The Common Interest Doctrine and the Investigation of First-Party Claims

It is essential for parties to be able to determine with a high degree of certainty whether or not communication will be protected from disclosure by the attorney-client privilege or the work-product doctrine. As the Supreme Court observed, “an uncertain privilege ' is little better than no privilege at all.” Upjohn Co. v. United States, 449 U.S. 383, 393 (1981).

As we noted in an article earlier this year, a recent case in New York state court, National Union Fire Insurance Co. v. TransCanada Energy, USA, Nos. 650515/2010, 400759/2011, 2013 WL 4446917 (N.Y. Sup. Ct. Aug. 15, 2013), aff'd 981 N.Y.S.2d 68, 69'70 (N.Y. App. Div. 2014), determined that the documents under review were not privileged, and went on to observe in dicta that the common interest doctrine would be inapplicable in a circumstance where there was no pending or reasonably anticipated litigation. That comment in TransCanada has the potential to raise uncertainty regarding the scope of protection in the context of the investigation and adjustment of insurance claims, while blurring the lines between attorney-client privilege, on the one hand, and work-product protection on the other. This article reviews the basic principles underlying each form of protection, addresses application of the common interest doctrine to those underlying protections, and discusses concepts key to the application of these protections and the common interest doctrine during the investigation of first-party insurance claims.

A Review of Basic Principles

The attorney-client privilege is one of the oldest recognized privileges for confidential communications. It protects communications between a client and an attorney made for the purpose of obtaining legal advice. Relatedly, the work-product doctrine protects documents prepared by or for a party in anticipation of litigation. The work-product doctrine is codified in Federal Rule of Civil Procedure 26(b)(3) at the federal level, unlike the attorney-client privilege, which is a common law doctrine. Both forms of protection arise from the understanding that an attorney can most appropriately represent her client if certain matters remain confidential and, often, both the attorney-client privilege and the work-product protection apply to a single document. However, there are key differences between the two, stemming from the underlying justifications for each form of protection.

Attorney-client privilege encourages open, two-way communication between attorney and client. It encourages clients to make “full and frank” disclosures, so that attorneys know all relevant facts in the client's possession when providing legal advice. It encourages attorneys to be candid with their clients on matters such as areas of uncertainty in the law or points of weakness in a position. Because these concepts are so crucial, the attorney-client privilege is considered “absolute” ' i.e., if the privilege is established, no showing by an adversary is sufficient to force disclosure of those materials. And, such communications can arise in a variety of circumstances ' though pending or anticipated litigation would certainly be expected to lead to attorney-client communication, privileged attorney-client exchanges can also occur in contexts that do not involve litigation at all, such as a legal opinion on a matter of contract negotiation or interpretation, regulatory requirements or application of a statute. See In re Regents of Univ. of Cal., 101 F.3d 1386, 1390 (Fed. Cir. 1996) (“It is well established that the attorney-client privilege is not limited to actions taken and advice obtained in the shadow of litigation.”).

The work-product doctrine responds to a different need ' encouraging attorneys to thoroughly prepare for trial without worrying that an adversary will benefit from that preparation. Without pending or anticipated litigation, the underlying need for the work-product doctrine simply does not exist. And, although the protection is an important one, it can be overcome in limited circumstances where an adversary shows a substantial need for the work-product material and a hardship in obtaining the needed material by alternative, less intrusive means. For example, substantial need and hardship have been found in situations where the adverse party has obtained statements from witnesses who are now unavailable because they are deceased or have faulty memories. See, e.g., In re Grand Jury Investigation, 599 F.2d 1224, 1231-32 (3d Cir. 1979) (interviewee deceased); State Farm Fire & Cas. Co. v. Perrigan, 102 F.R.D. 235, 238'39 (W.D. Va. 1984) (plaintiff suffered brain injuries and amnesia). Although the showing of hardship and necessity needed to strip a document of work-product protection varies depending on the nature of the material sought, almost absolute protection is given to an attorney's mental opinion and impressions. See Upjohn, 449 U.S. at 401.

