials
to prepare its case, and (2) an inability to obtain the substantial
equivalent by other means without undue hardship. And in any event,
special protection is given to a lawyer’s “mental impressions,
conclusions, opinions, or legal theories of a party’s attorney or other
representative concerning the litigation.”110
C.
Anticipation of Litigation
By far the most heavily litigated aspect of the work product
doctrine centers on whether the documents and other tangible things
sought to be discovered were prepared in anticipation of litigation. This
concept has proved to be somewhat elusive, evidenced by the fact that
several tests have been created by courts in order to determine whether
“the anticipation of litigation” requirement has been met. An insurer
must be prepared to familiarize itself with the tests followed in the
jurisdiction in which a claim or lawsuit is being investigated or pending.
What does it mean then, to create a document “in anticipation of
litigation?” Some courts hold that a document prepared under
“substantial and imminent” or “fairly foreseeable” threat of litigation is
108
FED. R. CIV. P. 26(b)(3).
Id.
110
FED. R. CIV. P. 26(b)(3)(B).
109
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Fidelity Law Association Journal, Vol. XIV, October 2008
prepared in anticipation thereof.111 Other courts look at the totality of
circumstances surrounding the document’s creation in an attempt to
determine whether the document was created “because of” anticipated
litigation.112 At least two courts have determined that the “because of”
standard will protect so-called dual purpose documents — documents
that were produced while the party had an objectionably reasonable
belief in imminent litigation, but where the document would have been
produced in the ordinary course of the party’s business even absent
anticipation of litigation.113 According to the Ninth Circuit Court of
Appeals, the “because of” standard looks at the totality of circumstances
surrounding the document’s creation, and does not consider whether
litigation was the “primary” or “secondary” motive.114 Other courts that
have employed the “because of” standard, however, have determined that
if a document would have been produced in the ordinary course of
business, the fact that litigation was anticipated does not render that
document protected by the work product doctrine.115 Still other courts
have attempted to determine whether the “primary motivating factor” in
the document’s creation was anticipation of litigation. Obviously, with
the lack of a uniform standard governing whether litigation is anticipated
in federal court, much less in state court, the insurer is well-advised to
determine early on the standard and application used in the jurisdiction in
which it is investigating and/or defending a claim.
D.
Investigating the Insured’s Claim
It should be the rare fidelity bond claim in which an insured
raises the work product doctrine in refusing to produce documents to its
insurer. Indeed, an insured would do well to provide to an insurer all
111
See Kidwiler v. Progressive Palo Verde Ins. Co., 192 F.R.D. 536,
542 (N.D. W. Va. 2000).
112
See, e.g., In re Grand Jury, 357 F.3d 900, 909-10 (9th Cir. 2004);
accord, PepsiCo, Inc. v. Baird, Kurtz & Dobson, LLP, 305 F.3d 813 (8th Cir.
2002).
113
See In re Grand Jury, 357 F.3d at 909-10.
114
Id. at 909.
115
See Cont’l Cas. Co. v. Marsh, No. 01 V 0160, 2004 WL 42364
(N.D. Ill. Jan. 6, 2004); St. Paul Rein. Co., Ltd. v. Commercial Fin. Corp., 197
F.R.D. 620, 629 (N.D. Iowa 2000).
The Attorney-Client Privilege and the Work Product Doctrines
35
evidence that it has that conduct covered by a fidelity bond or
commercial crime policy has occurred and that the insured has sustained
a covered loss. Nevertheless, circumstances arise where an insured may
feel that it is in its best interest to withhold information from an insurer
investigating the insured’s claim, either because that information shows
that no loss occurred, or because discovery of the loss occurred before
the date claimed by the insured. In such a case, the late notice, late proof
of loss, suit limitations, and termination of coverage provisions of a bond
might bar coverage for the insured’s otherwise-covered claim.
Nevertheless, when litigation breaks out, all of those materials should be
discoverable by the insurer. Indeed, all materials created by the insured
during its investigation of the claim should be discoverable because in
most cases an insured cannot reasonably anticipate litigation prior to the
insurer’s denial of coverage. This is precisely the basis of the district
court’s decision to overrule the insured’s objection to producing its
underlying claim file in EDO Corp. v. Newark Insurance Co.116 In EDO
Corporation the court recognized that a line should be drawn at the point
when the insured receives notice that its claim has been denied. Before
that time, the court reasoned, the insured “lacked a reasonable basis to
anticipate litigation with the [insurers].”117
In a first party indemnity context, courts have held that until the
insurer denies the insured’s claim, the interest of the insured and the
insurer are aligned.118 Unlike the third-party liability context, the insured
in a first-party indemnity claim is not facing a claim brought against it
by a third party, but rather is asserting coverage based on the conduct of
its employees. Thus, there is a presumption that any materials prepared
prior to denial of the claim have been prepared in the ordinary course of
an insured’s investigation and are, therefore, not protected by the work
product doctrine.119 An insurer’s consideration of a claim is not, and
never was, intended to resemble an adversary proceeding. Unlike
discovery in a lawsuit, an insurer’s investigation of a claim is indeed
116
145 F.R.D. 18, 24 (D. Conn. 1992).
Id.
118
See, e.g., Taylor v. Travelers Ins. Co., 183 F.R.D. 67 (N.D.N.Y.
117
1998).
119
Royal Surplus Lines Ins. Co. v. Sofamor Danek Group, Inc., 190
F.R.D. 463 (W.D. Tenn. 1999).
