Insurance Law Alert

May 2015

In This Issue
Delaware Supreme Court Certifies Allocation and Exhaustion Questions to
New York Court of Appeals
In a decade-long battle over millions of dollars in excess insurance coverage for asbestos
injuries, the Delaware Supreme Court has certified to the New York Court of Appeals two
important questions of law relating to allocation and exhaustion. Century Indem. Co. v. Viking
Pump, Inc., Nos. 518/523/525/528 (Del. May 28, 2015). (click here for full article)“A very, very
impressive team whichis completely hands-on interms of shaping the issues,and dealing with otherparties and the judge.”–Chambers USA 2015
quoting a client

Connecticut Supreme Court Holds That Accidental Loss of Computer Data
Is Not Covered by Liability Policy
The Connecticut Supreme Court held that claims arising out of the accidental loss of computer
data were not covered by general liability policies. Recall Total Info. Mgmt., Inc. v. Federal Ins.
Co., 2015 WL 2371957 (Conn. May 26, 2015). (click here for full article)

Political Risk Policy Does Not Cover Bankruptcy-Related Losses, Says New
York Appellate Court
A New York appellate court ruled that a political risk insurance policy does not provide
coverage for losses stemming from a foreign company’s inability to repay a commercial loan
due to insolvency. CT Investment Mgmt. Co., LLC v. Chartis Specialty Ins. Co., 2015 WL
2184309 (N.Y. App. Div. 1st Dep’t May 12, 2015). (click here for full article)

Louisiana Supreme Court Rules That Insurer May Be Liable for Bad Faith
Failure to Settle Even Absent Settlement Offer
The Louisiana Supreme Court ruled that an insurer may be liable for bad faith failure to settle
under Louisiana statutory law even if the insurer did not receive a firm settlement offer. Kelly
v. State Farm Fire & Cas. Co., 2015 WL 208254 (La. May 5, 2015). (click here for full article)

Sixth Circuit Rejects Reverse Bad Faith Claim Under Kentucky Law
The Sixth Circuit rejected a reverse bad faith claim asserted by an insurer against its
policyholder and refused to certify the question of the claim’s viability to the Kentucky
Supreme Court. State Auto Prop. & Cas. Ins. Co. v. Hargis, 2015 WL 2081922 (6th Cir. May 6,2015). (click here for full article)


Simpson Thacher & Bartlett LLP

1

Insurer Did Not Impliedly Waive Attorney-Client Privilege in Bad Faith
Action, Rules South Dakota Supreme Court
The South Dakota Supreme Court ruled that an insurer did not impliedly waive attorney-client
privilege in a bad faith action and that the district court erred when it ordered the insurer toproduce claim files without conducting an in camera review. Andrews v. Ridco, Inc., 2015 WL
1955644 (S.D. Apr. 29, 2015). (click here for full article)

Recent Delaware Legislation Creates Streamlined Arbitration Process
Delaware enacted the Delaware Rapid Arbitration Act, a statute that seeks to expedite thearbitration process by establishing strict completion deadlines and limiting court intervention.
(click here for full article)

New Jersey Appellate Court Upholds Class Certification Denial Prior to
Discovery
A New Jersey appellate court affirmed a trial court’s denial of class certification prior to
discovery in a putative class action against automobile insurers. Myska v. New Jersey Manuf.
Ins. Co., 2015 WL 2130870 (N.J. Super. Ct. App. Div. May 8, 2015). (click here for full article)

Georgia Appellate Court Rules That Pollution Exclusion Does Not Bar
Coverage for Lead Paint Injuries
A Georgia appellate court ruled that a pollution exclusion does not bar coverage for injuries
arising out of the ingestion or inhalation of lead-based paint. Smith v. Georgia Farm Bureau
Mutual Ins. Co., 2015 WL 1432625 (Ga. Ct. App. Mar. 30, 2015). (click here for full article)