Involving Third Parties Without Waiving Privilege/Protection

Often, it is necessary for the attorney and client to involve others in certain communications for the purpose of providing legal advice or in order to prepare for and conduct litigation. See, e.g., United States v. Kovel, 296 F.2d 918, 921 (2d Cir. 1961) (“the complexities of modern existence prevent attorneys from effectively handling clients' affairs without the help of others”). Recognizing this, courts have confirmed a number of circumstances in which protections extend to include entities and individuals other than the attorney and client.

For example, it is widely recognized that those working under the supervision and control of an attorney to aid him or her in providing legal advice are included within the scope of the attorney-client privilege. Thus, the privilege is routinely extended to third-party accountants as long as they are acting under the direction of an attorney to assist that attorney in providing a legal opinion. See, e.g., id. at 922 (“the presence of an accountant, whether hired by the lawyer or by the client, while the client is relating a complicated tax story to the lawyer, ought not destroy the privilege, any more than would that of [a foreign-language translator].”) Courts also have extended the privilege to include a range of other professionals who conduct a particular project under the supervision and control of an attorney to support the attorney's ability to provide sound legal analysis, for example, investigators, auditors, and public-relations consultants, in addition to paralegals, secretaries and others employed by the law firm providing representation. In each instance, of course, the communication must be maintained in confidence by those to whom the privilege extends.

Because the attorney-client privilege is “absolute” while work-product protection is subject to challenge, courts more readily permit work-product protection to include third parties. Thus, as a general matter, disclosure of documents protected by the work-product doctrine to a non-adversary third party will not waive work-product protection unless it “substantially increases the opportunity for potential adversaries to obtain the information.” In re Grand Jury Subpoenas, 561 F.Supp. 1247, 1257 (E.D.N.Y. 1982).

The Common Interest Doctrine

The common interest doctrine is consistent with the broad concept that, in certain circumstances, protected communications may involve third parties. As a theoretical matter, the common interest doctrine may be invoked in connection with a communication where the underlying protection is the work-product doctrine. As a practical matter, however, the common interest doctrine is generally unnecessary in that context. The work-product doctrine already extends to cover sharing among a wide group of entities and individuals, so long as the material isn't voluntarily disclosed in a manner likely to be revealed to an adversary. Accordingly, the following discussion is limited to the common interest doctrine in the context of the attorney-client privilege.

Specifically, the common interest doctrine applies to maintain the attorney-client privilege where the parties can show that: 1) they “share a common legal interest with the party with whom the information was shared”; and 2) “the statements for which protection is sought were designed to further that interest.” Allied Irish Banks v. Bank of Am., 252 F.R.D. 163, 171 (S.D.N.Y. 2008). Almost by definition, such a showing exists in instances where multiple persons are represented by the same law firm, or multiple law firms are working together to represent multiple aligned parties in litigation. Am. Re-Ins. Co. v. U.S. Fid. & Guar. Co., 40 A.D.3d 486, 491 (N.Y. App. Div. 2007) (holding that dual representation, where one lawyer represents two clients, is a clear indication of common interest). The requirements of the common interest doctrine can also be met when parties, who have consulted separate legal counsel, request that their lawyers coordinate to ensure that the legal advice provided takes into account the full facts and circumstances known to each and is consistent.

Although the core concept is both important and simple, loose terminology has occasionally caused confusion. Bank Brussels Lambert v. Credit Lyonnais (Suisse) S.A., 160 F.R.D. 437, 446 (S.D.N.Y. 1995) (“The common interest doctrine subsumes a number of principles that are sometimes characterized as separate rules and are at other times conflated into a single axiom.”). Historically applied to criminal co-defendants and called the “joint defense privilege,” this doctrine is more accurately identified in contemporary jurisprudence as the “common interest doctrine” or “joint interest rule.” First, there is no requirement that the parties be in a “defense” posture in litigation to invoke these principles ' it has long been recognized that the same concepts apply where there is no threatened or pending litigation, but the parties nevertheless share a common legal interest. See In re Grand Jury Subpoenas, 89-3 & 89-4, John Doe, 89-129, 902 F.2d 244, 249 (4th Cir. 1990); United States v. Schwimmer, 892 F.2d 237, 243 (2d Cir. 1989). Second, it is not a “privilege” in and of itself, but simply broadens the group of individuals/entities that may appropriately be included in an otherwise privileged or protected communication. Accordingly, analysis of whether the common interest doctrine applies to any specific communication must be with reference to the requirements of the attorney-client privilege. Thus, it is important to ensure that the interest shared among those invoking protection under the common interest doctrine is one that is primarily or predominantly legal, rather than commercial, in nature.

