Privilege problems in today’s world of insurance-related claims

Privilege problems in today's world of insurance-related claims CLM Southwest Ohio Chapter Nov 10, 2016 at Cincinnati Insurance Company Presentation Team Richard D. Porotsky, Jr. Dinsmore & Shohl LLP Partner (513) 977-8256 [email protected] Christopher Wanter Celina Mutual Insurance Senior Litigation Manager (419) 586-8996 [email protected] Jennifer Rockel Ohio National Life Insurance Litigation Paralegal (513) 794-6557 Jennifer [email protected]

Key questions we’ll answer today: Use of outside counsel: – does use of outside counsel in a coverage matter (non bad faith) mean that the communications are protected as privileged and confidential? Bad faith cases (in light of Boone v. Vanliner): – does Boone today mean that the mere allegation of bad faith in the Complaint opens the door to discovery of privileged materials in Ohio? Electronic material/emails – overuse & inadvertent disclosure: – Does overuse of internal email create risks of privilege waiver? – What simple e-discovery steps can help manage privilege issues and minimize loss of privilege material? www.theclm.org

Basic background Ohio Privilege and Work Product Confidentiality – a professional issue – Ohio Rule of Professional Responsibility 1.6 Privilege – an evidentiary issue, for policy reasons – Ohio statute and case law Work Product – an evidentiary issue, for policy reasons – Ohio Civil Rules and case law (or federal law) www.theclm.org

Basic Background Rule 1. 6 -- Ohio Rules of Prof’l Conduct Lawyer shall not reveal information re representation unless: – client gives informed consent, – disclosure impliedly authorized for the representation; or – disclosure permitted below. May reveal information the lawyer reasonably believes necessary for 7 circumstances (including as required by law). Shall make reasonable efforts to prevent unauthorized disclosure – Online access? Portable devices? – Document productions in e-discovery? www.theclm.org

Basic Background Attorney-Client Privilege: an evidentiary issue “Sound legal advice or advocacy depends upon the lawyer[s] being fully informed.” – Privilege exists to “encourage full and frank communications between attorneys and clients” Protects the giving of professional advice Protects the giving of information to the lawyers. Squire, Sanders & Dempsey, L.L.P. v. Givaudan Flavors Corp., 127 Ohio St. 3d 161, 2010-Ohio-4469 (pjohn Co. v. United States, 449 U.S. 383, 389-90 (1981). www.theclm.org

Basic Background Elements of Attorney-Client Privilege “In Ohio, the attorney-client privilege is governed by statute, R.C. 2317.02(A), and in cases that are not addressed in R.C. 2317.02(A), by common law.“ – Squire, Sanders, 127 Ohio St. 3d at ¶17. www.theclm.org

Basic Background Elements of Attorney-Client Privilege Common Law: A/C privilege applies when: – – – – – Communication Made in confidence Between an attorney And a client For purposes of seeking legal advice State ex rel. Leslie v. Ohio Housing Fin. Agency, 105 Ohio St. 3d 261, 2005 Ohio 1508, 824 N.E.2d 990, ¶21 www.theclm.org

Basic Background Elements of Attorney-Client Privilege Ohio’s statutory privilege, R.C. 2317.02(A): – “prevents an attorney from testifying concerning communications made to the attorney by a client or the attorney's advice to a client” – “applies not only to prohibit testimony at trial, but also to protect the sought-after communications during the discovery process.“ Squire, Sanders, 127 Ohio St. 3d at ¶18. www.theclm.org

Basic Background Privilege Does Not Protect Underlying Facts “[P]rotection . extends only to communications and not to facts” – “The client cannot be compelled to answer the question, What did you say or write to the attorney?‘” – “[B]ut may not refuse to disclose any relevant fact within his knowledge merely because he [disclosed it] to his attorney “ – Upjohn Co. v. U.S., 449 U.S. 383, 395-96 (1981). www.theclm.org

Basic Background Work Product Protection: an evidentiary issue Ohio Rule (or Fed’l Rule) Civ. Proc. 26(b)(3) provides a qualified protection from discovery when materials are: – Documents and tangible things otherwise discoverable; – Prepared “in anticipation of litigation” or for trial; and – By or for another party or by or for that party’s representative – Except: upon a showing of good cause (hardship/need) Squire, Sanders, 127 Ohio St. 3d at ¶56-57; Hickman v. Taylor, 329 U.S. 495 (1947) www.theclm.org