California Appellate Court Deems Attorney Billing Records Privileged
A California appellate court ruled that attorney billing records are privileged and therefore are
not subject to production pursuant to the California Public Records Act. Cnty. of Los Angeles
Bd. of Supervisors v. Superior Court, 235 Cal. App. 4th 1154 (Cal. Ct. App. 2015).
(click here for full article)

Florida Court Addresses Scope of Privilege, “At Issue” Waiver and“Common Legal Interest” Doctrine
A Florida federal district court issued several potentially significant rulings as to the scope andwaiver of attorney-client privilege and work-product protection. Sun Capital Partners, Inc. v.
Twin City Fire Ins. Co., 2015 WL 1860826 (S.D. Fla. Apr. 22, 2015). (click here for full article)2

Allocation Alert:

Delaware Supreme Court Certifies
Allocation and Exhaustion
Questions to New York Court ofAppeals
In a decade-long and highly contentious battle
over millions of dollars in excess insurance
coverage for asbestos injuries, the Delaware
Supreme Court has certified to the New York
Court of Appeals two important questionsof law relating to allocation and exhaustion.
Century Indem. Co. v. Viking Pump, Inc.,
Nos. 518/523/525/528 (Del. May 28, 2015).
The litigation began in 2005, when Viking
Pump sued approximately twenty excess
insurers seeking coverage for tens of
thousands of asbestos-related injury claims.
In 2009, a Delaware Court of Chancery ruledon several issues of law, including allocation.
Departing from well-established New Yorkinsurance law, the court held that coveragefor injuries spanning multiple years shouldbe allocated on an “all sums” basis, underwhich the policyholder can designate asingle policy year to bear the responsibility
for a covered loss that spans multiple policy
periods. Viking Pump, Inc. v. Century Indem.
Co., 2 A.3d 76 (Del. Ch. Ct. 2009) (discussed
in our December 2009 Alert). The court
reasoned that New York had not adopted
a definitive rule of law in favor of pro rata
allocation and that applicable policy language,
rules of contract interpretation and extrinsic
evidence all favored application of “all sums”
allocation. In particular, the court held that
excess policy provisions relating to “noncumulation” and “prior insurance” could
not be reconciled with pro-rata allocation.
Following the ruling, the case went to trial
in Delaware Superior Court, and a jury
ruled “substantially” in Viking Pump’s favor.
Viking Pump, Inc. v. Century Indem. Co.,2013 WL 7098824 (Del. Super. Ct. Oct. 31,2103). Ruling on post-trial motions, the court
addressed the issue of exhaustion. The court
ruled that under New York law, horizontal
exhaustion applies, such that all policies
of a layer of coverage must be exhausted
before policies of a higher layer of coverage
are triggered. In a subsequent post-trial
decision, the court clarified the exhaustion
ruling – one of first impression under New
York law. Relying on a California decision,
the Delaware court predicted that New York’s
highest court would rule that in continuous
injury cases, horizontal exhaustion applies
only to the primary and umbrella layers, butdoes not govern the timing of payment amongexcess tiers of coverage. Viking Pump, Inc. v.
Century Indem. Co., 2014 WL 1305003 (Del.
Super. Ct. Feb. 28, 2014) (discussed in our
April 2014 Alert).
This month, after hearing appellate
arguments relating to the allocation andexhaustion issues, the Delaware Supreme
Court certified the following questions to the
New York Court of Appeals:
1. Under New York law, is the proper
method of allocation to be used
all sums or pro rata when there
are non-cumulation and priorinsurance provisions?
2. Given the Court’s answer to Question#1, under New York law, when theunderlying primary and umbrella
insurance in the same policy period has
been exhausted, what rule determines
when a policyholder may access its
excess insurance: vertical or horizontal?
Because a ruling by New York’s highest courton these issues may affect other continuous
injury and property damage coverage disputes
involving multiple insurers, we will keep you
posted on developments in this matter.

