• Attorney-Client Privilege Leaving Employers in the Dark
  • March 14, 2013
  • Law Firm: Hirschler Fleischer A Professional Corporation - Richmond Office
  • Within the past year, two state Supreme Courts have issued rulings restricting employers’ access to information in workers’ compensation claims and thus driving a wedge between employers and their insurers. These decisions of the high courts of Texas and Montana offer to employers and insurers a warning that should be heeded in all states: use discretion when sharing information in workers’ compensation cases, because the attorney-client privilege may not protect you.

    In Am. Zurich Ins. Co. v. Montana Thirteenth Judicial Dist. Court, 364 Mont. 299, 280 P.3d 240 (2012), the Supreme Court of Montana held that a letter written by the insurer’s attorney to the adjuster, which the adjuster then voluntarily disclosed to the employer, was not protected from disclosure by the attorney-client privilege. Phillip Peters, an employee of Roscoe Steel & Culvert Co. (“Roscoe”), filed a workers’ compensation claim after suffering an injury at work. American Zurich Insurance Company (“Zurich”), which insured Roscoe, accepted liability for Peters’ claim and contracted with Employee Benefit Management Solutions (“EBMS”), a third-party adjuster, to provide services for Peters’ claim. EBMS employee Jim Kimmel was responsible for adjusting Peters’ claim.

    When Peters and Zurich disagreed as to certain aspects of Peters’ claim, attorney Joe Maynard advised Zurich on various legal matters relating to the claim. In preparation for mediation, Maynard prepared a letter offering his opinion and evaluation of Peters’ case. Maynard sent the letter to Kimmel, who made his own notations on the letter and then sent a copy of the letter to Roscoe. When the case did not settle at mediation, Peters served Roscoe with a subpoena duces tecum requesting Roscoe’s entire file relating to the claim, including all correspondence with Zurich, EBMS, and Maynard. Roscoe objected to the subpoena, citing the attorney-client privilege.

    In affirming the conclusion of the district court, the Montana Supreme Court held that the attorney-client privilege did not authorize Roscoe to withhold the Maynard letter because Roscoe was not a party to the action, and further, it did not share a common legal interest in Zurich’s adjustment of the workers’ compensation claim. The Court determined that Zurich’s disclosure of the letter via Kimmel to Roscoe constituted a waiver of its attorney-client privilege. Although the Court recognized the importance of collaboration between an insurer and an employer with regard to the settlement of workers’ compensation claims, it went on to explain that “an employer and an insurer do not share a common legal interest in the adjustment of an employee’s claim for compensation for which the insurer exclusively is liable.” The Court compared the employer’s role during the adjustment process to that of a witness-it would be called to provide background information about the employee to the insurer, but would not ultimately bear liability. Thus, the attorney-client privilege could not extend to cover the communication between Roscoe and Zurich.

    Similarly, in In re EL Specialty Ins. Co., 373 S.W.3d 46 (Tex. 2012), the Supreme Court of Texas held that the attorney-client privilege does not protect communications between an insurer and its insured. XL Specialty Insurance Company (“XL”) served as Cintas Corporation’s (“Cintas”) workers’ compensation insurer. Jerome Wagner, a Cintas employee, filed a claim for workers’ compensation benefits for a work-related injury. Melissa Martinez, a claims adjuster with XL’s third-party administrator, Cambridge Integrated Services Group, Inc. (“Cambridge”), denied the claim. Subsequently, a contested hearing was held before the Division of Workers’ Compensation, after which the hearing officer held that Wagner was entitled to benefits. During the course of the litigation, XL’s outside counsel sent communications about the status and the evaluation of the case to Cambridge and Cintas. During discovery in a separate suit filed by Wagner for breach of the common law duty of good faith and fair dealing, Wagner sought the communications made between XL’s attorney and Cintas. The Court held that XL had failed to show that its lawyer’s communications to Cintas and Cambridge were protected, and refused to recognize a general insurer-insured privilege.

    As a result of these decisions, “insurers and third-party administrators are restricting legal information they provide to employers in workers comp litigation . . . .” Sheena Harrison, Employers seek to overturn attorney-client privilege rulings, Business Insurance, Feb. 11, 2013, at 4. As this article notes, when it comes to sharing legal information and opinions from counsel, employers will likely see their insurers exercising greater caution. Of course, this puts a damper on the spirit of cooperation between insurance carriers and employers who seek to resolve these claims.

    While it is essential for employers to cooperate with their insurers in the investigation, settlement, and defense of workers’ compensation claims (and may be required by the policy itself), these cases make it clear that in the context of workers’ compensation, an employer’s relationship with its insurer is not one of co-litigant. Until the enactment of legislation allowing for direct communication between an employer and its insurer’s counsel, employers should expect that shared legal information between them and their insurer will be discoverable, and should be aware that as a result, they may not be privy to the whole story when it comes to legal opinions and evaluations of workers’ compensation claims.