Insurance Attorneys Acting as Claims Adjusters
Can insurance attorneys hide their claims actions and billing records when they allegedly work with claims adjuster clients to hide reports? That was the issue in an Arizona bad faith case.1
The court noted the general law that an attorney acting as a claims adjuster has no attorney-client privilege:
The attorney must be acting in the role of legal counsel for attorney-client privilege to attach. If the attorney is acting in some other role, as an ordinary businessman, for example as a claim adjuster, the privilege may not be properly claimed. Diversified Industries, Inc. v. Meredith, 572 F.2d 596, 602 (8th Cir. 1977); see also Samaritan Foundation v. Goodfarb, 862 P.2d 870, 874 (Ariz. 1993) (For the attorney-client privilege to apply, the attorney must be acting in the role of legal counsel). In other words, to the extent [the insurance company attorney] acted as a claim adjuster, claims process supervisor, or claim investigation monitor, and not as a legal adviser, the attorney-client privilege does not apply. Harper v. Auto-Owners Ins. Co., 138 F.R.D. 655, 671 (S.D. Ind. 1991).
The judge then published the billing records of the insurance attorney:
06/03/2019: Several communications with Claims Representative for State Auto, Mike Wakefield, regarding case status and obtaining an expert to inspect the building where the loss occurred.
06/03/2019: Communications with our expert, Todd Springer, regarding his assignment and inspecting the property and building where the loss occurred, and the report of prior expert, Donan Engineering.
06/03/2019: Begin review of Donan Engineering report by Marco Platt, in order to discuss the same by our expert, Todd Springer, so he may investigate the loss and evaluate the opinions of Platt and the hailstorm allegations by the insured, ACS.
06/05/2019: Communications with possible expert witness, Todd Springer, who we may retain to inspect the insured’s, ACS, property, as well as evaluate and rebut the Donan report, who is an expert who was retained prior to Mr. Springer, in order to defend claim.
06/06/2019: Prepare for telephonic conference with Mike Wakefield and Mike Myers of State Auto and our expert, Todd Springer, to discuss all aspects of this claim and having Mr. Springer involved in the investigation and inspection of the premises relating to hail damage, by analysis and review of the former engineer’s, Donan Engineering, report.
06/06/2019: Participate in telephonic conference with Mike Wakefield and Mike Myers of State Auto and our expert, Todd Springer, to discuss all aspects of this claim and involving Mr. Springer in the investigation of hail damage at the insured’s residence.
06/11/2019: Communications with our expert, Todd Springer, regarding his work on hail related and damage cases, in order to defend claim, evaluate the insured’s, ACS, loss, and a response to the report of Marco Platt of Donan Engineering.
06/13/2019: Prepare for telephonic conference with expert, Todd Springer, and State Auto representative, Mike Myers, to discuss all aspects of this claim, the Marco Platt report, the building of the insured, ACS, with potential and possible hail damage, and the work we would like Mr. Springer to do and inspect that damage.
06/13/2019: Telephonic conference with our expert, Todd Springer, and State Auto representative, Mike Myers, regarding claim status, inspection by Mr. Springer of the insured’s, ACS, building, and claimed hail damage, in order to evaluate claim and provide analysis of the alleged damage.
06/17/2019: Prepare for communications with State Auto Representatives, Mike Wakefield and Mike Myers, regarding inspection by our expert, Todd Springer, of the insured’s property, by review and analysis of Donan Engineering’s, roofing expert, 20+ page report.
06/17/2019: Telephonic conference with State Auto representatives, Mike Wakefield and Mike Myers, regarding case status, the findings and opinions of our expert, Todd Springer, and options to handle this matter going forward.
The court noted that the second expert hired and the insurance attorney were wearing two hats but ruled that by turning over the attorney billing records, the privilege had been waived:
Defendant has Springer wearing two hats, simultaneously, he was conducting an unbiased independent claim investigation and acting as the defense expert for State Auto in anticipation of litigating the denial of the Plaintiff’s claim. DiCaro cannot wear these two hats without jeopardizing State Auto’s attorney client privilege over the DiCaro- Springer communications. The Court does not, however, reach the question of whether the privilege was destroyed because it was waived. State Auto disclosed the billing statements with the Claim File it released to the Plaintiff.
This is similar to a post, Court Holds Documents Created by Counsel During Claims Handling Were Not Privileged, where I noted a similar finding by a court:
We’ve all seen it before. The insured files a claim, the insurance company sends out an adjuster to adjust the loss, the loss is more complex, or a situation arises that the adjuster cannot handle so the insurance company forwards the claim to their legal department. At that point, an attorney becomes involved and the adjustment of the claim, as well as the communication between the parties is limited and calculated.
The decision for an insurance company to involve an attorney in what is commonly understood to be the business function of claims handling has significant implication for the privileges that typically protect against the disclosure of communications with, or work by, such attorneys.
The problem occurs when attorneys, acting as claims handlers (also known as Super Adjusters), improperly undermine policyholders’ interests and cloak such actions behind supposed privileges.
In Otsuka America v. Crum & Forster Specialty Insurance Company, the insured sued and filed motions indicating that certain documents that Crum & Forster were withholding as privileged should be discoverable. After conducting an in-camera inspection, the trial court ordered Crum to disclose all documents. Crum moved to reargue the motion citing attorney-client and work-product privileges. The court found that ‘an attorney’s communication is not privileged when the attorney is hired for business or personal advice, or to do the work of a nonlawyer.’ The court also found that ‘[t]he payment or rejection of claims is a part of the regular business of an insurance company.’
We also noted similar findings in In Washington, There May Be No Attorney-Client Privilege for Insurers During the Adjusting of a Claim, Attorney Coverage Opinion File is Not Privileged in Mississippi and is Therefore Discoverable, and Insurer’s Claim for Privilege of Attorney’s Pre-Denial Communications Struck Down by New York Court of Appeals.
Insurance companies cannot use attorneys to hide claims file materials that indicate a lack of good faith claims conduct. Indeed, attorney billing records, in conjunction with other contemporaneous billing records and notes, can sometimes show the insurance counsel is in the middle of bad faith conduct.
This should come as no surprise since many insurance company attorneys typically are trying to keep their clients from paying anything and have little or no adjustment training while acting as “super adjusters” – they were trained to legally win cases. Many insurance attorneys have never taken a property insurance adjustment class. They know insurance by reading insurance case law. The insurance customer is not the person insurance attorneys are worried about treating in good faith—but they should be!
I would like to give a shout-out to those insurance counsel who do take property adjustment classes and study books published by the Institutes. For instance, I have always admired former insurance counsel Janet Brown because she has a CPCU designation.
Thought For The Day
Discourage litigation. Persuade your neighbors to compromise whenever you can. As a peacemaker the lawyer has superior opportunity of being a good man. There will still be business enough.
—Abraham Lincoln
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1 ACS International Products v. State Automobile Mut. Ins. Co., No CV-19-00549 (D. Ariz. July 6, 2021).