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Coverage Alerts:

Connecticut Supreme Court Holds
That Accidental Loss of Computer
Data Is Not Covered by Liability
PolicyOur January 2014 Alert reported on aConnecticut appellate court decision holdingthat claims arising out of the accidental lossof computer data were not covered by generalliability policies. Recall Total Info. Mgmt., Inc. v.
Federal Ins. Co., 83 A.3d 664 (Conn. App. Ct.
2014). This month, the Connecticut Supreme
Court affirmed. Recall Total Info. Mgmt., Inc. v.
Federal Ins. Co., 2015 WL 2371957 (Conn. May
26, 2015).
The dispute arose out of the loss ofcomputer tapes containing personal data
relating to approximately 500,000 IBM
employees. The tapes fell out of a vanduring their transportation and were neverrecovered. The transportation company
sought indemnification for mitigation andlitigation expenses from its liability insurers.
The insurers denied coverage. In ensuing
litigation, a Connecticut trial court granted
the insurers’ summary judgment motion,
finding that the losses were not covered by
the policies. An intermediate appellate court
affirmed, ruling that the loss of the computer
tapes did not constitute a “personal injury,”defined by the policy as injury caused by“electronic, oral, written or other publicationof material that … violates a person’s rightto privacy.” The court explained that there
had been no “publication” of the lost data
because there was no evidence (or evenallegations) that the personal information had
ever been accessed. The court rejected theargument that an invasion of privacy should
be presumed because the incident triggeredcertain obligations under state notification
statutes. The appellate court also ruled thatthe insurers did not waive coverage defenses
by breaching their duty to defend. The court
explained that there was no duty to defend
because no “suit” had been filed and that
settlement negotiations were not equivalent
to a suit. The Connecticut Supreme Court
affirmed the appellate court’s decision, statingthat “[w]e … adopt the Appellate Court’s
opinion as the proper statement of the issue
and the applicable law concerning that issue.”

Political Risk Policy Does Not Cover
Bankruptcy-Related Losses, Says
New York Appellate Court
Reversing a trial court decision, a New Yorkappellate court ruled that a political risk
insurance policy does not provide coveragefor losses stemming from a foreign company’s
inability to repay a commercial loan due toinsolvency. CT Investment Mgmt. Co., LLC v.
Chartis Specialty Ins. Co., 2015 WL 2184309(N.Y. App. Div. 1st Dep’t May 12, 2015).

A group of investing entities issued a $103
million loan to Mexican companies for resort
development. In connection with the loantransaction, the entities obtained a politicalrisk insurance policy that provided coveragefor two types of losses: (1) losses caused by
expropriatory acts by a foreign government(the “Expropriation Clause”); and (2) losses
arising from a government’s prohibition on
currency transfers (the “Currency Clause”).
The policy excluded coverage for losses“caused by or resulting from … insolvency,
bankruptcy or financial default.” Several
years after the loan was issued, one of theborrowers initiated a voluntary insolvency
proceeding under Mexican law and ceased
making loan repayments. The entities sought
coverage under the policy, which the insurer
denied. In ensuing litigation, a New York trial
court granted the insurer’s motion to dismissthe claims for coverage under the Currency
Clause, but refused to dismiss the claims forcoverage under the Expropriation Clause. The
appellate court modified the order to dismiss
all claims against the insurer.
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The appellate court ruled that the bankruptcy
exclusion unambiguously applied to theclaims. In so ruling, the court rejected theargument that the Mexican insolvency
proceeding did not constitute a “bankruptcy”
because there was no final adjudication
under the Bankruptcy Code. Finding thisinterpretation “overly narrow,” the court
concluded that “bankruptcy” should beafforded a common sense meaning toinclude any “court proceeding in which the
debtor is afforded judicial protection while it
reorganizes or liquidates.” Alternatively, thecourt ruled that neither the Expropriation
Clause nor the Currency Clause provided
coverage for the losses at issue. The court
explained that the application of Mexican
insolvency law (including the issuance ofa stay in pending litigation) was not an“alteration” of Mexican law as required by
the Expropriation Clause. Similarly, theCurrency Clause, which covers losses caused
by prohibitions on transfers of currency, did
not apply because the freezing of loan-related
accounts does not constitute a prohibitionon the transfer of currency. Highlighting thedistinction between political risk policies andcredit policies, the appellate court stated:“[i]f the lenders were concerned about thefinancial stability of one or more of theborrowers, they could have purchased credit
insurance to protect them from the risk of aborrower’s bankruptcy.”

