Case Briefs

Your Broker May Be Your Friend ' But Isn't Your Lawyer

Policyholders often assume they have a confidential relationship with their insurance brokers. Not so.

Communications with or by brokers can become unwelcome pieces of evidence in insurance-coverage cases. Brokers have not been schooled in the need to recognize that their communications constitute evidence, for good or ill. Broker communications often are unhelpful in coverage cases because (with due respect): 1) brokers are not lawyers and so sometimes make casual, overly broad or unduly fuzzy statements about what's covered or not; 2) brokers don't keep up with changing insurance-coverage law in every jurisdiction and the cutting-edge of coverage disputes; and 3) brokers suffer from bureaucratic capture (that is, bend toward the thinking of insurance carriers). Most courts hold that insurance brokers are agents of the insured, rather than being true neutrals in a transaction, so insurance-company lawyers will argue that infelicities in broker correspondence should be deemed agent-admissions against the insured.

Where the broker is assisting the policyholder in pursuing an insurance claim, everyone needs to understand that the involvement of a broker may destroy the attorney-client privilege and work-product immunity. In a recent case, Sony Computer Entertainment America, Inc. v. Great American Ins. Co., 229 F.R.D. 632 (N.D. Cal. 2005), the court held that the presumption of confidentiality of attorney-client communications was vitiated by the participation of the policyholder's broker. But the legal rule is not that if any non-lawyer is in the room no privilege attaches; rather, disclosure to a non-lawyer may be consistent with the preservation of attorney-client privilege or attorney work-product immunity if the person is there for a reason in furtherance of the legal representation. Sony's lawyers, however, failed to make that showing; consequently, the court granted the insurer's motion to compel discovery.

In contrast to Sony is Miller v. Haulmark Transport Systems, 104 F.R.D. 442 (E.D. Pa. 1984), where the court found that the broker's presence was necessary to assist counsel in preparing an answer to a complaint. As the court explained:

[T]he presence of [the broker] at the meeting does not constitute a waiver of the privilege as to the contents of that meeting, or the other material sought. [The broker] was instrumental in arranging that coverage, and his purpose at the meeting was to aid in the preparation of an answer. The presence of one so closely related to [the insured] and this [coverage] lawsuit for the limited purpose of aiding the attorneys involved in defending the lawsuit does not void the privilege. Id. at 445.

As the Haulmark court further explained, “As a general matter, the privilege is not destroyed when a person other than the lawyer is present at a conversation between an attorney and his or her client if that person is needed to make the conference possible or to assist the attorney in providing legal services.” Id.

Sometimes the shoe is on the other foot, that is, the policyholder seeks discovery from a managing general agent for the carrier. As with the policyholder's broker, whether communications involving the MGA are covered by privilege or work product depends on the facts demonstrated. See Great American Surplus Lines Ins. Co. v. Ace Oil Co., 120 F.R.D. 533 (E.D. Cal. 1988). One issue that makes it difficult for insurers to claim privilege or work product in such circumstances is that the ordinary activities of insurance claims people (or MGAs serving as conduits) are not considered to be “in anticipation of litigation,” S.W. Heischman, Inc. v. Reliance Ins. Co., 30 Va. Cir. 235 (1993); Brooklyn Union Gas Co. v. American Home Assur. Co. (N.Y. App. Div. Nov. 3, 2005) ' otherwise the insurer in effect has a business practice of anticipating litigation with its own policyholders, which would be bad faith.

None of the foregoing is meant to gainsay that brokers can play helpful roles or to deny that they serve as important repositories of factual information (cf. UpJohn Co. v. United States, 449 US 383 (1981)). What policyholders and their brokers need to recognize is that, if it is intended that the broker share in the attorney-client privilege (or work-product immunity), the broker's participation must be demonstrably necessary to the legal representation. In other words, one can cloak communications where the broker is present only as an incident to the lawyer's need to gather factual information (or to prepare for litigation) or otherwise to formulate confidential legal advice to the client.

In addition to making the specific factual showing in a concrete context, policyholders and their brokers should consider entering into an all-purpose confidentiality agreement, presumably as part of the basic retention arrangement between them. This confidentiality covenant should provide:

1) The broker understands that from time to time the policyholder may become involved in a dispute with its insurance carrier(s).

2) The broker understands that part of its duty to its client is to maintain information that pertains to the policyholder's coverage and thus might be pertinent to a legal dispute.

3) The broker recognizes that the policyholder (the broker's client) and its counsel might communicate with the broker as to the facts or issues concerning an insurance dispute.

4) The broker will keep any such communications confidential and limit the dissemination of its involvement with counsel to those employees who need to be aware of the communications for purposes of serving the client.

In the event of a discovery dispute, it is still necessary to make the requisite showing about the particular communications at issue, but it would be helpful to me as policyholder attorney to be able to point to the governing confidentiality agreement to demonstrate that our claim of non-waiver of privilege (or work product) is not an after-the-fact invention by counsel to stifle discovery.