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Fidelity Law Association Journal, Vol. XIV, October 2008
intended to enable it to perform its functions “on wits borrowed from”
the insured.120 Thus, except in those limited situations where the
information sought from the insured was prepared specifically in
anticipation of litigation, it makes no sense to keep it from the insurer on
the basis of the work product doctrine.
Similarly, and as many courts have noted, an insurance
company’s business, by definition, includes the investigation of an
insured’s claim. Under the rubric of the work product doctrine,
investigative materials and reports created before the insurer has denied
the claim are not created with the reasonable anticipation of litigation.121
In the fidelity bond claim context, however, the insured’s investigation
may be limited to considering the proof submitted by the insured, or it
can be more involved. But, unlike the property and casualty claim, such
investigations are seldom routine. In any event, the inquiry in each case
must not be guided by the fact that investigations are or are not regularly
performed, but rather by focusing on whether there was a basis upon
which the insurer did reasonably anticipate litigation resulting from the
claim.
E.
Anticipation of Litigation with Others
Occasionally an insured will argue that it cannot provide the
insurer various documents because they were prepared, not in
anticipation with the insurer, but instead in anticipation with the
allegedly dishonest employee or other third parties involved with the
insured’s loss. Courts are split on whether documents are protected
under such circumstances. Some courts hold that the work product
doctrine applies only to documents prepared in anticipation of the claims
at issue, and that documents prepared in anticipation of another lawsuit
are freely discoverable.122 Both Hickman v. Taylor and Rule 26 leave
this issue open. However, like the U.S. Supreme Court’s decision in
120
Hickman, 329 U.S. at 516.
See, e.g., U.S. Fire Ins. Co. v. Bunge N.A., Inc., 247 F.R.D. 656,
659 (D. Kan. 2007); Taylor, 183 F.R.D. at 69-70.
122
See Charles Alan Wright, Arthur R. Miller & Richard L. Marcus, 8
Federal Practice and Procedure § 2024 at 350 (2d ed. 1994).
121
The Attorney-Client Privilege and the Work Product Doctrines
37
Federal Trade Commission v. Grolier, Inc.,123 most lower federal courts
have liberally applied the doctrine regardless of whether the documents
were prepared in anticipation of the subject lawsuit, or another.124
One case following Grolier is In re Grand Jury,125 in which the
Fifth Circuit determined that documents created during a seizure action
by the government were protected in a subsequent grand jury
investigation into money laundering which was related to the seizure.
The court noted that although work-product documents are protected in
subsequent litigation, there was a split of authority on whether such
subsequent litigation must be closely related to the instant litigation in
order to be protected.126 Finding that it did not need to choose between
these positions, the Fifth Circuit reversed the district court and held that
the documents were protected by the work-product doctrine:
The original litigation for which the documents were
prepared involved the seizure of the Green Mountain
portfolio pursuant to a criminal investigation of money
laundering by Aguirre. The grand jury investigation for
which the documents are now being sought is merely a
broadened investigation of money laundering by Aguirre
123
462 U.S. 19, 26 (1983) (for purpose of requests under the Freedom
of Information Act, protection under the doctrine existed with respect to
subsequent litigation whether or not the later case was “related” to the case in
which the material was originally prepared).
124
See, e.g., In re Grand Jury, 43 F.3d 966, 971 (5th Cir. 1994);
Velsicol Chem. Corp. v. Parsons, 561 F.2d 671, 676, n.3 (7th Cir. 1977), cert.
denied, 435 U.S. 942 (1978); In re Murphy, 560 F.2d 326, 334-35 (8th Cir.
1977); U.S. v. Leggett & Platt, Inc., 542 F.2d 655, 660 (6th Cir. 1976); Duplan
Corp. v. Moulinage et Retorderie de Chavanoz, 487 F.2d 480, 483-84 (4th Cir.
1973). But see, Southern Union Co. v. Southwest Gas Corp., 205 F.R.D. 542,
549 (D. Ariz. 2002); Puerto Rico v. S.S. Zoe Colocotroni, 61 F.R.D. 653, 658689 (D.P.R. 1974).
125
43 F.3d 966 (5th Cir. 1994).
126
Id. at 971, citing In re Grand Jury, 604 F.2d 798, 803-04 (3d Cir.
1979) (holding that the litigation anticipated in prior-created work-product
documents must have been “closely related” to the instant litigation) and U.S. v.
Pfizer, Inc., 560 F.2d 326, 335 (8th Cir. 1977) (work-product documents
protected in all subsequent litigation, related or not).
38
Fidelity Law Association Journal, Vol. XIV, October 2008
and others. . . . Accordingly, whichever view of the
temporal scope of the work product privilege one
prefers, it is clear that the documents sought in this case
are still protected by the work product privilege.127
Federal cases declining to extend work-product protection to
documents prepared in anticipation of prior litigation are few and not
well-reasoned. In one, Southern Union Co. v. Southwest Gas Corp.,128
the district court held that although documents were prepared in
anticipation of litigation before an administrative tribunal, those
documents were not protected from discovery in the instant, subsequent,
civil suit:
Thus, the proponents of the privilege have not
established that the documents, which were purportedly
prepared in anticipation of proceedings before the
[administrative tribunal], can be protected in this
litigation because it is not proceedings [sic] before the
[administrative tribunal].129
The court in that case also found that the documents at issue were socalled dual-use documents, at it appears that the court’s holding may
have been influenced by the fact that the documents had been prepared
for the defendant’s board of directors.130
Not all states follow the liberal rule announced in Grolier,131 and
as with all of the issues presented in this article, the insurer must consider
the applicable law in the jurisdiction in which the claim or lawsuit is
pending.
