Insurers are increasingly faced with requests from regulators to provide documents and information that are subject to privilege as attorney-client communications and attorney work product. California law provides that a privilege is waived when a privilege holder has either disclosed or consented to the disclosure of a significant part of an otherwise privileged communication. Even when the disclosure is made in the form of a production to regulators, courts have held the privilege is waived. Accordingly, insurers fear that production of privileged documents will constitute waivers of the privilege, opening the documents to public view and to possible discovery in litigation. A recent California appellate case gives some guidelines for when the privilege may or may not be deemed waived in circumstances where productions are made to regulators.
In The Regents of the University of California et al v. The Superior Court of San Diego County (Aquila Merchant Services, Inc. et al., Real Parties in Interest), 2008 WL 2908123 (Cal.App.4 Dist.), a California appellate court upheld the privilege of documents that defendants produced during the course of the federal government's regulatory and criminal investigations of them. During its investigation, the government advised defendants that it considered a corporation's cooperation when deciding whether to indict. Under the government's policy, one important indicia of a corporation's cooperation was its willingness to waive the attorney-client and attorney work product privileges when responding to the government's subpoenas and requests for documents. With one exception, each of the defendants obtained the government's agreement that the disclosures were not a waiver of the attorney-client and work product privileges, and produced the documents.
The plaintiffs in Regents requested the documents defendants had previously disclosed to the government regulators. When the defendants objected, the plaintiffs moved to compel production on the grounds that the defendants made a business decision to produce the documents to the respective federal agencies, thereby waiving the privilege. The plaintiffs countered that the production was coerced.
On appeal, the court considered what level of compulsion would permit the holder of a privilege to disclose privileged information without waiving either the attorney-client or work product privileges. The court held that the holder of a privilege need only take "reasonable steps" to protect privileged communications. "No case has required that the holder of privilege take extraordinary or heroic measures to preserve the confidentiality of such communications." 2008 WL 2908123 (Cal.App.4 Dist.) at page 3. The court further held that the disclosures the defendants made to government agencies did not waive their attorney-client and attorney work product privileges because the
"means of coercion the government used here were, as a practical matter, more powerful than a court order. A court order can be challenged, without penalty, by way of extraordinary writ or appeal. In contrast here, the defendants here had no means of asserting the privileges without incurring the severe consequences threatened by the government agencies. Moreover, contrary to the plaintiff's argument, the nature and fact or those penalties cannot be seriously doubted..."
2008 WL 2908123 (Cal.App.4 Dist.) at page 8.
Since it would not have been reasonable for the defendants to resist or otherwise challenge the government's requests, the coercion distinguished this case from earlier cases that deemed the privilege waived when productions were made to regulators.