Pre-Litigation Application of the Common Interest Doctrine

The majority of courts that have considered application of the common interest doctrine have correctly recognized that it does not require a showing of pending or anticipated litigation. See, e.g., United States v. BDO Seidman, LLP, 492 F.3d 806, 816 n.6 (7th Cir. 2007); In re Grand Jury Subpoena ( Custodian of Records, Newparent, Inc. ), 274 F.3d 563, 572 (1st Cir. 2001); Schwimmer, 892 F.2d at 243'44; see also In re Grand Jury Subpoenas, 902 F.2d at 249 (applying common interest rule to protect communication exchanged between plaintiff's attorneys and non-party absent pending or actual litigation involving the non-party).

There are some courts, however, that have set out a minority ana- lysis, requiring current or pending litigation before parties can invoke the common interest doctrine. At best, this requirement appears to be a proxy for determining whether there is a common legal interest, rather than a precise underlying principle. For example, one court noted the need to narrowly construe the common interest exception to ensure that it is not used to protect business communication, and used the existence of threatened or pending litigation as the constraint in that case. See, e.g., Aetna Cas. & Sur. Co. v. Certain Underwriters at Lloyd's London, 676 N.Y.S.2d 727, 732 (N.Y. Sup. Ct. 1998) (finding, despite this narrow construction of the common interest, that many categories of documents sought in discovery were protected from disclosure based on the common interest doctrine). Recently, the New York Supreme Court, Appellate Division, upheld a decision finding that certain documents were not privileged and noted in dicta that the common interest exception inapplicable because there was “no pending or reasonably anticipated litigation in which the insurance companies had a common legal interest.” TransCanada, 981 N.Y.S.2d at 69-70. The TransCanada court did not explain its rationale, but in that instance appears to have been swayed by the core holding that the communications at issue weren't privileged in the first instance. The trial court held, and the court of appeals affirmed, that the attorneys in that matter were not functioning as legal advisers. Id .; Nat'l Union Fire Ins. Co. v. TransCanada Energy USA, Inc., Nos. 650515/2010, 400759/2011, 2013 WL 4446917 (N.Y. Sup. Ct. Aug. 15, 2013).

Courts must guard against proliferation of this type of short-hand analysis. Requiring parties to be engaged in pending or anticipated litigation before they can invoke the common interest rule to prevent waiver of attorney-client privilege is not an effective way to ensure that parties share common legal interests. There are many instances where parties communicate with attorneys for a common legal interest absent pending or anticipated litigation. In today's legal environment, litigation is often not the focus of collective attempts to obtain legal advice. See Am. Auto. Ins. Co. v. J.P. Noonan Transp., Inc., No. 970325, 2000 WL 33171004, at *7 (Mass. Super. Ct. Nov. 16, 2000) (“At a time and in an age where transactions and the litigation they produce are increasingly complex, I am of the opinion that the joint defense or common interest components of the attorney-client privilege are necessary to ensure, as a practical matter, that clients receive the fully informed advice the attorney-client privilege is designed to produce.”).

First-Party Insurance Claims

Once an insurance claim is denied in whole or in part, it is widely recognized that work-product protection attaches because it is reasonable to anticipate that litigation may ensue. The closer questions arise in the context of claims investigation.

Investigating claims and deciding whether or not claims are covered under the terms and conditions of the policy are part of the regular business activities of insurers. Such claims-handling activities will not fall within the protections of attorney-client privilege or the work-product doctrine even if they are performed by an attorney. Stated differently, an insurance company cannot shield its entire claim file from discovery simply by involving an attorney in an investigation, or asking an attorney to make the final decision to pay or deny coverage, because it is in the “very nature of an insurer's business to investigate and evaluate the merits of claims.” Cutrale Citrus Juices USA, Inc. v. Zurich Am. Ins. Grp., No. 5:03-cv-420-Oc-10GRJ, 2004 WL 5215191, at *2 (M.D. Fla. Sept. 10, 2004).