127
In re Grand Jury, 43 F.3d at 971.
205 F.R.D. 542 (D. Ariz. 2002).
129
Id. at 549.
130
Id.
131
See, e.g., Doubleday v. Ruh, 149 F.R.D 601 (E.D. Cal. 1993);
Bennett v. Troy Record Co., 25 A.D.2d 799, 801 (N.Y. App. Div. 1966).
128
The Attorney-Client Privilege and the Work Product Doctrines
F.
39
Offensive Use of Doctrine
As with offensive use of the attorney-client privilege, offensive
use of the work product doctrine may also result in a waiver of the right
to raise the doctrine. For instance, in the case of Frontier Refining, Inc.
v. Gorman-Rupp Co.,132 the plaintiff argued that documents prepared in
order to settle underlying claims were protected from production in
subsequent indemnity actions. In that case, the court surveyed federal
authority on whether documents prepared in anticipation of prior
litigation were protected by the work product doctrine in subsequent
litigation. According to the court, a majority of federal circuits will
accord work product doctrine protection to documents created in
anticipation of prior litigation.133 Nevertheless, the court held that if a
party was going to bring an indemnity action in which the settlement was
at issue, then those documents created for settlement purposes in the
prior litigation would not be protected because the party was using the
prior settlement as evidence of its right to indemnity: “a litigant cannot
use the work product doctrine as both a sword and a shield by selectively
using the privileged documents to prove a point but then invoking the
privilege to prevent an opponent from challenging the assertion.”134
Similarly, in Charlotte Motor Speedway, Inc.,135 the court
explained:
[T]he activities of the counsel employed by [the insured]
in the underlying action are directly in issue here for
they are the only means of discovering whether [the
insured] met its obligations under the insurance contract
and reached its settlement agreement in good faith. The
settlement materials are therefore critical to [the
insurer’s] defense. As the courts which have addressed
this issue indicate, these circumstances warrant the
132
See, e.g., Frontier Refining, Inc. v. Gorman-Rupp Co., 136 F.3d 695
(10th Cir. 1998).
133
Id. at 703-704 (discussing cases from the Second, Third, Fourth,
Fifth, Sixth, and Eighth Circuit Courts of Appeals).
134
Id. at 704.
135
125 F.R.D. at 131.
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Fidelity Law Association Journal, Vol. XIV, October 2008
application of a narrow exception to Rule 26(b)(3) for
the information from which protection is sought is
directly in issue.136
In summary, as with the attorney-client privilege, the work
product doctrine should seldom serve as support for an insured’s refusal
to provide information concerning its loss to the insurer. Very seldom
will the insured be conducting an investigation with the legitimate belief
that the insurer will deny a claim that might or might not eventually be
submitted, and thus end up in litigation with the insurer.
Another brand of the “offensive use” doctrine is the “advice of
counsel” defense. Several courts have held that invocation of an advice
of counsel defense waives work product protection for those documents
created by the party on the advice of counsel.137
G.
Other Considerations
Once litigation is underway, it goes without saying that
documents created by a party or a party’s representative, including the
party’s counsel, should be protected from discovery by the work product
doctrine. Especially important in this regard, of course, are the
attorney’s mental impressions and thought processes. One area in which
the tension between discoverability of work product becomes heightened
is in pretrial depositions where an attorney has prepared the witness by
providing a selection of documents to review, which counsel may have
culled from numerous documents produced in the case, and which
represent what counsel believes are the important documents for her
client’s case. Discovery of the grouping and selection of documents
becomes particularly contentious because of the confusing interplay
between Rule 26(b)(3) and Rule 612(2) of the Federal Rules of Evidence.
That Rule provides that documents shown to a witness to refresh his or
her memory before testifying are discoverable by the opposing side upon
a showing that justice requires their production:
136
Id. at 131.
See, e.g., Cornett Mgmt. Co., LLC v. Lexington Ins. Co., No. 5:04CV-22, 2007 WL 1140253 (N.D. W.Va. Apr. 17, 2007); Robertson v. Allstate
Ins. Co., No. Civ. A. 98-4909, 1999 WL 179754 (E.D. Pa. Mar. 10, 1999).
137
The Attorney-Client Privilege and the Work Product Doctrines
41
Writing used to refresh memory. Except as otherwise
provided in criminal proceedings by Section 3500 of
Title 18, United States Code, if a witness uses a writing
to refresh memory for the purpose of testifying, either
(1) while testifying, or (2) before testifying, if the court
in its discretion determines it is necessary in the interest
of justice, an adverse party is entitled to have the writing
produced at the hearing to inspect it, to cross-examine
the witness thereon, and to introduce into evidence those
portions which relate to the testimony of the witness. If
it is claimed that the writing contains matters not related
to the subject matter of the testimony, the court shall
examine the writing in camera, excise any portions not
so related, and order delivery of the remainder to the
party entitled thereto. Any portion withheld over
objections shall be preserved and made available to the
appellate court in the event of an appeal. If a writing is
not produced or delivered pursuant to order under this
rule, the court shall make any order justice requires,
except that in criminal cases when the prosecution elects
not to comply, the order shall be one striking the
testimony or, if the court in its discretion determines that
the interest of justice so require, declaring a mistrial.138
Traditionally, production was limited to those documents actually relied
upon by the witness while testifying; Rule 612(2), on the other hand,
leaves it to the discretion of the courts to determine whether production
is warranted in a given case. Some courts have even viewed Rule 612(2)
as providing a general waiver of privilege with regard to any document
shown to a witness by counsel.139
The better reasoned approach, however, is embodied by the
Third Circuit’s opinion in Sporck v. Piel,140 is that the rule should be
138
Fed. R. Evid. 612.