Basic Background Waivers of A/C Privilege and WP Waivers – Privilege belongs to and can be waived by client For corporations, power to waive rests with management – Work product is the attorney’s to waive Inadvertent production . . . See also Fed.R.Evid 502 -- limiting the effect of waivers Orders per Rule 502(d) www.theclm.org

Basic Background Exceptions to Attorney Client Privilege “Exceptions to the attorney-client privilege codified by R.C. 2317.02(A) notwithstanding their absence from the statutory text.” – Crime-Fraud (cooperation with wrongdoing) – Lack of Good Faith (unworthy of protection) – Self Protection (claim for fees or re malpractice) Squire, Sanders, 127 Ohio St. 3d at ¶24-32 www.theclm.org

I. Use of Counsel in Coverage Matters Counsel’s investigation / adjusting work is discoverable – Stegman v. Nickels, 2006-Ohio-4918 (6th Dist.) Discovery of attorney involvement with “mere[] investigative business reports related to the processing of appellants’ insurance claim.” (renters) – Whitacre v. Nationwide Ins. Co., 2012-Ohio-4557 (7th Dist) “documents produced by a company in the course of business do not become privileged merely because they are given to an attorney” Pre-denial, insurer is “merely carrying out its contractual responsibilities to the insured,” which can’t be “shielded” from review – OneBeacon Ins. v. Forman Int'l, Ltd., 2006 U.S. Dist. LEXIS 90970 (S.D.N.Y ) (attorney helped adjust 142 M claim) cannot claim privilege simply because its claims investigation, measurement and payment were "performed by attorneys” www.theclm.org

I. Use of Counsel in Coverage Matters Gantzos v. Jefferson Ins. Co., 6th Dist. No. L-85-078 (1985 Ohio App. LEXIS 8691, *6-7 & n.2) – a non-insurance case – “privilege . . . does not generally apply to business advice or management of the client's operations by counsel.” – “court must assure fairness in litigation by preventing an attorney's involvement in a client's business affairs to become a strategic ruse to limit” disclosure www.theclm.org

II. Discovery of privileged items in Bad Faith Cases Ohio’s bad faith standard -- Reasonable Justification – "An insurer fails to exercise good faith in the processing of a claim of its insured where its refusal to pay the claim is not predicated upon circumstances that furnish reasonable justification therefor." – when assessment of coverage is being considered Zoppo v. Homestead Ins. (1994), 71 Ohio St.3d 552, syl ¶1: www.theclm.org

II. Discovery of privileged items in Bad Faith Cases Types of bad faith cases – Bad Faith Failure to Settle a Covered Claim, Resulting in Excess Liability Liability for entire judgment against the insured “Incentive” to accept a settlement offer in a case with damages “near or over its policy limits.” Adjudicated judgment required (not consent judgment) www.theclm.org

II. Discovery of privileged items in Bad Faith Cases Types of bad faith cases (cont’d) – – – – Bad Faith Refusal to Pay a Covered Claim Bad Faith Failure to Defend, Even if Indemnity Is Ultimately Disproven Bad Faith Delay in Payment of a Covered Claim Unreasonable claims handling (but questionable if no coverage) Punitive Damages and attorney fees with additional proof – Fraud / insult / malice (reckless indifference) www.theclm.org

II. Discovery of privileged items in Bad Faith Cases Boone v. Vanliner Ins. Co. (2001), 91 Ohio St.3d 209, syl. & 213-14 (emphasis added). – “Claims file materials that show an insurer's lack of good faith in denying coverage are unworthy of protection.” – In cases “alleging bad faith denial . . . the insured is entitled to discover claims file materials containing attorney-client communications related to the issue of coverage that were created prior to the denial of coverage." – Court “may issue a stay of the bad faith claim and related production” if it would inhibit the insurer in the underlying claim www.theclm.org

II. Discovery of privileged items in Bad Faith Cases Bad Faith is an “exception” to privilege – Squire, Sanders, 127 Ohio St. 3d at ¶24-32 Some cases thus simply require production – Maxey v. State Farm Fire & Cas. Co., 569 F. Supp. 2d 720 (S.D. Ohio 2008) (discovery ordered and no stay required, which would cause “unnecessary duplication, delay, and expense & does not serve . . . judicial economy”) – Many other cases provide for production of privileged items – Denial of stay / bifurcation www.theclm.org

