In Rhatigan v Eagle Star Life Assurance Company, the
High Court found that Eagle Star was not required to provide
discovery of documents prepared in anticipation of repudiation of a
life insurance policy as these documents were protected by
litigation privilege. A decision to repudiate is so likely to
provoke litigation, that the steps taken by an insurer towards
making such a decision must necessarily be characterised as steps
taken in contemplation of litigation. Communications between
the insurer and reinsurer were also protected by privilege.
The case involved a claim for specific performance of a €2
million life insurance policy by the personal representatives of
the insured who was deceased. The policy in question had been
repudiated by Eagle Star on the ground of misrepresentation and
non-disclosure of material facts relating to the insured's
medical history. The repudiation was challenged by the
personal representatives (the plaintiff), who also sought discovery
of documents prepared by the insurer following the death of the
insured, mainly letters between the insurer and its reinsurers
regarding the strategy to be adopted with regard to the
claim.
The plaintiff argued that the documents in question could not be
protected by litigation privilege because they were prepared before
litigation could have been contemplated by insurers.
Litigation privilege protects confidential documents prepared with
the dominant purpose of preparing to bring or to defend
litigation. The privilege extends to communications created
prior to the actual commencement of litigation provided litigation
was contemplated or reasonably apprehended. In this case, the
plaintiff contended that litigation could not have been reasonably
apprehended at the time the documents were created during the
investigation of coverage.
The insurers argued that they contemplated litigation as soon as
they received a request for a "terminal illness" claim
form, as the request raised suspicion because the insured had been
apparently in good health less than three months earlier. The
insurers contended that an insurance company generally expects and
contemplates litigation when it refuses to pay out on foot of a
claim made on a policy of insurance. The insurer claimed that it
had envisaged repudiating the policy and declining the claim from
the outset of its coverage investigation.
The High Court agreed with the insurer, commenting that a decision
on the part of a life insurer to repudiate is clearly important and
can only be taken after appropriate investigation as to the
availability of reliable information which will support the basis
for repudiation. The Court considered that the investigation of
possible grounds for repudiation will be bound with an assessment
as to the ability of the insurer to stand over the repudiation in
the event that the decision is challenged. Furthermore, as the
prospective claim was substantial and the risk was shared by the
insurer and reinsurer, it was both necessary and inevitable that
the insurer should discuss and plan its reaction to the claim with
reinsurers and their communications were also privileged.
The Court concluded that a decision to repudiate is so likely to
provoke litigation that the steps taken by the Insurer towards
making such a decision must necessarily be characterised as steps
taken in contemplation of litigation. With regard to the
Plaintiff's argument that the documents pre-dated the point in
time at which litigation could have been apprehended, the Court
confirmed that it is the dominant purpose for which they were
prepared that attracts privilege and not the point in time they
were created.
When investigating cover, insurers should keep in mind that in the
event of a coverage dispute, they may wish to claim privilege over
confidential documentation prepared in the course of the
investigation. Steps should consequently be taken to protect
the confidential nature of such documents and communications and
they should be marked "Privileged – litigation privilege
applies".
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