See, e.g., James Julian, Inc. v. Raytheon Co., 93 F.R.D. 138 (D. Del.
1982); Berkey Photo, Inc. v. Eastman Kodak Co., 74 F.R.D. 613 (S.D.N.Y.
1977).
140
759 F.2d 312 (3d Cir. 1985).
139
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harmonized such that those documents shown to a witness are
discoverable, but only during the course of a deposition. In other words,
deposing counsel should not be able to ask of a witness, at the beginning
of his or her deposition, “what documents have you reviewed for your
deposition today?” An answer to that question could clearly reveal the
attorney’s thought processes when the attorney has provided the
documents to the witness to review before a deposition. As the Sporck
court noted:
In seeking identification of all documents reviewed by
petitioner prior to asking petitioner any questions
concerning the subject matter of the deposition,
respondent’s counsel failed to establish either that
petitioner relied on any documents in giving his
testimony, or that those documents influenced his
testimony. Without first soliciting the testimony, there
existed no basis for asking petitioner the source of that
testimony.141
The work product doctrine does not protect everything an
attorney shows to a witness before testifying in all cases. For instance,
materials that were selected by a third party – arguably such a selection
would not implicate the attorney’s work product.142 A selection of
documents also may not reveal the thought processes of counsel where
the selected documents are voluminous. For instance, in In re Shell Oil
Refinery,143 a document clearinghouse was set up and 660,000
documents were deposited therein.
Plaintiff’s counsel selected
approximately 65,000 of those documents for copying. The court, on
motion to compel, troublingly noted that counsel had “no justifiable
expectation” that whatever mental impressions were revealed by the
selection of the 65,000 documents would remain private: “The fact that
the PLC had selected certain documents will ultimately be revealed
either in depositions, interrogatories, or exhibit lists.”144 Without further
analysis, the court found that it was highly unlikely that counsel’s trial
141
Id. at 318.
Bohannon v. Honda Motor Co., 127 F.R.D. 132 (D. Kan. 1987).
143
125 F.R.D. 132 (E.D. La. 1989).
144
Id. at 134.
142
The Attorney-Client Privilege and the Work Product Doctrines
43
strategy or legal theories would be revealed by the selection of 65,000
documents out of 660,000, and that the interest of convenience and
economy of resources outweighed the need for a protective order.145
H.
Conclusion
In summary, as with the attorney-client privilege, the work
product doctrine should seldom serve as support for an insured’s refusal
to provide information concerning its loss to the insurer. Very seldom
will the insured by conducting an investigation with the legitimate belief
that the insurer will deny a claim that might or might not eventually be
submitted, and thus end up in litigation with the insurer. Similarly,
however, an insurer should never take for granted that materials prepared
or created prior to the denial of an insured’s claim will be protected from
discovery by the work product doctrine. Given the conflicting state of
authority on the issue, even an insurer’s post-claim denial documents
may be discoverable where the documents would have been created in
the ordinary course of the insurer’s business in any event.
IV.
COOPERATION CLAUSE:
THE CORNERSTONE OF THE RELATIONSHIP
As noted above, it is seldom in an insured’s best interest to
withhold information from its insurer in the fidelity claim context. An
insured stands a much better chance of having its claim granted to the
extent it substantiates its loss. Indeed, regardless of whether the
attorney-client privilege or work product doctrine applies to an insured’s
request for information, almost all modern fidelity bonds contain a
cooperation clause, and, therefore, there will be very few instances where
the insured should be permitted to withhold from the insurer any
documents or other information relevant to the insurer’s investigation of
the insured’s claim. When the standard form Banker’s Blanket Bond
was revised in 1980, the cooperation clause was added.146 The provision
145
Id.
Bankers Blanket Bond, Standard Form No. 24 (revised July 1980),
reprinted in Standard Forms of the Surety Ass’n of Am.
146
44
Fidelity Law Association Journal, Vol. XIV, October 2008
remained when the standard form bond was revised in 1986, and now
reads as follows:
(d) Upon the underwriter’s request and at reasonable
times and places designated by the underwriter, the
insured shall: (1) submit to examination by the
underwriter and subscribe to the same under oath; (2)
produce for the underwriter’s examination all pertinent
records; and (3) cooperate with the underwriter in all
matters pertaining to the loss.
(e) The insured shall execute all papers and render
assistance secure to the underwriter the rights and causes
of action provided herein. The insured shall do nothing
after discovery of loss to prejudice such rights or causes
of action.147
Cases discussing the cooperation clause in the context of fidelity
claims remain few.148 But there are numerous decisions enforcing
similar provisions in fire policies, and more recently, environmental and
directors and officers’ insurance policies. These decisions, particularly
the ones enforcing the clause over an insured’s objection to providing
documents or to submitting to a sworn examination on the basis of the
Fifth Amendment of the United States Constitution, are persuasive
authority for application of the cooperation clause in fidelity bonds to
override objections to producing information based upon the attorneyclient privilege or the work product doctrine.
147
Financial Institution Bond, Standard Form No. 24 (revised January
1986), reprinted in Standard Forms of the Surety Association of America
(Surety Association of America). The clause is essentially the same in the 2004
SFAA standard form bond, although the cooperation clause now is in its own
Section 8, thereby highlighting its importance. Financial Institution Bond,
Standard Form No. 24 (revised April 2004), reprinted in HANDLING FIDELITY
BOND CLAIMS 697 (Michael Keeley and Sean Duffy eds. 2005).