II. Discovery of privileged items in Bad Faith Cases Courts struggle to apply Boone, since it weakens attorneyclient privilege – Allowing stay of discovery Garg v. State Automobile Mut. Ins. Co. (2nd Dist. 2003), 155 Ohio App.3d 258 (invokes a stay due to prejudice to the insurer) – Finding a disputed legal opinion need not be produced as not part of claims file Park-Ohio Holdings Corp. v. Liberty Mut . Fire Ins. Co., 2015 U.S. Dist. LEXIS 112448 (N.D. Ohio) – Allowing immediate appeal of privilege issues under Boone Devito v. Grange Mut. Cas. Co., 2013-Ohio-3435 (8th Dist.) www.theclm.org

II. Discovery of privileged items in Bad Faith Cases Legislature addressed Boone, adds RC. 2317.02(A)(2): – "(2) An attorney [shall not testify]. . . except that if the client is an insurance company, the attorney may be compelled to testify, subject to an in camera inspection by a court, about communications . . . aiding or furthering an ongoing or future commission of bad faith . . . if the party . . . has made a prima facie showing of bad faith.“ www.theclm.org

II. Discovery of privileged items in Bad Faith Cases Gen’l Assembly Notes re: RC. 2317.02(A)(2) – “court should conduct an in camera inspection of disputed communications. The common law established in Boone v. Vanliner . . . [and other cases] is modified accordingly to provide for judicial review regarding the privilege.” www.theclm.org

II. Discovery of privileged items in Bad Faith Cases Some federal courts have rejected the statutory changes requiring some showing – Mayer v. Allstate Vehicle & Prop. Ins. Co., 2016 U.S. Dist. LEXIS 54477 (S.D. Ohio) the plain language [of the statute] makes clear that it applies only to testimony, not documents” – Tallmadge Spinning & Metal Co. v. Am. States Ins. Co., 2016 U.S. Dist. L EXIS 55953 (N.D. Ohio) same www.theclm.org

II. Discovery of privileged items in Bad Faith Cases Some Ohio courts uphold the statute as requiring a bad faith showing in camera – Summit Park Apts., LLC v. Great Lakes Reins. (UK), PLC, 2016-Ohio-1514 (10th Dist 2016) “Finding on their face no evidence of bad faith we reverse the trial court's judgment as to GL001888” – Galion Cmty . Hosp. v. Hartford Life & Accident Ins. Co., 2010 U.S. Dist. LEXIS 7727 (N.D. Ohio) “Plaintiff has failed to make a prima facie showing” – Devito v. Grange Mut. Cas. Co., 2013-Ohio-3435 (8th Dist) only those items which “may cast light” on bad faith – Bausman v. Am. Family Ins., 2016 Ohio App. LEXIS 744 (2nd Dist 2016) www.theclm.org

II. Discovery of privileged items in Bad Faith Cases Key discussion of Ohio Statute: – “A testimonial privilege applies not only to prohibit testimony at trial, but also to protect the soughtafter communications during the discovery process . . . [T]he discovery of attorney-client communications necessarily jeopardizes the testimonial privilege. Such privileges would be of little import were they not applicable during the discovery process.” Summit Park, 2016-Ohio-1514 (10th Dist) quoting Jackson v. Greger, 110 Ohio St.3d 488, 2006-Ohio-4968, P 7, fn. 1 www.theclm.org

II. Discovery of privileged items in Bad Faith Cases The legislature’s principled approach makes sense, but until enforced by the Ohio Supreme Court, confusion and exceptions will abound: – immediate appeals of Boone issues – exceptions of individual documents (Park-Ohio) – bifurcation / stays of discovery www.theclm.org

III. Privilege in the electronic age Broad / Expansive distribution of internal emails can create issues of waiver – Orion Corp. v. Sun Pharmaceuticals Indus., 2010 U.S. Dist. LEXIS 15975, *26 (D.N.J. 2010) patent infringement case Sun sought commercial info distributed to 112 non-attorney employees, No identification of duties / roles on the privilege log – Result: “Waived” privilege due to “widespread dissemination” beyond needs www.theclm.org

III. Privilege in the electronic age Case Study: company not appreciating risk of disclosure of counsel’s email – Local Lawsuit re failure to pay multi-million dollar earn out (stock purchase) Local investors (plaintiffs) v multinat’l buyer (defendant) Defendant claims fraud in pre-sale disclosures – lists is “VP and GC” as the leaders in due diligence efforts Plaintiff seeks discovery of all due diligence items www.theclm.org