Your Broker May Be Your Friend ' But Isn't Your Lawyer

Policyholders often assume they have a confidential relationship with their insurance brokers. Not so.

Communications with or by brokers can become unwelcome pieces of evidence in insurance-coverage cases. Brokers have not been schooled in the need to recognize that their communications constitute evidence, for good or ill. Broker communications often are unhelpful in coverage cases because (with due respect): 1) brokers are not lawyers and so sometimes make casual, overly broad or unduly fuzzy statements about what's covered or not; 2) brokers don't keep up with changing insurance-coverage law in every jurisdiction and the cutting-edge of coverage disputes; and 3) brokers suffer from bureaucratic capture (that is, bend toward the thinking of insurance carriers). Most courts hold that insurance brokers are agents of the insured, rather than being true neutrals in a transaction, so insurance-company lawyers will argue that infelicities in broker correspondence should be deemed agent-admissions against the insured.

Where the broker is assisting the policyholder in pursuing an insurance claim, everyone needs to understand that the involvement of a broker may destroy the attorney-client privilege and work-product immunity. In a recent case, Sony Computer Entertainment America, Inc. v. Great American Ins. Co ., 229 F.R.D. 632 (N.D. Cal. 2005), the court held that the presumption of confidentiality of attorney-client communications was vitiated by the participation of the policyholder's broker. But the legal rule is not that if any non-lawyer is in the room no privilege attaches; rather, disclosure to a non-lawyer may be consistent with the preservation of attorney-client privilege or attorney work-product immunity if the person is there for a reason in furtherance of the legal representation. Sony's lawyers, however, failed to make that showing; consequently, the court granted the insurer's motion to compel discovery.

In contrast to Sony is Miller v. Haulmark Transport Systems , 104 F.R.D. 442 (E.D. Pa. 1984), where the court found that the broker's presence was necessary to assist counsel in preparing an answer to a complaint. As the court explained:

[T]he presence of [the broker] at the meeting does not constitute a waiver of the privilege as to the contents of that meeting, or the other material sought. [The broker] was instrumental in arranging that coverage, and his purpose at the meeting was to aid in the preparation of an answer. The presence of one so closely related to [the insured] and this [coverage] lawsuit for the limited purpose of aiding the attorneys involved in defending the lawsuit does not void the privilege. Id. at 445.

As the Haulmark court further explained, “As a general matter, the privilege is not destroyed when a person other than the lawyer is present at a conversation between an attorney and his or her client if that person is needed to make the conference possible or to assist the attorney in providing legal services.” Id.

Sometimes the shoe is on the other foot, that is, the policyholder seeks discovery from a managing general agent for the carrier. As with the policyholder's broker, whether communications involving the MGA are covered by privilege or work product depends on the facts demonstrated. See Great American Surplus Lines Ins. Co. v. Ace Oil Co. , 120 F.R.D. 533 (E.D. Cal. 1988). One issue that makes it difficult for insurers to claim privilege or work product in such circumstances is that the ordinary activities of insurance claims people (or MGAs serving as conduits) are not considered to be “in anticipation of litigation,” S.W. Heischman, Inc. v. Reliance Ins. Co. , 30 Va. Cir. 235 (1993); Brooklyn Union Gas Co. v. American Home Assur. Co. (N.Y. App. Div. Nov. 3, 2005) ' otherwise the insurer in effect has a business practice of anticipating litigation with its own policyholders, which would be bad faith.

None of the foregoing is meant to gainsay that brokers can play helpful roles or to deny that they serve as important repositories of factual information (cf. UpJohn Co. v. United States , 449 US 383 (1981)). What policyholders and their brokers need to recognize is that, if it is intended that the broker share in the attorney-client privilege (or work-product immunity), the broker's participation must be demonstrably necessary to the legal representation. In other words, one can cloak communications where the broker is present only as an incident to the lawyer's need to gather factual information (or to prepare for litigation) or otherwise to formulate confidential legal advice to the client.

In addition to making the specific factual showing in a concrete context, policyholders and their brokers should consider entering into an all-purpose confidentiality agreement, presumably as part of the basic retention arrangement between them. This confidentiality covenant should provide:

1) The broker understands that from time to time the policyholder may become involved in a dispute with its insurance carrier(s).

2) The broker understands that part of its duty to its client is to maintain information that pertains to the policyholder's coverage and thus might be pertinent to a legal dispute.

3) The broker recognizes that the policyholder (the broker's client) and its counsel might communicate with the broker as to the facts or issues concerning an insurance dispute.

4) The broker will keep any such communications confidential and limit the dissemination of its involvement with counsel to those employees who need to be aware of the communications for purposes of serving the client.

In the event of a discovery dispute, it is still necessary to make the requisite showing about the particular communications at issue, but it would be helpful to me as policyholder attorney to be able to point to the governing confidentiality agreement to demonstrate that our claim of non-waiver of privilege (or work product) is not an after-the-fact invention by counsel to stifle discovery.