The Appellate Division of the Supreme Court of New York has upheld a trial court's ruling that insurance companies can't claim attorney/client privilege for communications with outside counsel engaged in the process of determining whether to pay claims.
A four-judge panel of the appellate division ruled unanimously July 31 to deny a group of insurers' motion to allow them to appeal the ruling in National Union et al. v. TransCanada et al. to the New York Court of Appeals.
At the same time the appellate division also issued a ruling nearly identical to one it handed down in February upholding the trial court's 2013 ruling in the case.
In reaching its ruling, the trial court had reviewed hundred of pages of documents produced before the insurers denied a claim by TransCanada Corp. units that the insurers — FM Global, National Union Fire Insurance Co. of Pittsburgh, Pa., Ace INA Insurance and Arch Insurance Co. — claimed they were protected from discovery by attorney/client privilege, according to Pamela D. Hans, managing shareholder in the Philadelphia office of Anderson Kill P.C., which represented TransCanada.
Ultimately the trial court ruled that the majority were not protected from discovery, a position the appellate division affirmed. While the court agreed that attorney/client privilege can apply when there's anticipation of litigation, “The court said there can be no anticipation of litigation before a determination is made to deny a claim,” Ms. Hans said.
Even though they were prepared by outside counsel, the bulk of the documents dealt with claims handling, an ordinary function of insurance companies, and as such weren't subject to attorney/client privilege, the court ruled.
“It's tremendously important for policyholders because the policyholder is entitled to know what the insurance company is doing to investigate the claim and what their claim determination is,” Ms. Hans said. “Here the court has said that everything behind the denial letter is essentially discoverable.”
Following last week's ruling, several of the insurers filed an emergency motion seeking to stay enforcement of the trial court's August 2013 order, a motion the appellate division denied Tuesday, Ms. Hans said.