Summary: It has been common in the past for reports from adjusters and lawyers to be transmitted to underwriters through the brokers. In Certain Underwriters at Lloyd's v National Railroad Passenger Corp (Amtrak), communication via brokers is not held privileged.
A US court has now decided (in Certain Underwriters at Lloyd's v National Railroad Passenger Corp. (Amtrak)) that communications between lawyers and their underwriter clients, which were passed via the brokers (regardless of whether they were based in London or the US) caused privilege attaching to those documents to be lost. The Claimant insured can therefore have access to those advices/communications as they had lost their attorney/client privilege by being transmitted via a third party.
London underwriters argued that, due to the complexity of the marketplace, it was "standard" and "necessary" market practice to use brokers as a clearing house for communications from their US attorneys. But the Judge, deciding a discovery motion, concluded that:
"the fact that a particular method of distributing and/or retaining documents is standard in an industry, does not determine whether that method of distribution comports with the law concerning attorney/client privilege."
One of the arguments deployed was that where a party shares otherwise privileged communications with an outsider, they are deemed to waive privilege as they cannot claim that the communications were still intended to be confidential. The Judge found that entrusting lawyer advices to a third-party - such as the insured's broker - is not an appropriate way to maintain confidentiality. In fact, it amounted to a waiver of privilege.
Whilst the practice of lawyers communicating with the subscription market in London via the broker may have passed, there is no doubt potential for the same problem to arise as there are still disputes on older-year policies where the practice was common. For example, lawyer reports dating back to the 1970s, 1980s and early 1990s, which were passed around the subscription market by the broker, may still be kept on file. Also, the Lloyd's market now uses agencies and third parties to distribute lawyer reports. So what is the position under English law?
Firstly, we must ascertain what type of privilege could apply. Where communications are passing between a lawyer and his client, an insurer, in relation to a coverage dispute with a policyholder (like the facts in Certain Underwriters at Lloyd's v Amtrak), we need to consider the rules concerning legal professional privilege.
The rules concerning privilege are complex. In summary, legal professional privilege is split into two categories: legal advice privilege and litigation privilege. Legal advice privilege covers communications between a lawyer and his client where those communications relate to giving or receiving legal advice. Legal advice privilege is capable of attaching to all communications between a lawyer and his client.
Conversely, litigation privilege arises from the principle that a litigant (or potential litigant) should be free to gather evidence for the purpose of obtaining legal advice without being obliged to disclose the result of their investigations to the opponent. Litigation privilege can attach to communications between a lawyer and his client but, importantly, also between either of them and a third party. But privilege will only attach to communications that have been made for the dominant purpose of the litigation. Further, the litigation must be pending, reasonably contemplated or existing.
Similarly to the US, under English privilege rules, it is also crucial that communications between a lawyer and his client are kept confidential - this is an overriding requirement.
Under English law, where communications are routed via a third party, such as a broker (as in Certain Underwriters at Lloyd's v Amtrak) legal advice privilege or litigation privilege could potentially apply. However, privilege could also be waived if the communications are not kept confidential. The role played by the third party is therefore crucial, particularly where that third party is the broker. The general rule is that a broker is the agent of the insured (albeit there are exceptions to this: for example, a broker may be responsible to the insurer for passing on premiums).
If the agent is doing no more than acting as a conduit, or channel of communication, between the lawyer and client insurer, then those communications may well be covered by legal advice privilege. However, it is important that the agent (such as an agency or broker) acts solely for this purpose and only on behalf of underwriters. For example, routing communications through the broker in circumstances where the insurer and insured are in dispute will, in all likelihood, result in those communications losing their confidentiality and, therefore, privilege. Accordingly, it is likely that a Court in England would have come to the same decision as the US Court in Certain Underwriters at Lloyd's v Amtrak. Privilege could have been maintained if, rather than routing communications via the policyholder's broker, they were sent to underwriters directly or to an agent who acted solely on underwriters' behalf and for that purpose (i.e. a 'mailbox').
If litigation between the insurer and policyholder is in reasonable contemplation, any communications between a lawyer, his client and/or a third party may also be protected by litigation privilege. However, it is crucial that the communications remain confidential. Again, routing communications through the policyholder's broker will result in confidentiality being lost. Ultimately, regardless of whether communications could attract privilege, if those communications are not kept confidential, there is a real risk that privilege will be waived.