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Symposium 2016

Panelists Discuss Attorney-Client Privilege in Communications Between Cedents and Reinsurers

by ~ Christine T. Phan (Email) (Web Site)

A common issue that often arises in the context of reinsurance arbitration and litigation is the extent to which attorney-client privilege can and should be maintained in communications between cedents and reinsurers. At the Third Annual MReBA Symposium, arbitrator Tom Stillman of Tom Stillman Arbitrations, Reka Koerner of Swiss Re, and Patricia Taylor Fox of Chartis offered unique viewpoints of the different parties involved in reinsurance disputes  the arbitrator, the reinsurer, and the cedent  on the issue of attorney-client privilege and the work product doctrine. Jerry McElroy, a partner at Zelle Hofmann Voelbel & Mason LLP, moderated the panel.

The panel provided insight on the cedent-reinsurer relationship from both a legal and practical standpoint. Mr. McElroy provided a case law review of the contours of the attorney client privilege in communications between a cedent and reinsurer. Ms. Fox and Ms. Koerner offered their views based on their experience in the role of cedent and reinsurer, respectively. A common theme that both Ms. Fox and Ms. Koerner repeatedly emphasized was that both cedents and reinsurers approach reinsurance disputes bearing in mind that both parties would benefit from maintaining a good relationship. Because of this perspective, the parties often work together to resolve privilege issues, such as by utilizing a confidentiality order or by agreeing to allow production of documents after the underlying litigation has concluded. Mr. Stillman offered the viewpoint of a seasoned arbitrator. With his commentary, Mr. Stillman highlighted the fact that the “arbitration belongs to the parties and that with agreement and good faith, the arbitration will proceed at the parties direction. All parties were aware of the potential impact of disclosure on any underlying coverage litigation and agreed that reinsurance disputes concerning privilege should proceed with this impact in mind.

Case Law Review

Mr. McElroy began by outlining pertinent case law on the issue of attorney-client privilege in reinsurance communications. He summarized the general contours of attorney-client privilege and the work product doctrine. The attorney-client privilege protects communications made between privileged persons in confidence for the purpose of obtaining legal advice for the client. The work product doctrine protects items prepared by or for a party in anticipation of litigation from disclosure.

In some cases, Mr. McElroy noted, the dispute between the cedent and reinsurer has been over whether certain communications are privileged in the first instance. Mr. McElroy cited AIU Ins. Co. v. TIG Ins. Co., No. 07-CV-7052, 2008 U.S. Dist. LEXIS 66370 (S.D.N.Y. Aug. 28, 2008), a case where the issue was whether the communication constituted business advice or privileged legal advice. The court in that case held that, where in-house counsel was offering business advice in his capacity as a vice president of the company, documents containing those communications were not privileged. Mr. McElroy pointed out that business advice that is not protected by the attorney client privilege may be subject to disclosure even after the commencement of litigation.

Mr. McElroy next discussed access to records clauses, also known as audit clauses or cooperation clauses, which are customary provisions in most reinsurance agreements. A typical access to records clause provides, “The Reinsurers will have the right to inspect all records of the Company that pertain in any way to this Agreement. Reinsurers have cited access to records clauses to claim a right to cedents documents which are protected by the attorney-client privilege. Several courts, however, have held that access to records clauses are not intended to supersede the attorney client privilege.

Next, Mr. McElroy discussed a frequently-invoked exception to the attorney-client privilege and work product doctrine: the common interest doctrine. The common interest doctrine provides that sharing otherwise privileged documents with a reinsurer when the interests of the cedent and reinsurer are aligned does not constitute a waiver of privilege. He noted that the mere fact of a reinsurer-cedent relationship is not enough to establish common interest but rather dual representation and a joint defense or strategy are hallmarks of a shared common interest. A cedent can be found to have waived the attorney-client privilege when it shares privileged documents with a reinsurer when the parties interests are not aligned.

Mr. McElroy asked the panel to gauge how important the common interest doctrine is to the resolution of privilege issues by arbitration panels. Ms. Fox said that she does not view common interest as a “sword that should enable a reinsurer to obtain documents, but rather views it as a “shield to protect the cedent as the holder of the privilege. She noted that it is important for an arbitration panel explicitly to find a common interest between the cedent and reinsurer if the panel ultimately orders production of documents, so that the cedent can be protected against later claims of waiver. Ms. Koerner agreed that there is a need for an explicit ruling regarding common interest. Mr. Stillman added that the arbitration panel often seeks to strike a balance between protecting the cedent’s interests and the reinsurer’s interests, and that a panel would make an explicit finding of common interest at the parties request, assuming, of course, there is a good faith basis for finding a common interest.