At the same time, attorneys routinely provide legal advice on matters that inform regular business activities in all types of industries, including insurance. Legal advice obtained for the purpose of making a business decision is privileged even if the business decision itself is not. Thus, in the context of investigating an insurance claim, an attorney's legal advice on how certain policy language has been applied by courts may inform the insurer's ultimate decision to pay or deny the claim, and that legal advice is a privileged attorney-client communication. This is routinely recognized by courts around the country. Even during the investigation phase, before any portion of a claim has been denied, an attorney-client communication constitutes legal advice where it shows “counsel's legal opinions regarding the scope of potential liability.” Barton Malow Co. v. Certain Underwriters at Lloyd's of London, No. 10-10681, 2012 WL 4668868, at *2 (E.D. Mich. Oct. 3, 2012). Similarly, where there are matters ' such as the “unique and complicated nature of title insurance” ' that require a measure of legal expertise in the claims handling process, an “attorney's legal impressions, conclusions, opinions, or legal research or theories” are privileged even if derived from the factual investigation. 2022 Ranch, L.L.C. v. Superior Court, 7 Cal. Rptr. 3d 197, 213 (Cal. Ct. App. 2003).

Working from these foundational principles, it is clear that the common interest doctrine will often extend to protect otherwise privileged communications among insurers conducted during an investigation of first-party claims. (Some additional considerations must be taken into account in addressing third-party liability claims; those topics are beyond the scope of this article.) Most large commercial property insurance programs, for example, are comprised of insurers who accept shares of the same risk under a set of separate insurance contracts that incorporate a core set of common terms. The presumption in such circumstances must be that if one insurer has a legal question regarding interpretation or application of the core set of common terms, all insurers who incorporate that same policy language would have a common interest in seeking such legal advice.

Where insurers find themselves in such a circumstance, there are certain steps that can be taken to enhance the likelihood that a court will correctly find that the common interest applies. First, insurers and their counsel should be consistently mindful that the common interest doctrine will only protect communications that are themselves privileged. Accordingly, investigation of the facts of the claim should be handled by the insurers and/or an adjustment team, counsel should be called on to provide legal advice, and the insurers should be in a position to make the ultimate determination regarding coverage. There will necessarily be interaction, communication and consultation among those groups, but being mindful of the scope of each group's distinct role will be helpful if a court is later called upon to determine whether attorneys were acting within their roles as legal advisers.

Second, insurers and their counsel may wish to consider an express common interest agreement. While many courts imply a common interest from conduct, it is generally the burden of the party asserting protection under the common interest doctrine to prove that the common interest exists, and an express oral agreement or written agreement is one way to help satisfy that burden. Generally, such agreements state the common interest giving rise to the agreement, the purpose of the exchange and an undertaking that the parties to the agreement will not share the confidential communications with others outside the common interest group.

Third, because the sheer volume of documents appears to be a factor in analysis by some courts, insurers and their counsel should be mindful of the proliferation of e-mail correspondence, and set up lines of communication accordingly. This may include, for example, identifying certain matters to be addressed in a meeting that allows for protected exchanges (e.g., questions to counsel, responses to a client common interest group, follow-up questions and so on), rather than via e-mail to a broad group (which, with just a few “reply-alls,” can quickly become dozens of documents).

Though these types of steps may aid insurers in evidencing applicable privileges and protections, the scope of protection afforded appropriately turns on an analysis of the foundational principles underlying attorney-client privilege and the common interest doctrine. Properly applied, such principles will recognize attorney-client privilege and the common interest doctrine to protect qualifying communications among insurers and their counsel regardless of whether there is pending or anticipated litigation.

Catherine A. Mondell, a member of this newsletter's Board of Editors, is a partner at Ropes & Gray LLP, Boston. Kathryn R. Smith is an associate with the firm.

