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Important Decision Impacting Waiver of Attorney-Client Privilege

February 25, 2016

By Megan E. Shutte

In a recent opinion issued in the matter of Certain Underwriters at Lloyd's London v. Nat'l R.R. Passenger Corp., No. 14-CV-04717 FB CLP (E.D.N.Y. Feb. 19, 2016), the Eastern District of New York held that communications from counsel that were routed to client London Market Insurers ("LMI") through a servicing company and on through a London broker, were not protected by the attorney-client privilege. As a result, LMI were compelled to produce reports prepared by U.S. counsel that related to environmental contamination and/or asbestos exposure claims made by the National Railroad Passenger Corporation (Amtrak) under multiple liability insurance policies issued by LMI.

The court applied federal common law, under which a party seeking to withhold discovery on the basis of the attorney-client privilege must demonstrate that the communications were: (1) between a client and his or her attorney; (2) intended to be, and were in fact kept confidential; and (3) for the purpose of obtaining or providing legal advice. Attorney-client privilege is normally waived if otherwise privileged communications are shared with an outsider (indicating that the communications were, in fact, not confidential). Exceptions to waiver include, e.g., if the communication was shared with a third party (including agents of the lawyer or client) whose participation is to "improve the comprehension of the communications" between attorney and client, or if the third party is engaged in a common legal enterprise with the privilege-holder.  

None of these exceptions applied, in the Court's estimation, to the facts of the case; the London brokers acted as "nothing more than an intermediary or clearing house for the Policies." The court disagreed with LMI's position that distributing attorney-client communications through the London broker was "standard" and "necessary" practice, explaining that whether a "method of distribution" is "standard in an industry" does not bear on whether the distribution method comports with the law governing attorney-client privilege; "the unique functioning of the London insurance market does not obviate the need to follow the American rules of court."  

There was also no record support for the view that distribution through the broker was the only way for U.S. counsel to communicate with the relevant insurers. LMI also offered no information explaining the exact relationship between London brokers, counsel and/or LMI, which the court found "particularly troubling" given the dual agency of the London brokers, who represented Amtrak during policy negotiations.  The court also held that LMI's failure to identify the specific recipients of each claimed communication was "fatal" to its claim of attorney-client privilege and/or application of the common interest exception to the waiver doctrine. LMI could not simply identify the recipient as "Underwriters at Interest," or similar, in its privilege log. LMI bore the burden of proving that each person or entity that received the communication(s) was a client at the time of receipt; the court was not obligated to simply trust LMI that only the appropriate parties were privy to the communications.

This holding reinforces the importance of managing communications once counsel gets involved in a claim and/or litigation. Some helpful practice reminders:

  • Any communications with counsel that are privileged should not be routed through the broker or other third parties.
  • Privileged communications with counsel should be sent by counsel directly to those Underwriters who retained counsel.
  • Refrain from disseminating communications from counsel to parties who have not shared in the retention of counsel, including other Underwriters who have not joined in the retention of counsel.
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