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Attorney-Client Work Product Doctrine

Cades Attorney PHILIP LEAS wins case that work product doctrine protection does not extend to in-house attorneys, further developing the definition of “rendition of legal services”.

This published decision develops the law of attorney-client privilege and the work-product doctrine protection for communications of an in-house attorney with its employer, especially for insurance company in-house attorneys who serve as claim handlers.

The plaintiff had a lender’s title insurance policy for its $2.4 million dollar mortgage loan.  It turned out that the borrower’s title was based on a forged deed and, therefore, invalid, resulting in a complete failure of title and liability of the title insurer for the full policy amount.  The title insurer apparently knew of the forgery within 60-90 days after the plaintiff made his claim, but the insurer managed not to pay the claim for two and a half years while engaging counsel on behalf of the plaintiff to defend unsuccessfully against suit brought to quiet title against the plaintiff and his borrower.

The plaintiff sued for his policy benefits and for bad faith delay on the part of the insurer.  Four months after suit was filed, the insurer paid the full policy amount, and discovery ensued on the bad-faith claim.  Part of the business model for title insurance companies, and perhaps for other types of insurers, is to engage only attorneys as claim handlers.  When the plaintiff sought the title company’s claim file, almost all of it was withheld on grounds of attorney-client privilege and work product (in anticipation of litigation with the plaintiff who ultimately had to sue for his benefits).  Some materials were furnished, and other materials were withheld and furnished to the court for in camera review.  After the in camera review, the circuit court judge ordered all of the withheld documents to be protected from disclosure.  The circuit court judge later granted summary judgment to the insurance company by finding that it had acted reasonably in waiting two and a half years to pay the claim.

On appeal the ICA reversed the summary judgment because a finding of reasonableness is fact intensive, and lots more explaining is needed to account for a delay of two and a half years in the face of a forged deed.  The court also had the benefit of the discovery documents filed under seal and kept under seal after the circuit court upheld the assertions of privilege and work product.

On the subject of attorney-client privilege, the court pointed out that the privilege is codified in HRE Rule 503 and that “the privilege depends on whether the communications involved the rendition of professional legal services.”  Slip op. at 28.  This entails an inquiry into “whether a communication is ‘primarily or predominantly of a legal character.’”  An in-house attorney usually performs both legal functions and functions that would be performed in the company’s ordinary course of business and not necessarily by a lawyer.  Claim handling is part of the ordinary business of an insurance company, and the court distinguished “standard claims handling” from professional legal services.  Id. at 35.  The ICA remanded the case to the circuit court for further analysis to determine what parts of the withheld documents involved the rendition of professional legal services.  That should not be sufficient to conceal facts uncovered in the claim investigation, especially what the plaintiff most wants to know, which is when the title company knew the deed was forged.

In addressing the work-product doctrine, the court used almost a page of quotations from other cases, such as, this one:  “’[M]aterials prepared as part of claims investigation are generally not considered work product due to the industry’s need to investigate claims. . . . Documents created during those processes are part of the ordinary course of business of insurance companies.’” Id. at 40.  To find work product, the court also focused on whether documents were prepared “’because of anticipated litigation, and would not have been created in substantially similar form but for the prospect of litigation.’”  Id. at 41.  Given that the party invoking the work-product doctrine has the burden of showing that it applies, this makes it difficult for an insurance company to establish application of the doctrine when the company has no claim handlers other than lawyers.