It is essential for parties to be able to determine with a high degree of certainty whether or not communication will be protected from disclosure by the attorney-client privilege or the work-product doctrine. As the Supreme Court observed, “an uncertain privilege ' is little better than no privilege at all.” Upjohn Co. v. United States , 449 U.S. 383, 393 (1981).

As we noted in an article earlier this year, a recent case in New York state court, National Union Fire Insurance Co. v. TransCanada Energy, USA, Nos. 650515/2010, 400759/2011, 2013 WL 4446917 (N.Y. Sup. Ct. Aug. 15, 2013), aff'd 981 N.Y.S.2d 68, 69'70 (N.Y. App. Div. 2014), determined that the documents under review were not privileged, and went on to observe in dicta that the common interest doctrine would be inapplicable in a circumstance where there was no pending or reasonably anticipated litigation. That comment in TransCanada has the potential to raise uncertainty regarding the scope of protection in the context of the investigation and adjustment of insurance claims, while blurring the lines between attorney-client privilege, on the one hand, and work-product protection on the other. This article reviews the basic principles underlying each form of protection, addresses application of the common interest doctrine to those underlying protections, and discusses concepts key to the application of these protections and the common interest doctrine during the investigation of first-party insurance claims.

A Review of Basic Principles

The attorney-client privilege is one of the oldest recognized privileges for confidential communications. It protects communications between a client and an attorney made for the purpose of obtaining legal advice. Relatedly, the work-product doctrine protects documents prepared by or for a party in anticipation of litigation. The work-product doctrine is codified in Federal Rule of Civil Procedure 26(b)(3) at the federal level, unlike the attorney-client privilege, which is a common law doctrine. Both forms of protection arise from the understanding that an attorney can most appropriately represent her client if certain matters remain confidential and, often, both the attorney-client privilege and the work-product protection apply to a single document. However, there are key differences between the two, stemming from the underlying justifications for each form of protection.

Attorney-client privilege encourages open, two-way communication between attorney and client. It encourages clients to make “full and frank” disclosures, so that attorneys know all relevant facts in the client's possession when providing legal advice. It encourages attorneys to be candid with their clients on matters such as areas of uncertainty in the law or points of weakness in a position. Because these concepts are so crucial, the attorney-client privilege is considered “absolute” ' i.e., if the privilege is established, no showing by an adversary is sufficient to force disclosure of those materials. And, such communications can arise in a variety of circumstances ' though pending or anticipated litigation would certainly be expected to lead to attorney-client communication, privileged attorney-client exchanges can also occur in contexts that do not involve litigation at all, such as a legal opinion on a matter of contract negotiation or interpretation, regulatory requirements or application of a statute. See In re Regents of Univ. of Cal., 101 F.3d 1386, 1390 (Fed. Cir. 1996) (“It is well established that the attorney-client privilege is not limited to actions taken and advice obtained in the shadow of litigation.”).

The work-product doctrine responds to a different need ' encouraging attorneys to thoroughly prepare for trial without worrying that an adversary will benefit from that preparation. Without pending or anticipated litigation, the underlying need for the work-product doctrine simply does not exist. And, although the protection is an important one, it can be overcome in limited circumstances where an adversary shows a substantial need for the work-product material and a hardship in obtaining the needed material by alternative, less intrusive means. For example, substantial need and hardship have been found in situations where the adverse party has obtained statements from witnesses who are now unavailable because they are deceased or have faulty memories. See, e.g., In re Grand Jury Investigation, 599 F.2d 1224, 1231-32 (3d Cir. 1979) (interviewee deceased); State Farm Fire & Cas. Co. v. Perrigan , 102 F.R.D. 235, 238'39 (W.D. Va. 1984) (plaintiff suffered brain injuries and amnesia). Although the showing of hardship and necessity needed to strip a document of work-product protection varies depending on the nature of the material sought, almost absolute protection is given to an attorney's mental opinion and impressions. See Upjohn, 449 U.S. at 401.

