575 B.R. 29
Bankr. S.D.N.Y.2017Background
- RFC and affiliates filed Chapter 11; insurers (Underwriters) issued a combined D&O/E&O/etc. policy to GM; Sedgwick attorney Eugene Elsbree was designated to receive claims notices.
- From 2001–2013 Sedgwick produced recurring "Direct Reports" and bordereaux about second-mortgage litigation against RFC (the Underlying Actions); Plaintiffs contend these show Sedgwick acted as claims handler; Underwriters say Sedgwick acted as coverage counsel.
- Plaintiffs moved to compel documents redacted or withheld as attorney-client or work-product, arguing Sedgwick performed ordinary claims-handling and therefore privilege does not apply; Underwriters asserted privilege and that litigation was anticipated on October 17, 2008 (Mitchell ROR).
- The Court conducted in camera review and hearings; Underwriters produced some documents during the dispute, narrowing issues.
- Court found Sedgwick performed both claims-handling tasks (notice receipt, fact summaries, file maintenance) and legal work (coverage analysis, legal research, legal recommendations), so many documents contain mixed content.
- Court ruled: legal analysis/opinion portions are privileged; historical/factual claims-processing material is discoverable; work-product protection applies only to materials prepared in anticipation of litigation and the Court found October 17, 2008 (Mitchell ROR) is the date litigation was reasonably anticipated; reserve information need not be produced (not shown to be relevant and appears protected).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Sedgwick's reports are protected by the attorney‑client privilege | Sedgwick acted as claims adjuster so reports are ordinary business records not privileged | Sedgwick was retained as coverage counsel; reports include legal analysis and are privileged | Mixed role: factual claims-handling portions are producible; legal analysis/opinion portions are privileged and may remain redacted |
| Whether Sedgwick's dual role (investigator vs. counsel) waives privilege | Dual role defeats privilege for communications made in course of claims handling | Privilege survives where communications are primarily legal in character even if they refer to nonlegal matters | Privilege applies to communications predominantly legal; documents must be parsed and redactions narrowed accordingly |
| When litigation was "anticipated" for work-product protection | Litigation not reasonably anticipated until Feb 29, 2012 (denial of demand) | Litigation was anticipated by Oct 17, 2008 (Mitchell reservation of rights) | Held Oct 17, 2008 is the date litigation was reasonably anticipated; materials dated before that withheld as work product must be produced; later materials can be protected |
| Discoverability of reserve information | Reserves relevant to Underwriters' knowledge, settlement reasonableness, and possible bad‑faith conduct | Reserves irrelevant to coverage dispute and protected by privilege/work product | Plaintiffs failed to show relevance (no live bad‑faith claim); reserve information not ordered produced |
Key Cases Cited
- Upjohn Co. v. United States, 449 U.S. 383 (U.S. 1981) (purpose and scope of attorney‑client privilege to encourage candid communications)
- Spectrum Sys. Int’l Corp. v. Chemical Bank, 78 N.Y.2d 371 (N.Y. 1991) (legal communications not transformed into nonprivileged business communications merely because they concern business matters)
- Rossi v. Blue Cross & Blue Shield of Greater N.Y., 73 N.Y.2d 688 (N.Y. 1989) (privilege protects confidential communications for obtaining legal advice)
- Hickman v. Taylor, 329 U.S. 495 (U.S. 1947) (work product doctrine protects attorney’s mental impressions, theories, and strategy)
- In re Steinhardt Partners, L.P., 9 F.3d 230 (2d Cir. 1993) (work product doctrine and the protection of attorney thought processes)
- United States v. Alman, 134 F.3d 1194 (2d Cir. 1998) (documents are protected if prepared because of prospect of litigation rather than in ordinary course of business)
- People v. Mitchell, 68 N.Y.2d 368 (N.Y. 1986) (elements and burdens for claiming attorney‑client privilege)