UK: Conflicts - A Policy Issue?

Insurers and insureds often have to consider more than disputes with a third party - the terms of the policy between the insured party and the insurers may mean that their interests can diverge. The terms of the policy may override the usual rules on privilege where the insurer is seeking documents from a third party.

In Winterthur and NIG v AG (Manchester) Limited (2006), the defendant solicitors had represented personal injury claimants with ATE insurance under the TAG Scheme. Those solicitors had been on the insurers’ panel of claimant firms.

The ATE insurers sued the solicitors and an argument arose whether access by the insurers to claimants’ papers held by the solicitors was prevented by the claimants’ privilege in them.

The ATE policy provided that the insured (i.e. the claimant) would do "…all such acts and things as may be necessary or required by the Company for the purpose of enforcing any rights and remedies … from other parties to which the Company shall be or would become entitled … upon their paying for any case or loss under the Policy …". Aikens J held this wording gave the insurer the right to require the Scheme claimant to waive any privilege if the documents were required by the ATE insurer to make claims against third parties.

This was said to be consistent with the decision in Brown v GRE (1994). Solicitors in that case were instructed by Mr Brown’s professional indemnity insurers to defend a claim against him arising out of a conveyancing matter. As a result of what Mr Brown said, the solicitors formed the view that cover should be denied by reason of dishonesty. They so informed the insurers who declined cover. The solicitors ceased to act. The Court of Appeal held that the policy entitled the solicitors to pass to insurers all communications from Mr Brown during the course of the joint retainer. In communicating with the solicitors, Mr Brown was effectively communicating also with the insurers. The insurers were therefore entitled to rely against the insured on the evidence of possible fraud notwithstanding the insured’s litigation privilege.

The judge in the TAG case also held that common interest privilege (which is usually used as a "shield" to prevent disclosure to a third party) can also be used as a "sword" to prevent one party with a common interest in privileged documents asserting privilege against the other. The judge thought this applied both to litigation privilege and legal advice privilege. It was a legitimate extension of common interest to allow NIG to use the documents against the panel solicitors because of the wide contractual provisions obliging the Scheme claimants to cooperate with the insurers. (However, common interest privilege, like joint privilege, could not be waived by one party alone. Winterthur, NIG’s assignee, could not use those documents on this basis as there had been no waiver of privilege against Winterthur by the Scheme claimants. This did not affect the overall outcome of the case becauseWinterthur, as assignee, could rely on the contractual rights).

One further question that arises is whether the insured’s agreement to provide the insurer with access to the documents is subject to any restriction. The judge in TAG referred to the decision in TSB v Robert Irving & Burns (2000). In that case, during the handling of the defence of a claim, the defendant’s solicitors, acting both for insured and insurers, discovered matters that made them believe that cover might be excluded. They arranged a conference with counsel and instructed him that coverage was to be considered. This was not communicated to the insured.

The Court of Appeal held that, although there was a waiver of privilege by the insured vis-à-vis the insurer during the joint retainer of solicitors by them, that ended once there was an actual conflict, unless the insured, having been advised of the conflict, elected to continue the joint retainer. The information obtained at the conference could, therefore, not be relied upon by the insurer against the insured. Brown v GRE was distinguished on the basis that the information communicated in that case had been learnt while preparing the defence and therefore during the course of the joint retainer.

The judge in TAG relied on TSB as authority that where the agreement to give access to privileged communications is founded on a joint or common interest then, if the joint or common interest ends, there is no right to have access to privileged documents subsequently created. The implications of this reasoning appear to extend beyond the professional indemnity context to any situation where two or more clients with common interests use the same solicitor.

This is a scenario which the new conflict rules may make more common in practice. The potential for unwary solicitors inadvertently to disclose privileged information when clients’ express or implied agreement to its release to another of their clients has come to an end may therefore have increased.

• Solicitors handling litigation where the client is insured should always keep in mind the risk that a conflict might develop.

• Lawyers acting for both insured and insurer will normally be entitled to pass to insurers all information obtained provided the policy so provides or a term to that effect can be implied for so long as there is a joint retainer.

• They cannot do so in relation to information obtained after that retainer has ended, unless there is informed consent from the insured. Even then, they may have to stop acting if there is an actual conflict between insured and insurer.

Common interest privilege may be able to be used by an insurer to obtain access to an insured’s privileged documents.

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.