Bad Faith Alerts:

Louisiana Supreme Court Rules
That Insurer May Be Liable for Bad
Faith Failure to Settle Even Absent
Settlement Offer
The Louisiana Supreme Court ruled that aninsurer may be liable for bad faith failure tosettle under Louisiana statutory law even if
the insurer did not receive a firm settlement
offer. The court also held that bad faith may
be based on an insurer’s failure to disclose
facts unrelated to policy coverage. Kelly v. State
Farm Fire & Cas. Co., 2015 WL 208254 (La.
May 5, 2015).
The bad faith claims arose from an
automobile accident between two parties,
Kelly and Thomas. Following the accident,
Kelly’s attorney sought to initiate settlement
negotiations by sending a letter and copies
of medical bills to Thomas’ insurer, State

Farm. State Farm did not respond. Morethan two months later, State Farm offered
to settle for policy limits ($25,000). Kelly
rejected the offer. Thereafter, State Farm
sent Thomas a letter noting the possibilityof personal liability and suggesting that heretain independent counsel. The letter did
not mention the original letter from Kelly,
the settlement offer, or the amount of Kelly’s
medical bills. In ensuing litigation between
Kelly and Thomas, Thomas was found liable
and a judgment of approximately $176,000
was issued. Kelly, as assignee of Thomas’
policy rights, sued State Farm for bad faith.
The district court ruled in State Farm’s favor,
finding that State Farm had no duty to notify
Thomas of Kelly’s original letter to State Farm
because it did not constitute a settlement
offer. The court also held that State Farm
could not be liable for refusing to settle
without a firm settlement offer. The Fifth
Circuit reversed in part and affirmed in part.
The Fifth Circuit agreed that State Farm could
not be liable for bad faith failure to settle
because there was no formal settlement offer,
but found that it could be liable for failure
to communicate pertinent facts to Thomas.
Noting that Louisiana appellate courts haveissued mixed decisions in this context, theFifth Circuit withdrew its opinion and sought
guidance from the Louisiana Supreme Court.
Louisiana statutory law requires an insurer
to make a reasonable effort to settle claims ingood faith. La. R. S. 22:1973. The Louisiana
Supreme Court undertook a plain language
analysis of the statute and held that aninsurer may be liable under section 22.1973
even absent a firm settlement offer. The
court explained that the statute imposes “anaffirmative duty to adjust claims fairly andpromptly and to make a reasonable effort
to settle claims,” but makes no mentionof a settlement offer as a precondition to
an insurer’s affirmative duties. Thus, “[t]oimpose the requirement of a firm settlement
offer would essentially amount to adding
words not included in the statute.” Thecourt also ruled that bad faith liability could
be predicated on section 22:1973 for State
Farm’s failure to disclose facts to Thomas,
even if those facts were unrelated to policy
coverage. The statute prohibits an insurer
from “misrepresenting pertinent facts orinsurance policy provisions relating to any
coverages at issue.” La. R. S. 22:1973(B)(1).
The court reasoned that the use of theword “or” in the statute was disjunctive,
5

insureds but provides no reciprocal rights orremedies to insurers.

meaning that an insurer can be liable formisrepresenting pertinent facts or policy
provisions relating to any coverages at issue.
Therefore, State Farm could be held liable
for bad faith based on its failure to convey
pertinent information (i.e., medical bills andcorrespondence from an injured party) to
its policyholder.