Involving Third Parties Without Waiving Privilege/Protection

Often, it is necessary for the attorney and client to involve others in certain communications for the purpose of providing legal advice or in order to prepare for and conduct litigation. See, e.g., United States v. Kovel , 296 F.2d 918, 921 (2d Cir. 1961) (“the complexities of modern existence prevent attorneys from effectively handling clients' affairs without the help of others”). Recognizing this, courts have confirmed a number of circumstances in which protections extend to include entities and individuals other than the attorney and client.

For example, it is widely recognized that those working under the supervision and control of an attorney to aid him or her in providing legal advice are included within the scope of the attorney-client privilege. Thus, the privilege is routinely extended to third-party accountants as long as they are acting under the direction of an attorney to assist that attorney in providing a legal opinion. See, e.g., id. at 922 (“the presence of an accountant, whether hired by the lawyer or by the client, while the client is relating a complicated tax story to the lawyer, ought not destroy the privilege, any more than would that of [a foreign-language translator].”) Courts also have extended the privilege to include a range of other professionals who conduct a particular project under the supervision and control of an attorney to support the attorney's ability to provide sound legal analysis, for example, investigators, auditors, and public-relations consultants, in addition to paralegals, secretaries and others employed by the law firm providing representation. In each instance, of course, the communication must be maintained in confidence by those to whom the privilege extends.

Because the attorney-client privilege is “absolute” while work-product protection is subject to challenge, courts more readily permit work-product protection to include third parties. Thus, as a general matter, disclosure of documents protected by the work-product doctrine to a non-adversary third party will not waive work-product protection unless it “substantially increases the opportunity for potential adversaries to obtain the information.” In re Grand Jury Subpoenas, 561 F.Supp. 1247, 1257 (E.D.N.Y. 1982).

The Common Interest Doctrine

The common interest doctrine is consistent with the broad concept that, in certain circumstances, protected communications may involve third parties. As a theoretical matter, the common interest doctrine may be invoked in connection with a communication where the underlying protection is the work-product doctrine. As a practical matter, however, the common interest doctrine is generally unnecessary in that context. The work-product doctrine already extends to cover sharing among a wide group of entities and individuals, so long as the material isn't voluntarily disclosed in a manner likely to be revealed to an adversary. Accordingly, the following discussion is limited to the common interest doctrine in the context of the attorney-client privilege.

Specifically, the common interest doctrine applies to maintain the attorney-client privilege where the parties can show that: 1) they “share a common legal interest with the party with whom the information was shared”; and 2) “the statements for which protection is sought were designed to further that interest.” Allied Irish Banks v. Bank of Am. , 252 F.R.D. 163, 171 (S.D.N.Y. 2008). Almost by definition, such a showing exists in instances where multiple persons are represented by the same law firm, or multiple law firms are working together to represent multiple aligned parties in litigation. Am. Re-Ins. Co. v. U.S. Fid. & Guar. Co. , 40 A.D.3d 486, 491 (N.Y. App. Div. 2007) (holding that dual representation, where one lawyer represents two clients, is a clear indication of common interest). The requirements of the common interest doctrine can also be met when parties, who have consulted separate legal counsel, request that their lawyers coordinate to ensure that the legal advice provided takes into account the full facts and circumstances known to each and is consistent.

Although the core concept is both important and simple, loose terminology has occasionally caused confusion. Bank Brussels Lambert v. Credit Lyonnais (Suisse) S.A., 160 F.R.D. 437, 446 (S.D.N.Y. 1995) (“The common interest doctrine subsumes a number of principles that are sometimes characterized as separate rules and are at other times conflated into a single axiom.”). Historically applied to criminal co-defendants and called the “joint defense privilege,” this doctrine is more accurately identified in contemporary jurisprudence as the “common interest doctrine” or “joint interest rule.” First, there is no requirement that the parties be in a “defense” posture in litigation to invoke these principles ' it has long been recognized that the same concepts apply where there is no threatened or pending litigation, but the parties nevertheless share a common legal interest. See In re Grand Jury Subpoenas, 89-3 & 89-4, John Doe, 89-129, 902 F.2d 244, 249 (4th Cir. 1990); United States v. Schwimmer , 892 F.2d 237, 243 (2d Cir. 1989). Second, it is not a “privilege” in and of itself, but simply broadens the group of individuals/entities that may appropriately be included in an otherwise privileged or protected communication. Accordingly, analysis of whether the common interest doctrine applies to any specific communication must be with reference to the requirements of the attorney-client privilege. Thus, it is important to ensure that the interest shared among those invoking protection under the common interest doctrine is one that is primarily or predominantly legal, rather than commercial, in nature.