148
See, Mercedes-Benz of N.A. v. Hartford Accident & Indem. Co.,
974 F.2d 1342 (9th Cir. 1992); East Attucks Cmty. Hous., Inc. v. Old Republic
Sur. Co., 114 S.W.3d 311 (Mo. Ct. App. 2003).
The Attorney-Client Privilege and the Work Product Doctrines
A.
45
Historical Perspective
Since the early 1900s, the standard form fire insurance policy
has included a cooperation clause that is very similar to the one found in
the Financial Institution Bond, Standard Form No. 24. In particular, the
standard clause provides:
The insured, as often as may be reasonably required,
shall exhibit to any person designated by this company
all that remains of any property herein described and
submit to examinations under oath by any person named
by this company, and subscribe the same; and, as often
as may be reasonably required, shall produce for
examination all books of account, bills, invoices, and
other vouchers, or certified copies thereof if originals be
lost, at such reasonable time and place as may be
designated by this company or its representative and
shall permit abstracts and copies thereof to be made.149
The purpose of such cooperation clauses is to enable the insurer to
thoroughly investigate losses where the cause of the fire is at issue, or
where the loss appears to have been exaggerated by the insured.150 As
early as 1884, the United States Supreme Court recognized the sweeping
nature of cooperation clauses, reasoning:
The object of the provisions in the policies of insurance
. . . was to enable the company to possess itself of all
knowledge, and all information as to other sources and
means of knowledge, in regard to the facts, material to
their rights, to enable them to decide upon their
obligations, and to protect them against false claims.
And every interrogatory that was relevant and pertinent
in such an examination was material, in the sense that a
James Knoll, Examinations Under Oath: The Insurance Company’s
Best Friend, 16 The FORUM 777 (Spring 1981).
150
Id. at 778.
149
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true answer to it was of the substance of the obligation
of the assured.151
The court’s reasoning in Claflin is persuasive. The cooperation
clause clearly entitles the insurer to discover all facts surrounding a loss,
and arguably extends even further, to the opinions of investigators and
counsel. Although insureds have attempted to avoid the reach of
cooperation clauses, their efforts have been largely unsuccessful.
Indeed, the authoritative weight of Claflin can hardly be
overstated. Since the Supreme Court’s holding over a century ago,
courts have consistently enforced cooperation clauses in liability
policies.152 The correctness of Claflin’s analysis is evidenced by the fact
that modern courts enforce cooperation clauses for precisely the same
reasons. As one court opined:
The reason for including the cooperation clause in the
policy and for conducting examinations pursuant to it is
obvious enough. The company is entitled to obtain,
promptly and while the information is still fresh, ‘all
knowledge, and all information as to other sources and
means of knowledge, in regard to the facts, material to
their rights to enable them to decide upon their
obligations, and to protect them against false claims
. . . .153
Application of the cooperation clause is almost commonsensical.
For instance, in Ausch v. St. Paul Fire & Marine Insurance Co.154 the
insured refused several requests to appear at an examination under oath
151
Claflin v. Commonwealth Ins. Co., 110 U.S. 81, 94-95 (1884).
See, e.g., Talley v. State Farm Fire and Cas. Co., 223 F.3d 323 (6th
Cir. 2000); Galindo v. ARI Mut. Ins. Co., 203 F.3d 771 (11th Cir. 2000); Powell
v. United States Fid. and Guar. Co., 88 F.3d 271 (4th Cir. 1996); Pervis v. State
Farm Fire and Cas. Co., 901 F.2d 944 (11th Cir. 1990), cert. denied, 498 U.S.
899 (1990); Laine v. Allstate Ins. Co., 355 F. Supp. 2d 1303 (N.D. Fla. 2005); 8
J. APPLEMAN, INSURANCE LAW AND PRACTICE, § 4771 (1981).
153
Talley, 223 F.3d at 325 (quoting Claflin, 110 U.S. at 94-95).
154
511 N.Y.S.2d 919 (N.Y. App. Div. 1987).
152
The Attorney-Client Privilege and the Work Product Doctrines
47
and to supply information regarding his financial status in violation of
the cooperation clause. The court concluded:
Moreover, the plaintiffs have not satisfactorily explained
Abbey’s failure to provide the defendant with material
and relevant documentation relating to its financial
status at the time of the fire, in further breach of the
cooperation clause. This is not a case where the
insured’s attempt to comply has fallen short through
some ‘technical and unimportant omissions or defects,’
to warrant a finding that ‘substantially performed its
obligation to cooperate.’ Rather, the record is indicative
of a pattern of noncooperation and avowed
obstruction.155
Occasionally, however, an insurer’s right to insist upon the cooperation
of its insured may run up against the insured’s constitutional rights under
the Fifth Amendment.
B.
Fifth Amendment Cases
An occasional issue in liability policies is whether the insured
committed a crime by, for example, intentionally starting the fire, or,
under a homeowner’s policy, assault or battery. In such cases, the
insured might be reluctant to answer questions under oath, particularly
where a criminal investigation has begun. As a result, the insured will
often assert his or her Fifth Amendment right against self-incrimination
in response to the insurer’s request for a sworn statement or the
production of financial records. Courts considering this issue have
consistently held that the Fifth Amendment privilege against selfincrimination does not negate an insured’s duty to cooperation.156 Thus,
155
Id. at 925 (citation omitted).