Sixth Circuit Rejects Reverse Bad
Faith Claim Under Kentucky Law
The Sixth Circuit rejected a reverse badfaith claim asserted by an insurer against
its policyholder and refused to certify thequestion of the claim’s viability to the
Kentucky Supreme Court. State Auto Prop. &Cas. Ins. Co. v. Hargis, 2015 WL 2081922(6th Cir. May 6, 2015).
After a fire destroyed Hargis’s home, State
Auto reimbursed her approximately $425,000
under a homeowner’s policy. Thereafter,
Hargis admitted that she had conspired tointentionally destroy her home in order tocollect insurance proceeds. The trial court
declared the policy void, awarded damages
to State Auto, and dismissed Hargis’s bad
faith claim. The court also dismissed State
Auto’s reverse bad faith claim on the basisthat Kentucky law does not recognize such a
cause of action. The Sixth Circuit affirmed.
Although Kentucky law permits first party
bad faith claims by a policyholder against
an insurer, the Sixth Circuit reasoned that
“insureds are in need of protection that
insurers are not,” and that the Kentucky
Supreme Court has previously rejected aninsurer’s challenge to a Kentucky statutethat affords certain rights and remedies to

Notably, a New York district court recently
allowed a reverse bad faith claim to proceed
in reinsurance litigation. In Utica Mutual
Ins. Co. v. Century Indem. Co., No. 6:13-cv995 (N.D.N.Y. May 11, 2015), a magistrate
judge granted a reinsurer’s motion to amend
its answer to add a counterclaim against
the ceding insurer for reverse bad faith.
The district court held that this ruling was
not clearly erroneous, notwithstanding theabsence of New York precedent recognizing
such claims. Acknowledging the plausibilityof a reverse bad faith claim in this context, thecourt emphasized the duty of “utmost goodfaith” owed by a cedent to its reinsurer.

Insurer Did Not Impliedly Waive
Attorney-Client Privilege in Bad
Faith Action, Rules South Dakota
Supreme Court
The South Dakota Supreme Court ruled thatan insurer did not impliedly waive attorneyclient privilege in a bad faith action andthat the district court erred when it ordered
the insurer to produce claim files without
conducting an in camera review. Andrews
v. Ridco, Inc., 2015 WL 1955644 (S.D. Apr.
29, 2015).
An injured employee sued his employer andits workers’ compensation insurer alleging
bad faith. The employee sought discoveryof his claim file and approximately 250
other claim files that were allegedly part ofa deceptive claims handling program. The
insurer objected on the basis of attorneyclient privilege. After a limited in camera
review of the employee’s claim file, thetrial court concluded that the insurer had
impliedly relied on the advice of counsel in
defending against the bad faith claim and had
therefore waived attorney-client privilege as
to all claim files. The South Dakota Supreme
Court disagreed.
The South Dakota Supreme Court ruled thatthe insurer did not expressly or implicitly
rely on the advice of counsel as a defense.
As the court noted, implicit waiver requires
an affirmative act that places the privilegedmaterial at issue in the litigation, which
was not established here. In so ruling, thecourt rejected the employee’s assertion thatthe insurer injected advice of counsel into6the litigation by embedding attorney-client
communications into the claim file notes
and then redacting those communications.
The court explained: “[a]t this point in thelitigation, Twin City has merely alleged thatit did not act in bad faith… . Twin City has
not placed at issue its subjective good-faithreliance on the advice of counsel such as
would invoke an implied waiver of the …
claim file notes.” Finally, the court ruled thatthe trial court committed reversible error
by failing to inspect the claim files in camera
before making a determination as to implied
waiver. Although the court declined to createan across-the-board procedural requirement
for in camera review, it held that “the present
facts establish that Twin City satisfied its
burden of triggering the circuit court’s
obligation to conduct an in camera review ofthe disputed documents.”
Whether claim file notes are privileged iscommonly disputed in coverage litigation.
Decisions in this context are highly factspecific and dependent upon applicablejurisdictional law. In another recent decision
addressing this issue, a New York appellate
court granted a policyholder’s motion tocompel the production of claim file notes.
Lalka v. ACA Ins. Co., 2015 WL 2146923 (N.Y.
App. Div. 4th Dep’t May 8, 2015). There, thecourt held that claim file reports relating to
the payment or rejection of claims were notprivileged, even if prepared by attorneys.
The court reasoned that claim payment
decisions are “part of the regular businessof an insurance company” and therefore notprivileged, “even when those reports are‘mixed/multi-purpose’ reports, motivatedin part by the potential for litigation with
the insured.”Arbitration Alert:
Recent Delaware Legislation
Creates Streamlined Arbitration
Process