Pre-Litigation Application of the Common Interest Doctrine

The majority of courts that have considered application of the common interest doctrine have correctly recognized that it does not require a showing of pending or anticipated litigation. See, e.g., United States v. BDO Seidman, LLP , 492 F.3d 806, 816 n.6 (7th Cir. 2007); In re Grand Jury Subpoena ( Custodian of Records, Newparent, Inc. ), 274 F.3d 563, 572 (1st Cir. 2001); Schwimmer, 892 F.2d at 243'44; see also In re Grand Jury Subpoenas, 902 F.2d at 249 (applying common interest rule to protect communication exchanged between plaintiff's attorneys and non-party absent pending or actual litigation involving the non-party).

There are some courts, however, that have set out a minority ana- lysis, requiring current or pending litigation before parties can invoke the common interest doctrine. At best, this requirement appears to be a proxy for determining whether there is a common legal interest, rather than a precise underlying principle. For example, one court noted the need to narrowly construe the common interest exception to ensure that it is not used to protect business communication, and used the existence of threatened or pending litigation as the constraint in that case. See, e.g., Aetna Cas. & Sur. Co. v. Certain Underwriters at Lloyd's London , 676 N.Y.S.2d 727, 732 (N.Y. Sup. Ct. 1998) (finding, despite this narrow construction of the common interest, that many categories of documents sought in discovery were protected from disclosure based on the common interest doctrine). Recently, the New York Supreme Court, Appellate Division, upheld a decision finding that certain documents were not privileged and noted in dicta that the common interest exception inapplicable because there was “no pending or reasonably anticipated litigation in which the insurance companies had a common legal interest.” TransCanada, 981 N.Y.S.2d at 69-70. The TransCanada court did not explain its rationale, but in that instance appears to have been swayed by the core holding that the communications at issue weren't privileged in the first instance. The trial court held, and the court of appeals affirmed, that the attorneys in that matter were not functioning as legal advisers. Id .; Nat'l Union Fire Ins. Co. v. TransCanada Energy USA, Inc., Nos. 650515/2010, 400759/2011, 2013 WL 4446917 (N.Y. Sup. Ct. Aug. 15, 2013).

Courts must guard against proliferation of this type of short-hand analysis. Requiring parties to be engaged in pending or anticipated litigation before they can invoke the common interest rule to prevent waiver of attorney-client privilege is not an effective way to ensure that parties share common legal interests. There are many instances where parties communicate with attorneys for a common legal interest absent pending or anticipated litigation. In today's legal environment, litigation is often not the focus of collective attempts to obtain legal advice. See Am. Auto. Ins. Co. v. J.P. Noonan Transp., Inc., No. 970325, 2000 WL 33171004, at *7 (Mass. Super. Ct. Nov. 16, 2000) (“At a time and in an age where transactions and the litigation they produce are increasingly complex, I am of the opinion that the joint defense or common interest components of the attorney-client privilege are necessary to ensure, as a practical matter, that clients receive the fully informed advice the attorney-client privilege is designed to produce.”).

First-Party Insurance Claims

Once an insurance claim is denied in whole or in part, it is widely recognized that work-product protection attaches because it is reasonable to anticipate that litigation may ensue. The closer questions arise in the context of claims investigation.

Investigating claims and deciding whether or not claims are covered under the terms and conditions of the policy are part of the regular business activities of insurers. Such claims-handling activities will not fall within the protections of attorney-client privilege or the work-product doctrine even if they are performed by an attorney. Stated differently, an insurance company cannot shield its entire claim file from discovery simply by involving an attorney in an investigation, or asking an attorney to make the final decision to pay or deny coverage, because it is in the “very nature of an insurer's business to investigate and evaluate the merits of claims.” Cutrale Citrus Juices USA, Inc. v. Zurich Am. Ins. Grp., No. 5:03-cv-420-Oc-10GRJ, 2004 WL 5215191, at *2 (M.D. Fla. Sept. 10, 2004).