III. Privilege in the electronic age Case Study (cont’d) – Defendant produces 250,000 items in e-discovery Plaintiffs’ counsel finds a damaging item (Ex. A) from “VP and GC,” commenting on business, regulatory issue 4 months later, Defendant seeks to clawback 972 items, including Ex. A – Protective order provided clawback of inadvertent disclosures; Plaintiffs’ asks Court guidance – Def’t seeks sanctions against Plaintiffs’ counsel – Evid’y hearing scheduled. Stipulated resolution. www.theclm.org

III. Privilege in the electronic age Lessons? – Understand the roles played by counsel; avoid mixing business roles – Employ procedures to limit the risk of disclosure – Never write if you can speak, never speak if you can nod, never nod if you can wink. Attributed to the 19th century Boston political boss Martin Lomasney. www.theclm.org

III. Privilege in the electronic age Tools and procedures to avoid inadvertent disclosure of privileged emails – – – – Basic search technology Email threading Near-dupe analysis Predictive coding www.theclm.org

III. Privilege in the electronic age Ohio Rule of Professional Conduct 4.4: RESPECT FOR RIGHTS OF THIRD PERSONS – (b) A lawyer who receives a document or electronically stored information relating to the representation of the lawyer’s client and knows or reasonably should know that the document or electronically stored information was inadvertently sent shall promptly notify the sender. – Cmt 3: the decision to return or delete (beyond notify) is one of professional judgment www.theclm.org

III. Privilege in the electronic age Ohio Rule of Professional Conduct 1.6 – (a) a lawyer shall not reveal information relating to the representation of a client . . . [absent consent] – (c)A lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized disclosure of or unauthorized access to information related to the representation of a client. Cmt 18 not a violation “if the lawyer has made reasonable efforts to prevent the access or disclosure.” www.theclm.org

III. Privilege in the electronic age Non-Waiver per Fed’l Rule of Evid. 502(b) (b) Inadvertent Disclosure. When made in a federal proceeding or to a federal office or agency, the disclosure does not operate as a waiver in a federal or state proceeding if: – (1) the disclosure is inadvertent; – (2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and – (3) the holder promptly took reasonable steps to rectify the error, including (if applicable) following Federal Rule of Civil Procedure 26 (b) (5)(B). www.theclm.org

III. Privilege in the electronic age Non-waiver -- FRCP 26(b)(5)(B) [similar to to Ohio Rule 26(B)(6)(b)] – Information Produced. If information produced in discovery is subject to a claim of privilege or of protection as trial-preparation material, the party making the claim may notify any party that received the information of the claim . . . [A] party must promptly return, sequester, or destroy the specified information and any copies it has; must not use or disclose . . .; and may promptly present the information to the court under seal for [ruling]. . . www.theclm.org

III. Privilege in the electronic age Using an order under Fed’l Rule Evid. 502(d) can further protect inadvertent disclosures: – (d) Controlling Effect of a Court Order. A federal court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court — in which event the disclosure is also not a waiver in any other federal or state proceeding Agreements re discovery and privilege – Clawback rights (though may be covered by rule) – Procedures for enforcing privilege rights or resolving privilege issues Claims, briefing, filings under seal, use of magistrate www.theclm.org

IV. Summary – steps to minimize loss of privilege 1. Understand the hat counsel is wearing – business or legal. Where possible, separate legal and business communications. 2. Document the purpose of communications (e.g. part of litigation preparation) done at direction of counsel. -Can be as simple as: “This information is being requested for the purposes of upcoming litigation or trial.” 3. Minimize internal distribution of legal advice. Train / educate employees – on email creation -- reduce emails to team members (extra non-legal folks on the chain dilutes the privilege claim) 4. When producing documents in litigation, especially with large volumes, do so: (a) with claw-back agreements or court orders allowing same; and (b) using safeguards in the tools and procedures which can catch issues for special review. www.theclm.org

Q&A Richard D. Porotsky, Jr. Dinsmore & Shohl LLP Partner (513) 977-8256 [email protected] Christopher Wanter Celina Mutual Insurance Senior Litigation Manager (419) 586-8996 [email protected] Jennifer Rockel Ohio National Life Insurance Litigation Paralegal (513) 794-6557 Jennifer [email protected] www.theclm.org