Insurers often rely on counsel, external or otherwise, when addressing the validity and/or strength of claims filed by their insureds. However, there is a trend in the courts which makes the extent and nature of such reliance something worth watching carefully, as there are circumstances in which that reliance could lead to the discoverability of otherwise privileged materials in the face of bad-faith denial claims. Therefore, one of the key questions for insurers and counsel when giving or receiving counsel’s advice at the outset of the claims process is this: Is counsel somehow acting in the ordinary role of the insurance adjuster, or is counsel strictly providing legal advice?
1. A Developing Trend Undermining the Attorney-Client Privilege
The United States District Court for the District of Colorado’s case, Menapace v. Alaska Nat’l Ins. Co., 2020 WL 6119962 (D. Colo. 2020), provides a recent example of the difficulties insurers may face when trying to protect their correspondence with counsel during the claims adjustment process. In Menapace, the insurer retained local Colorado counsel during its adjustment process due to its relative unfamiliarity with Colorado law. Menapace, at *1. Local counsel assisted in taking an examination under oath of the plaintiff, oversaw the request for an independent medical examination, coordinated a mediation with opposing counsel, and became opposing counsel’s primary contact with the insurer. Id. at *2. After these investigations and settlement efforts, the insurer tendered $150,000 of the plaintiff’s $500,000 settlement demand, stating that, while it was interested in reaching a reasonable resolution, the insurer believed that the amount tendered represented “fair and reasonable compensation” for the plaintiff’s injuries. Id. Plaintiff filed suit alleging, inter alai, bad-faith breach of contract, and sought discovery of the correspondence between the insurer and its Colorado counsel during the claims process. Id. at *2-3. The insurer raised the attorney-client and work-product privileges in defense. Id.
In addressing the defendant’s privilege assertions, the District Court looked to Colorado precedent holding that an insurer waives the attorney-client privilege with respect to correspondence, documentation, or other materials which are the result of its counsel occupying, in whole or in part, the ordinary role of an insurance adjuster. Id. at *5-7 (collecting cases). A few notable functions which the precedent deemed as falling within the ordinary role of an adjuster are: (1) investigating the underlying facts of the claim; (2) asserting/concluding/or otherwise analyzing whether an insured’s claim should be paid or denied; and (3) requesting claimant’s medical records and summarizing those records (where the associated legal advice...