See, e.g., Anderson v. Southern Guar. Ins. Co. of Ga., 508 S.E.2d
726 (Ga. Ct. App. 1999); East Attucks Cmty. Hous., Inc. v. Old Republic Sur.
Co., 114 S.W.3d 311 (Mo. Ct. App. 2003); Powell v. United States Fid. and
Guar. Co., 88 F.3d 271 (4th Cir. 1996); Pervis v. State Farm Fire and Cas. Co.,
901 F.2d 944 (11th Cir. 1990), cert. denied, 498 U.S. 899 (1990); Aetna Cas.
156
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in Anderson v. Southern Guaranty Insurance Co. of Georgia,157 the trial
court granted summary judgment in favor of Southern Guaranty for
violation of the policy’s cooperation clause due to the insured’s refusal
on the basis of the Fifth Amendment to answer questions concerning the
incident that precipitated the claim against the insured (the claimant
alleged assault and battery). The insured argued that enforcement of the
cooperation clause would unfairly penalize her for exercising her Fifth
Amendment privilege, thereby violating her right to due process.158 The
Georgia Court of Appeals disagreed:
Under these circumstances, the dilemma of which
Anderson complains was of her own making. Anderson
cannot wield her Fifth Amendment privilege as a shield
and a sword by demanding coverage and a defense under
the insurance contract, while at the same time refusing to
answer questions material to determining Southern
Guaranty’s duties under the contract. In the present
declaratory judgment action, Anderson is not in the
position of the usual defendant involuntarily brought
into a civil case, then forced to confront the dilemma of
surrendering the privilege against self-incrimination or
suffering an adverse judgment. Rather, Anderson’s
demands for insurance coverage and a defense of the suit
place her in a position more akin to that of a plaintiff
who creates her own dilemma by bringing a civil action
to enforce a contract, and who then refuses to produce
information material to the defendant’s defense by
asserting the Fifth Amendment privilege.159
Similarly, in Pervis v. State Farm Fire and Casualty Co.,160 the
trial court granted summary judgment in favor of State Farm for
violation of the policy’s cooperation clause due to the insured’s refusal
and Sur. Co. v. State Farm Fire and Cas. Co., 771 F. Supp. 704 (W.D. Pa. 1991);
Mellow v. Hingham Mut. Fire Ins. Co., 656 N.E.2d 1247 (Mass. 1995).
157
508 S.E.2d 726 (Ga. Ct. App. 1999).
158
Id. at 310.
159
Id. at 311.
160
901 F.2d 944 (11th Cir. 1990).
The Attorney-Client Privilege and the Work Product Doctrines
49
on the basis of the fifth amendment. On appeal the insured argued that
the Court in effect forced him to forfeit his claim for insurance, thereby
penalizing him for exercising his fifth amendment privilege, and thereby
violating his right to due process.161
Pervis cannot assert the privilege and maintain this
action. Pervis seeks to recover proceeds based on the
insurance contract to which he was a party; he must be
held to the express terms of his agreement. He is not
compelled to incriminate himself. He is, however,
bound by the provisions to which he stipulated when he
signed the insurance agreement and cannot expect State
Farm to perform its obligations under the contract . . .
without compliance on his part.162
And, in Aetna Casualty & Surety Co. v. State Farm Mutual Auto
Insurance Co.,163 the district court held:
More importantly, Aetna’s argument that a Fifth
Amendment privilege trumps the insurance policy’s duty
to cooperate requirement falls of its own weight. A
person may not be penalized fro asserting the Fifth
Amendment privilege against self incrimination, but that
does not mean that if a person refuses to make a
statement in a civil proceedings that the failure to
provide evidence may not have adverse consequences.164
At the heart of this reasoning is the nature of the contractual
obligation undertaken by the insured. Thus, in Mellow v. Hingham
Mutual Fire Insurance Co.,165 the court reasoned:
A person may not seek to obtain a benefit or to turn the
legal process to his advantage while claiming the
161
Pervis, 901 F.2d at 946.
Id. at 947 (emphasis added).
163
771 F. Supp. 704 (W.D. Pa. 1991).
164
Id. at 707.
165
656 N.E.2d 1247 (Mass. 1995).
162
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privilege as a way of escaping from obligations and
conditions that are normally incident to the claim he
makes. The principle holds true particularly where the
benefit he seeks is from another private party, who is
being asked to make good on his obligation foregoing
the countervailing advantages that were part of the
bargain.166
In addressing Mellow’s Fifth Amendment defense, the court went on to
note:
Where the undesirable consequences arise from the
claimant’s own voluntary actions, the privilege against
self-incrimination cannot be used to extricate the
claimant from such a dilemma of his own making. . . .
Thus it is not by the Commonwealth or by Hingham that
the plaintiff ‘is compelled to . . . furnish evidence against
himself,’ but by his own contractual undertaking.167
Not all courts will enforce the cooperation clause over
evidentiary objections. Indeed, in a case the lead author handled,
Kimberly Clark Corp. v. Continental Casualty Co.,168 the court rejected
an argument that the cooperation clause of a commercial crime policy
abrogated the insured’s claim of privilege. In particular, the court,
finding no mandatory state or federal appellate court authority,
determined that the majority view in other jurisdictions was that the
cooperation clause did not allow the insurer to discover privilege
materials:
A majority of courts in other jurisdictions have held that
a broad cooperation clause, such as the one at issue here,
does not operate as a waiver of the attorney-client
privilege absent evidence that the parties to the insurance
contract expressly intended such a result in the event of
166
Id. at 1250.