At the same time, attorneys routinely provide legal advice on matters that inform regular business activities in all types of industries, including insurance. Legal advice obtained for the purpose of making a business decision is privileged even if the business decision itself is not. Thus, in the context of investigating an insurance claim, an attorney's legal advice on how certain policy language has been applied by courts may inform the insurer's ultimate decision to pay or deny the claim, and that legal advice is a privileged attorney-client communication. This is routinely recognized by courts around the country. Even during the investigation phase, before any portion of a claim has been denied, an attorney-client communication constitutes legal advice where it shows “counsel's legal opinions regarding the scope of potential liability.” Barton Malow Co. v. Certain Underwriters at Lloyd's of London, No. 10-10681, 2012 WL 4668868, at *2 (E.D. Mich. Oct. 3, 2012). Similarly, where there are matters ' such as the “unique and complicated nature of title insurance” ' that require a measure of legal expertise in the claims handling process, an “attorney's legal impressions, conclusions, opinions, or legal research or theories” are privileged even if derived from the factual investigation. 2022 Ranch, L.L.C. v. Superior Court , 7 Cal. Rptr. 3d 197, 213 (Cal. Ct. App. 2003).

Working from these foundational principles, it is clear that the common interest doctrine will often extend to protect otherwise privileged communications among insurers conducted during an investigation of first-party claims. (Some additional considerations must be taken into account in addressing third-party liability claims; those topics are beyond the scope of this article.) Most large commercial property insurance programs, for example, are comprised of insurers who accept shares of the same risk under a set of separate insurance contracts that incorporate a core set of common terms. The presumption in such circumstances must be that if one insurer has a legal question regarding interpretation or application of the core set of common terms, all insurers who incorporate that same policy language would have a common interest in seeking such legal advice.

Where insurers find themselves in such a circumstance, there are certain steps that can be taken to enhance the likelihood that a court will correctly find that the common interest applies. First, insurers and their counsel should be consistently mindful that the common interest doctrine will only protect communications that are themselves privileged. Accordingly, investigation of the facts of the claim should be handled by the insurers and/or an adjustment team, counsel should be called on to provide legal advice, and the insurers should be in a position to make the ultimate determination regarding coverage. There will necessarily be interaction, communication and consultation among those groups, but being mindful of the scope of each group's distinct role will be helpful if a court is later called upon to determine whether attorneys were acting within their roles as legal advisers.

Second, insurers and their counsel may wish to consider an express common interest agreement. While many courts imply a common interest from conduct, it is generally the burden of the party asserting protection under the common interest doctrine to prove that the common interest exists, and an express oral agreement or written agreement is one way to help satisfy that burden. Generally, such agreements state the common interest giving rise to the agreement, the purpose of the exchange and an undertaking that the parties to the agreement will not share the confidential communications with others outside the common interest group.

Third, because the sheer volume of documents appears to be a factor in analysis by some courts, insurers and their counsel should be mindful of the proliferation of e-mail correspondence, and set up lines of communication accordingly. This may include, for example, identifying certain matters to be addressed in a meeting that allows for protected exchanges (e.g., questions to counsel, responses to a client common interest group, follow-up questions and so on), rather than via e-mail to a broad group (which, with just a few “reply-alls,” can quickly become dozens of documents).

Though these types of steps may aid insurers in evidencing applicable privileges and protections, the scope of protection afforded appropriately turns on an analysis of the foundational principles underlying attorney-client privilege and the common interest doctrine. Properly applied, such principles will recognize attorney-client privilege and the common interest doctrine to protect qualifying communications among insurers and their counsel regardless of whether there is pending or anticipated litigation.

Catherine A. Mondell, a member of this newsletter's Board of Editors, is a partner at Ropes & Gray LLP, Boston. Kathryn R. Smith is an associate with the firm.