That Portion Of Insurance Company’s Claims File Created Before It Has Reasonable Grounds To Reject A Claim Are Discoverable By Its Insured.

In Melworm v. Encompass Indem. Co.,  2012 NY Slip Op 22193, decided July 16, 2012, Judge Arthur M. Diamond provides a concise and thoughtful explanation on the attorney-client privilege afforded an insurance company’s claim file, created in the contact of deciding whether to pay on a property damage claim. Here is what he had to say:

“In order to raise a valid claim of attorney-client privilege, the party seeking to withhold the information must show that it was a “confidential communication” made between the attorney and the client in the context of legal advice or services.  Documents which are “not primarily of a legal character, but [express] substantial nonlegal concerns” are not privileged. However, “[s]o long as the communication is primarily or predominantly of a legal character, the privilege is not lost merely by reason of the fact that it also refers to certain nonlegal matters” …

… First, in a dispute between the insurer and the insured pertaining to an underlying claim, the claims file is generally not privileged material and the insurer cannot claim confidentiality against the insured. … 

“[T]he payment or rejection of claims is a part of the regular business of an insurance company. Consequently, reports which aid it in the process of deciding which of the two indicated actions to pursue are made in the regular course of its business” …  Reports prepared by insurance investigators, adjusters, or attorneys … before the decision is made to pay or reject a claim are thus not privileged and are discoverable … even when those reports are “mixed/multi-purpose” reports, motivated in part by the potential for litigation with the insured …

Merely because such an investigation was undertaken by attorneys will not cloak the reports and communications with privilege … because the reports, although prepared by attorneys, are prepared as part of the “regular business” of the insurance company. … Moreover, evaluating the extent of potential liability of the insured, which would necessarily include assessment of damages, is within the ordinary course of business of an insurance company, and therefore is not privileged even though it has been conducted by retained counsel to perform examinations under oath. …

Therefore, those communications which occurred before the date that the defendants had reasonable grounds to reject the claim … are not immune from discovery.”