Last month, Delaware enacted the Delaware
Rapid Arbitration Act (“DRAA”), a statute thatseeks to expedite dramatically the arbitration
process by establishing strict completion
deadlines, limiting court intervention, andimposing financial penalties on arbitratorsfor failure to issue an award within 120 daysof commencement of arbitration. See Chapter
58, Title 10, Delaware Code. More specifically,
the DRAA eliminates interim challenges tothe arbitration process and, if the parties
agree, the post-award confirmation process.
Specifically, if an arbitration agreement
waives appellate review, the final award isautomatically confirmed five business days
after the award date. If review is not waived,
awards are automatically confirmed withintwenty days of the issuance of the arbitration
decision, unless one of the parties appeals
the award within fifteen days of the award’s
issuance. Such challenges are limited todirect appeal to the Delaware Supreme Court.
The DRAA is available for most disputes
involving at least one business organizedunder Delaware law or with its principal placeof business in Delaware. However, the Act
does not apply to consumer, homeowner andmost shareholder actions. When contracting
parties choose to invoke the DRAA, they are
free to customize the structure of arbitration,
including the number of arbitrators, thechoice of substantive law and the locationof arbitration.

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Class Action Alert:
New Jersey Appellate Court
Upholds Class Certification Denial
Prior to Discovery

A New Jersey appellate court affirmed a trial
court’s denial of class certification prior to
discovery in a putative class action against
automobile insurers. Myska v. New Jersey
Manuf. Ins. Co., 2015 WL 2130870 (N.J. Super.
Ct. App. Div. May 8, 2015).

time, determine by order whether to certify
the action.” N.J. Rule 4:32-2(a). Based on
this statutory language, the court “flatly
reject[ed] plaintiffs’ urging to impose abright-line rule prohibiting examinationof the propriety of class certification until
discovery is undertaken” and held that classcertification, regardless of timing, depends
on whether the claims alleged satisfy thestatutory prerequisites for class certification.
Here, the appellate court concluded thatthey did not, citing to differences in factual
circumstances giving rise to each claim, as
well as variations in class members’ insurance
policies. The appellate court also upheld
the trial court’s consideration of documents
outside of the complaint in denying classcertification because the complaint referenced
those materials.
The ruling supports efforts by class action
defendants to avoid the expense of classaction discovery where class certificationis unwarranted. The decision is alsosignificant because state courts are commonly
considered a more favorable forum thanfederal courts for class action suits.

Pollution
Exclusion Alert:
Plaintiffs alleged that automobile insurers
systematically and improperly denied claims
for diminution in value of automobiles
following car accidents. The complaint alleged
breach of contract and the implied covenantof good faith and fair dealing and statutory
violations. Prior to discovery, the trial
court concluded that class certification was
improper and that the statutory claims were
not actionable. On appeal, plaintiffs argued,
among other things, that the denial of classcertification was premature. A New Jersey
appellate court disagreed and affirmed thetrial court order.
Under New Jersey law, class certification
is appropriate only where common issues
predominate over individualized questions
and where a class action is superior to othermethods of adjudication. See N.J. Rule 4:321(b)(3). Governing statutory law does not
specify the timing for granting or denying
class certification. Rather, it provides that“the court shall, at an early practicable