Another exception to attorney-client privilege that Mr. McElroy explored was the “at issue doctrine, which provides that there is an implied waiver of the attorney-client privilege and/or work product doctrine where a party affirmatively places otherwise privileged information “at issue in the case. Based on the pertinent case law, the “at issue doctrine is generally construed narrowly, to apply only when a party specifically puts at issue the contents of an attorney-client communication.

Practical Considerations

Mr. McElroy’s review of the case law provided an outline for the panelists observations about privilege in reinsurance disputes. Ms. Fox offered a checklist of practical considerations for deciding whether to disclose certain privileged communications to reinsurers:

 First, it is prudent to consider the status of the underlying coverage action  is it settled or still active? Disclosing privileged communications when the underlying coverage action is still ongoing presents greater risks. For example, in his case law presentation, Mr. McElroy noted that waiver of privilege as between a cedent and reinsurer creates the risk that the direct insurance policyholder can gain access to those communications as well.

 Second, a cedent should consider the scope of any settlement in a settled underlying coverage action. Is the settlement final as to all issues or are there any ongoing issues?

 Third, consider the nature of the outstanding issues. Are they one-off issues or likely to be litigated again, such as, for example, issues concerning the number of occurrences in asbestos cases?

 Fourth, what is the status of the reinsurance claim, is it in arbitration, pre-arbitration, or pre-litigation?

 Fifth, who is the reinsurer and what is the cedent’s historical relationship with the reinsurer?

 Sixth, what is the nature of the reinsurance, is it excess of loss or quota share?

 Seventh, what is the forum, arbitration or litigation?

 Eighth, what is the extent must the cedent disclose the communication at issue to establish a reinsurance claim? Ms. Fox noted that the cedent should decide whether or not the communication is critical to the reinsurance claim and whether there is a way to work around the communication to establish a reinsurance claim.
Ms. Koerner added that, more often than not, if the cedent and reinsurer have a good relationship, they will try to work through the privilege issues. For example, if the underlying coverage litigation is still pending, the cedent and the reinsurer are usually aware of how disclosure could adversely affect the underlying litigation. As a result, cedents and reinsurers can agree that the cedent can provide the requested documents after the underlying litigation has concluded. Or, in the context of arbitrations, the parties can agree to produce documents with protective or confidentiality orders in place. Ms. Koerner emphasized that it is generally expected that the cedent and reinsurer will work together in light of the potentially ongoing relationship between the parties.

Mr. Stillman added that arbitration panels are interested in determining whether or not disputed documents are actually privileged, and that privilege logs are crucial to determining what is privileged. Another practical consideration for arbitration panels, Mr. Stillman said, is whether one of the parties is strategically resisting production or, conversely, trying to obtain information for a tactical advantage, rather than for determining the merits of the reinsurance claim. Accordingly, Mr. Stillman noted that arbitration panels tend to resolve disputes on a case-by-case basis, with panels examining 1) whether documents are absolutely necessary for the reinsurance claim to go forward; and 2) if the documents are necessary, what the possibility of harm is to the parties and the underlying litigation.

The panelists also discussed logistical issues involved in a reinsurance arbitration. Mr. McElroy asked the panel who should review the documents at issue to determine whether they are privileged or should be disclosed. Ms. Fox noted that the parties will try to agree on the most cost effective way to have the documents reviewed. Both Ms. Fox and Ms. Koerner agreed that having only the party arbitrators review documents offers no additional benefit. Ms. Fox suggested that either the entire panel review the documents or that a special master be retained to review the documents and summarize his or her findings to the panel. Who makes the decisions in a particular arbitration, Ms. Fox noted, depends on an agreement of the parties to the arbitration. Ms. Koerner added that special masters are usually only retained in instances of significant volumes of documents and, regardless of who reviews the documents, a detailed privilege log is essential. Mr. Stillman emphasized that the arbitration belongs to the parties, and it is very much up to the parties to decide who they want actually reviewing the documents at issue. He noted that the parties should consider the size of the dispute and how many documents are at issue in deciding the procedure for review.

If the parties are unable to reach an agreement, Ms. Koerner suggested that the parties have a right under the arbitration clause to have the panel decide who will review the documents. Ms. Fox emphasized again that the historic and ongoing relationship between the cedent and reinsurer bears on not only any pre-arbitration issues but also issues that arise in arbitration. Accordingly, both sides are usually amenable to negotiating the logistical details of an arbitration. Both sides, she said, have an interest in maintaining a good cedent-reinsurer relationship.Wearing a nice bag out with friends and carry gucci bags uk,rolex for sale,replica panerai watches and iwc replica watches to work is an amazing thing.

Christine T. Phan may be reached at cphan@zelle.com.
 2011 Zelle Hofmann Voelbel & Mason, LLP. All rights reserved.
The views and opinions attributed to speakers at the Symposium do not necessarily reflect the views of their respective companies, law firms, or clients, or any of their members, affiliates, shareholders, or managers.

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