Id. at 1251.
168
No. 3-05-CV-0475-D, 2006 U.S. Dist. LEXIS 63576 (N.D. Tex.,
Aug. 18, 2006).
167
The Attorney-Client Privilege and the Work Product Doctrines
51
subsequent litigation between them . . . . In the absence
of controlling authority, [the court] makes an Erie guess
that Texas would follow the majority rule. To the extent
any of the documents withheld by plaintiff constitute
attorney-client communications or attorney work
product, those privileges are not abrogated by the
cooperation clause.169
The Kimberly Clark decision was particularly disappointing in light of
the reasoning in another unreported district court opinion, First Fidelity
Bank Corp. v. United Union Fire Insurance Co. of Pittsburgh, Pa.170 In
that case, the court was faced with a similar issue in the context of a
directors and officers insurance policy. In attempting to determine the
reasonableness of a settlement in the underlying lawsuit against the
directors and officers of First Fidelity, National Union sought to obtain
essentially all documents generated in connection with the underlying
litigation, including otherwise privileged documents generated by
Fidelity’s lawyers. The court found that the cooperation clause of
National Union’s policy was dispositive of the issue, reasoning:
Additionally, there is a sharp dispute over whether the
policy’s clause requires disclosure of the privileged
discovery. I find that as to the sophisticated parties
involved in the present case, the policy’s language is
clearly all-encompassing and would normally include
privileged documents, for otherwise an insurer could not
reasonably assess the proposed settlement.171
The parties to a fidelity bond are at least as sophisticated as those
to a directors’ and officers’ insurance policy. Thus, notwithstanding
Kimberly Clark, the parties’ voluntary agreement should be enforced by
requiring insureds to produce all relevant documents to the insurer during
its investigation of the claim, including privileged and protected
documents to the extent those documents have any bearing on coverage.
169
Id. at *3-5.
No. 90-1866, 1992 WL 55742 (E.D. Pa., Mar. 3, 1992).
171
Id. at *2.
170
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More recently, in Powell v. Untied States Fidelity & Guaranty
Co.,172 the Fourth Circuit reasoned:
Any argument of the Powells, that giving the provision
such a broad scope would effectively abnegate their right
against self-incrimination, is unavailing, they may avoid
incriminating themselves by refusing to submit to
relevant requests made by USF&G under the policy
provision, although to do so may ultimately cost them
insurance coverage under the terms of the contract for
which they and USF&G bargained.173
In fidelity bond claims, any invocation of the Fifth Amendment
will likely not be the insured’s, but rather the employee accused of
dishonesty or theft. In such circumstances, does the insurer have a right
to insist on the employee’s cooperation over that employee’s invocation
of Fifth Amendment privilege against self-incrimination? At least one
court has answered no.174 In East Attucks, the trial court granted
summary judgment to the insurers. On appeal, the insurers argued that
the insured breached the policy by failing to promptly produce the
accused employee for examination under oath. The employee eventually
appeared for a deposition, but refused to answer questions concerning the
alleged thefts by invoking his Fifth Amendment rights.175 The court
agreed with the insurers that, in general, an insured’s invocation of Fifth
Amendment privilege does not abnegate his duties under the policy: “We
have no quarrel with the fact that an insured’s refusal to answer questions
under oath as to the underlying material facts of the claim can bar
recovery.”176 However, as the court noted, the insured was not the
individual employee unless that employee was found to be the insured’s
alter ego, an issue that remained in dispute. Thus, the trial court’s grant
172
88 F.3d 271 (4th Cir. 1996).
Id. at 274.
174
See East Attucks Cmty. Hous., Inc. v. Old Republic Sur. Co., 114
S.W.3d 311 (Mo. Ct. App. 2003).
175
Id. at 327.
176
Id.
173
The Attorney-Client Privilege and the Work Product Doctrines
53
of summary judgment for the insurers on that ground was found to be
improper.177
In short, most courts have found the cooperation clause to be the
result of a contractual relationship willfully entered into by the parties.
Choosing to breach this obligation in order to protect some other interest
has therefore been viewed as just that, a choice, rather than a
constitutional deprivation. The power of the cooperation clause is thus
impressive. It is almost always upheld by courts in this context, despite
the criminal implications which are inherently present. It is logical then
that courts will afford similar treatment to objections based upon the
attorney-client privilege and the work product doctrine.
C.
The Cooperation Clause in Non-Fire Cases
More recently courts have afforded similar treatment to
cooperation clauses in cases involving environmental and directors and
officers’ insurance policies. For instance, in Waste Management, Inc. v.
International Surplus Lines Insurance Co.,178 the insured sought
indemnification under an environmental insurance policy for amounts
paid in settlement of a toxic tort lawsuit. During discovery in the
lawsuit, the insurer requested production of the insured’s defense
counsel’s files in the underlying litigation. Some of these files were
produced, but others were withheld on the basis of the attorney-client
privilege and the work product doctrine. The insurer responded that
because of the cooperation clause of the environment indemnification
policy the insured had no right to withhold the files. The court agreed,
reasoning as follows:
The scope of the duties imposed upon an insurer and its
insured are defined and controlled by the terms of the
insurance contract.
Any condition in the policy
requiring cooperation on the part of the insured is one of
great importance, and its purpose should be observed.
....
177
178
Id.