Georgia Appellate Court Rules That
Pollution Exclusion Does Not Bar
Coverage for Lead Paint Injuries
Addressing an issue of first impression
under Georgia law, a Georgia appellate court
ruled that a pollution exclusion does not
bar coverage for injuries arising out of theingestion or inhalation of lead-based paint.
Smith v. Georgia Farm Bureau Mutual Ins.
Co., 2015 WL 1432625 (Ga. Ct. App. Mar.
30, 2015).
Georgia Farm Bureau filed a declaratory
judgment action seeking a ruling that it
had no duty to defend or indemnify claims
alleging lead paint-related injuries. A Georgia
trial court granted the insurer’s summary
judgment motion, finding that the pollution
exclusion barred coverage. An appellate court
reversed on the basis that the term “pollutant”
was ambiguous as to whether it encompassed
lead or lead-based paint. The court noted theconflict among other jurisdictions regarding
application of a pollution exclusion to leadpaint claims, but concluded that the exclusion
8

should be construed narrowly in favor of theinsured. Notably, the court distinguished
Georgia precedent holding that a similarlyworded pollution exclusion barred coveragefor carbon monoxide-related injuries.

Discovery Alerts:

California Appellate Court Deems
Attorney Billing Records Privileged
Addressing a matter of first impression, a
California appellate court ruled that attorneybilling records are privileged and therefore
are not subject to production pursuant to the
California Public Records Act. Cnty. of Los
Angeles Bd. of Supervisors v. Superior Court, 235
Cal. App. 4th 1154 (Cal. Ct. App. 2015).
The ACLU of Southern California sought
the production of billing invoices of law
firms hired by the County of Los Angeles
to defend police brutality lawsuits. The
County produced billing records for closed
cases, but refused to produce statements
relating to lawsuits that were still pending.
The County argued that the statements
were privileged under section 952 of the
California Evidence Code, which defines aconfidential communication as “informationtransmitted between a client and his or her
lawyer in the course of that relationship andin confidence[,] … includ[ing] a legal opinion
formed and the advice given by the lawyer inthe course of that relationship.” A trial court
disagreed, holding that section 952 does not
apply automatically to all attorney-client
communications and that privilege was notestablished because the County failed toassert specific facts demonstrating that thecontents of the billing records qualified asprivileged communications. The appellate
court vacated the ruling.
The appellate court reasoned that the“proper focus in the privilege inquiry is notwhether the communication contains an
attorney’s opinion or advice, but whether
the relationship is one of attorney-client
and whether the communication was
confidentially transmitted in the course ofthat relationship.” The court held that section
952 does not require the party asserting
privilege to establish that the communication
contains “an opinion, advice, or indeed any
particular content.” The court explained thatthe phrase “includ[ing] a legal opinion formed
and the advice given by the lawyer” was notintended to restrict privilege protection solely
to communications containing legal advice,
and instead serves as a non-exclusive list of
examples of the types of information that may
be included in a confidential communication.
Applying this framework to the record
presented, the court concluded that thebilling records were privileged because thetwo statutory requirements were met—i.e., an
attorney-client relationship existed between
the County and the law firms and the billingrecords were transmitted between thoseparties during the course of representation.

