Privilege – communications between Insureds and Insurers

by DLA Piper
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A recent decision of the Federal Court of Australia has raised the importance of Insureds carefully considering the risk of implied waiver of legal professional privilege attaching to documents passed by Insureds to Insurers. Whilst each case necessarily turns on its own facts, the recent Federal Court matter is one where common interest privilege did not apply and no adequate steps had been taken to ensure that documents passed to an Insurer would be treated confidentially and in a manner consistent with the maintaining of legal professional privilege. Such considerations do not usually arise where an Insured is confident a valid claim for common interest privilege can be made.

A report prepared by solicitors was provided to a third party, the client’s Insurer. The report was marked ‘privileged’ and ‘confidential’ in several places and the Insured expected its Insurer would maintain confidentiality and privilege in the report consistent with the Insurer’s duty of utmost good faith.  In subsequent litigation, a redacted version of the report was provided by way of discovery.  The report had been redacted on the basis that legal professional privilege applied. 

The issue for determination by the Court was whether the earlier provision of an unredacted version of the report to the Insurer had waived legal professional privilege in the report. There was no dispute that, when the report was first brought into existence, it carried the necessary element of confidentiality giving rise to a valid claim of legal professional privilege.

It was found that legal professional privilege had been waived because the provision to the Insurer of the report in its unredacted form was “entirely antithetical to the confidential purpose and thus was ‘inconsistent with the maintenance of the confidentiality which the privilege is intended to protect.’”

In so determining, the Court made note of several pertinent matters:

  • The duty of disclosure under the policy did not require the provision of privileged material, such that the report was voluntarily disclosed to the Insurer.
  • There was no sufficient commonality of interest between Insured and Insurer and in fact there was real potential for there to be disparity between the interests of Insured and Insurer.
  • There was no implied agreement by the Insurer to treat the report confidentially and the facts did not support a finding that the Insurer would have objectively understood the report contained material of a privileged nature.
  • The report was provided to the Insurer in support of a claim under a policy, so the objective purpose in providing the report must have included the use of it by the Insurer. It was open to the Insurer to seek to evaluate it, including by providing it to third parties under no limitation as to the use of the report.
  • It must have been appreciated that the Insurer could use the information contained in the report in open court should any legal proceeding be brought against it by the Insured and thus may pass into the public domain. In that context the Insurer was not under an obligation not to disclose the contents of the report whilst pursuing the purpose for which it was provided.  The waiver was therefore a complete waiver and not limited in any way.
  • There was no attempt to obtain assurances as to confidentiality from the Insurer.
  • The fact that ‘Private and Confidential’ appeared at the head of documents would not have carried much weight in circumstances where there was no attempt to have the insurer expressly agree to restrictive terms under which the disclosure would be made

This case reinforces, with respect to documents and information over which legal professional privileged is claimed, the importance of acting at all times in a manner consistent with the maintenance of confidentiality and need to explore avenues to protect that confidentiality when dealing with insurers, including obtaining undertakings from Insurers.  

Please click here to read Asahi Holdings (Australia) Pty Ltd v Pacific Equity Partners Limited (No 2) [2014] FCA 481.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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