579 N.E.2d 322 (Ill. 1991).
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Here, the cooperation clause imposes a board duty of
cooperation and is without limit or qualification. It
represents the contractual obligations imposed upon and
accepted by insureds at the time they entered into the
agreement with insurers. In light of the plain language
of the cooperation clause in particular, the language in
the policy as a whole, it cannot seriously be contended
that insureds would not be required to disclose contents
of any communications they had with defense counsel
representing them on a claim for which insurers had the
ultimate duty to satisfy.179
A similar case also involving an environmental policy is EDO
Corp. v. New York Insurance Co.,180 in which the court overruled the
insured’s objection to producing its underlying claim file. The court
specifically found that the insured had no reasonable expectation of
privacy under the circumstances due to the cooperation clause in its
policy and because of an implied duty of good faith and fair dealing.181
Similarly, in First Fidelity Bancorp. v. National Union Fire
Insurance Co. of Pittsburgh, Pa.,182 the court was faced with a similar
issue in the context of a directors and officers’ insurance policy. In
attempting to determine the reasonableness of a settlement of the
underlying lawsuit against the directors and officers of First Fidelity
Bancorporation, National Union sought to obtain essentially all
documents generated in connection with the underlying litigation,
including otherwise privileged documents generated by Fidelity’s
lawyers. The court found that the cooperation clause of National
Union’s policy was dispositive of the issue, reasoning:
Additionally, there is a sharp dispute over whether the
Policy’s cooperation clause requires disclosure of the
Privileged Discovery. I find that as to the sophisticated
parties involved in the present case, the Policy’s
179
Id. at 327-28.
145 F.R.D. 18 (Conn. 1992).
181
Id. at 21.
182
No. 90-1866, 1992 WL 55742 (E.D. Pa. Mar. 13, 1992).
180
The Attorney-Client Privilege and the Work Product Doctrines
55
language is clearly all encompassing and would
normally include privileged documents, for otherwise an
insurer could reasonably assess the proposed
settlement.183
The reasoning of the courts in the above cases is persuasive. Just
as the parties in those actions are sophisticated, the parties to a fidelity
bond also are sophisticated. Thus, the parties’ voluntary agreement
should be enforced by requiring insureds to produce all relevant
documents to the insurer during its investigation of the claim.
D.
Examination Under Oath
An insured’s refusal to submit to a sworn statement alone
constitutes a breach of the cooperation clause of a policy, negating
coverage.184 Also, if an insured appears but refuses to answer all relevant
questions, it is tantamount to not appearing at all. As one court has
noted:
We agree that when an insured ostensibly submits to an
EUO, but says she does not remember relevant
information that in fact she does, or claims that relevant
documents have been destroyed when in fact they were
not, she has in effect refused to submit to an
examination.185
E.
Conclusion
In sum, the cooperation clause now found in most fidelity bonds
is a powerful tool in the hands of the insurer. Although it remains
relatively untested in the context of a fidelity bond claim, there is a
183
Id.
Employers Mut. Cas. Co. v. Skoutaris, 453 F.3d 915 (7th Cir. 2006);
Talley v. State Farm Fire and Cas. Co., 223 F.3d 323 (6th Cir. 2000); United
States Fid. and Guar. Co. v. Wiggington, 964 F.2d 487 (5th Cir. 1992);
Rosenthal v. Prudential Prop. and Cas. Ins. Co., 928 F.2d 493 (2d Cir. 1991);
Laine v. Allstate Ins. Co., 355 F. Supp. 2d 1303 (N.D. Fla. 2005).
185
Wood v. Allstate Ins. Co., 21 F.3d at 746.
184
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plethora of persuasive decisions in environmental, directors and officers,
and fire policy cases (particularly those enforcing the clause despite
objections based upon the Fifth Amendment). These cases are
persuasive authority for the proposition that the insured must provide the
fidelity bond insurer with full cooperation, including sitting for his sworn
examination and providing all relevant documents, including those
generated by the insured’s lawyer, concerning the facts and
circumstances surrounding the insured’s loss, regardless of whether the
attorney-client privilege would otherwise be applicable.
V.
CONCLUSION
In conclusion, there will be few cases in which the attorneyclient privilege or the work product doctrine can be appropriately relied
upon by an insured to refuse to provide documents or other information
to the fidelity bond insurer during the investigation of a fidelity bond
claim. Because the nature of the insured’s investigative responsibilities
is to develop the facts surrounding its loss, the insured does not have a
reasonable expectation of privacy during the investigation stage. This is
true even if the insured retains outside counsel to investigate the
employee’s dishonesty and concomitant losses. Similarly, there will be
few instances in which an insured can establish that documents created
during an investigation were prepared in anticipation of litigation. Even
in those rare instances in which the attorney-client privilege or work
product doctrine might otherwise apply, the cooperation clause would
appear to override the insured’s objections to producing documents or
other information. Conversely, an attorney representing the insurer
during the investigation stage acts as counsel providing legal advice
concerning whether the insured’s claim is covered under the applicable
policy. Thus, communications between the insurer and its counsel
should be protected by the attorney-client privilege. Whether work
product protection is accorded to the insurer’s investigative materials
must be determined on a case by case basis.
Michael Keeley is a partner with the Dallas, Texas office of Strasburger & Price,
LLP. Tracey Archbold is Director of the Fidelity/Crime Division with Great
American Insurance Group in Windsor, Connecticut. This article updates an
earlier article by the lead author at II FID. LAW J. 51 (1996). The authors wish to
thank Michael Feiler, an associate with the Dallas, Texas office of Strasburger &
Price, LLP for his excellent assistance in updating this article.