Florida Court Addresses Scope ofPrivilege, “At Issue” Waiver and“Common Legal Interest” Doctrine
In a coverage dispute between two insurers,
Twin City moved to compel the productionof certain documents held by Sun Capital,
including broker communications andinsurance coverage analyses. Sun Capitalrefused to produce the materials on thebasis of attorney-client privilege and workproduct protection. After an in camera review,a Florida federal district court ordered the
production of most materials, issuing several
potentially significant rulings as to thescope and waiver of attorney-client privilege
and work-product protection. Sun CapitalPartners, Inc. v. Twin City Fire Ins. Co., 2015 WL
1860826 (S.D. Fla. Apr. 22, 2015).
Work-Product Protection: The court ruledthat there is a rebuttable presumption that
documents prepared before a final coverage9decision is made are not protected work
product, and that documents prepared aftera final decision are work product. Sun Capitalargued that work-product protection attached
to all documents created after September
2, 2010, the date of an email from defense
counsel to Sun Capital summarizing thepoints of contention between Sun Capital andTwin City. The court disagreed, noting that
Sun Capital did not file suit until two years
later and that the parties were still “actively
working together towards a resolution”
at that time. Instead, the court concluded
that November 2, 2012, the date of Twin
City’s final denial letter, was the time atwhich Sun Capital reasonably anticipatedlitigation. Therefore, only documents createdafter that date were protected by the workproduct doctrine.
“Common Legal Interest” Doctrine: Althougha party generally waives attorney-client
privilege when it discloses communications
to a third party, most courts recognize that an
exception to waiver exists if the parties whoshare the information have a common legal
interest (or if the parties are “joint clients” ofthe same attorney). Here, the court ruled that
Twin City and Sun Capital shared a common
legal interest “in minimizing Sun Capital’s
liability in the underlying action, until thatpoint that the parties reasonably anticipatedlitigation against each other (November 2,2012).” Therefore, the court held that preNovember 2 communications exchanged
between Sun Capital and its defense counsel
and/or its broker, which related to the parties’common interest in the underlying litigation,must be produced to Twin City.
At Issue Waiver: Twin City argued that Sun
Capital waived attorney-client and workproduct privilege by affirmatively injecting
privileged communications into the litigation.
The court agreed. In particular, the court heldthat because Sun Capital’s complaint allegedthat Twin City breached its fiduciary duty bydenying coverage for the underlying claim andby limiting its payment under an allocation
provision, Sun Capital put “at issue” thework-product materials for the underlying
claim. In addition, the court reasoned that
upholding privilege would “deny Twin City
access to information that would be vital toits defense.” Therefore, the court ordered
production of communications between Sun
Capital and its defense counsel “regarding
the defensibility of the underlying claims,
the allocation of reimbursement for covered
and non-covered losses, and communications
regarding the settlement of the underlying
claims.”10

Simpson Thacher has been an international leader in the practice of insurance and reinsurance law for
more than a quarter of a century. Our insurance litigation team practices worldwide.
Mary Kay Vyskocil+1-212-455-3093
mvyskocil@stblaw.com

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ckronenberg@stblaw.com

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gwang@stblaw.com

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+1-212-455-2953
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+1-212-455-3136
dwoll@stblaw.com

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bfriedman@stblaw.com

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Elisa Alcabes+1-212-455-3133
ealcabes@stblaw.com

Andrew T. Frankel+1-212-455-3073
afrankel@stblaw.com

Michael J. Garvey+1-212-455-7358
mgarvey@stblaw.com

Lynn K. Neuner+1-212-455-2696
lneuner@stblaw.com

Tyler B. Robinson+44-(0)20-7275-6118
trobinson@stblaw.com

This edition of the
Insurance Law Alert was
prepared by Mary Beth Forshaw(mforshaw@stblaw.com/+1-212455-2846) and Bryce L. Friedman(bfriedman@stblaw.com/+1-212-4552235) with contributions
by Karen Cestari(kcestari@stblaw.com).

The contents of this publication are for informational purposes only. Neither this publication nor the
lawyers who authored it are rendering legal or other professional advice or opinions on specific facts
or matters, nor does the distribution of this publication to any person constitute the establishment of an
attorney-client relationship. Simpson Thacher & Bartlett LLP assumes no liability in connection withthe use of this publication. Please contact your relationship partner if we can be of assistance regardingthese important developments. The names and office locations of all of our partners, as well as ourrecent memoranda, can be obtained from our website, www.simpsonthacher.com.
Please click here to subscribe to the Insurance Law Alert.
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SOUTH AMERICANew York
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ASIA

Beijing3919 China World Tower
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China+86-10-5965-2999
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West Tower, Mirae Asset Center 1
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Tokyo
Ark Hills Sengokuyama Mori Tower
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Minato-Ku, Tokyo 106-0032
Japan+81-3-5562-6200
12