Protecting your privilege: a refresher on legal professional privilege for insurers
By Amanda Ryding
In brief - Legal professional privilege has some special considerations for insurers
This article examines the dominant purpose test, legal advice privilege, litigation privilege, joint privilege, common interest privilege and waiver of privilege in the insurance context with reference to relevant cases.
What is legal professional privilege?
Legal professional privilege (LPP) protects from disclosure to third parties, the Court and regulators confidential communications between a client and their lawyers or the contents of a confidential document (prepared by the client, lawyer or another person), for the dominant purpose of:
- the lawyer (or lawyers) providing legal advice to the client – known as legal advice privilege, or
- the client being provided with professional legal services relating to an existing or anticipated proceeding, either in Australia or overseas, in which the client is or may be, or was or might have been, a party - known as litigation privilege.
What is covered by legal professional privilege?
The protection extends to all types of communications, whether oral or written, hard copy or electronic. It includes emails, photographs, taped telephone calls, electronic diary entries and voicemails.
LPP is a fundamental touchstone of all legal systems derived from the English common law. As the Law Council of Australia (the peak national representative body of the Australian legal profession) states on its website:
The proper administration of justice requires that clients are able to communicate freely and frankly with their lawyer, without fear of disclosing any information relevant to the legal advice they are seeking.
In Australia, LPP is statute-based, in the State and Federal Evidence Acts (in New South Wales, the Evidence Act 1995 (NSW)). LPP also arises under the common law.
Key elements required for LPP
The critical elements required for LPP in Australia are:
- the document or communication was created for the "dominant purpose" of legal advice, or providing legal services in respect of anticipated or existing Court proceedings, and
- it must be a communication with a lawyer. This can include an in-house lawyer as long as they are sufficiently independent of the employer such that the in-house lawyer's personal loyalties, duties or interests do not influence the advice given: Waterford v Commonwealth (1987) 163 CLR 54, Seven Network Ltd v News Ltd  FCA 142.
The all-important dominant purpose test
The "dominant purpose" test is critical and will be a question of fact in each case.
Specific issues arise for insurers, particularly when instructing external experts, as evidenced by the recent case in the Supreme Court of Victoria, Samenic Ltd (formerly Hoyts Cinemas Ltd) v APM Group (Aust) Pty Ltd  VSC 194.
In Samenic, a fire occurred in a cinema. The insurer retained external solicitors on behalf of both the insurer and the insured (the owner of the cinema) and retained loss adjusters, who were initially retained by the claims department of the insurer and then formally retained by the insurer's external lawyers.
The loss adjusters retained a forensic consultant specialising in fire and explosion investigations to investigate and report on the fire and asked him to give a report to the lawyers. They did, however, retain him before the external lawyers were retained.
The lawyers gave evidence that the purpose of retaining the loss adjusters was to investigate the fire and obtain the report from the investigator and that the investigator was retained for the purpose of enabling the lawyers to advise the insured as to the prospects of claims against it.
The three defendants were engaged to fit out the cinema, undertake the electrical work and project manage the works respectively. They sought access to the investigator's report via subpoena. The plaintiff argued it was protected by LPP, as it was created for the dominant purpose of the plaintiff obtaining legal advice. The defendants disputed that this was in fact the dominant purpose.
Analysis of dominant purpose in Samenic case
The Court held, relevantly:
- "Dominant" means the purpose which was the ruling, prevailing or most influential purpose. An appropriate starting point is to ask what was the intended use (or uses) of the document which accounted for it being brought into existence.
- A claim for privilege will not succeed if the document is a commercial document or has been brought into existence in the ordinary course of business. In the insurance context, there is no privilege if the document was created to allow an insurer to make a decision in the ordinary course of its insurance business as to whether or not to grant indemnity.
- Documents are not privileged "merely because one of their intended destinations is the desk of a lawyer". Nor is it enough that reports are commissioned or steps are taken because of established corporate or bureaucratic procedures and the report is made as a result of instructions being followed. The Court looks, in this regard, to whether a solicitor has been retained as a device to be interposed between the insurer and the loss adjuster and expert to form a relationship of privilege, but is actually nothing more than a conduit for information.
- In the present case, the Court concluded that nothing turned on the fact that the investigator was retained before the lawyers, and accepted that the lawyers were not retained as a device to attract LPP. The report may not have been for the sole purpose of legal advice (as the insurer needed it for its own business purpose) but that is not the test. The Court concluded that, on the available evidence, the dominant purpose for which the report was created was legal advice.
Joint privilege and common interest privilege
Joint privilege exists where two or more persons join in communicating with a legal adviser for the purpose of obtaining the lawyer's advice (ie two parties sharing the same lawyer), where there is a shared interest or mutual benefit to the parties.
Common interest privilege is a defence to claims made by opposing parties that privilege has been waived in relation to certain communications. It applies where the third party has a relationship with the client that creates a mutual interest such that the party to whom the communications are passed receives them subject to a duty of confidence which the law will protect in the interests of justice, Formica Ltd v Export Credits Guarantee Department  1 Lloyd's Rep 692 at 699.
Under the common law, common interest privilege is not limited to existing or anticipated litigation, nor is it necessary that the parties have a common solicitor or that the identity of their interests are so close that they could have used the same solicitor (as was once thought to be the case), Network Ten Ltd v Capital Television Holdings Limited (1995) 36 NSWLR 275.
However, a claim of common interest privilege under the Evidence Act requires existing or anticipated legal proceedings, and that parties have a common interest relating to those proceedings. The courts, in determining whether there is a sufficient common interest, look to whether there is an "identity of interest" between the parties. Australian courts have refused to define exhaustively the circumstances in which the requisite identity of interest exists and it is a question of fact in each case, Network Ten Ltd v Capital Television Holdings Limited (ibid) at 280.
Whilst the parties do not have to share the same solicitor, it does not apply where the two parties' interests are potentially adverse to each other, and it falls away once they fall into dispute or if their interests are actually adverse to each other.
Particular relationships for insurers in which the question of common interest privilege arises are those between:
- insurer and insured, especially where a claim or facts and circumstances that might give rise to a claim have been notified
- potential underwriter and insured
- insurer and re-insurer
The issue will be whether the parties have a sufficiently common interest in the matters the subject of the advice and this needs to be looked at on a case by case (and communication by communication) basis.
In Bulk Materials (Coal Handling) Services Pty Ltd v Coal & Allied Operations Pty Ltd (1988) 13 NSWLR 689, the plaintiff (the insured) notified its insurer of the possibility of a claim. The insurer's agent instructed solicitors to advise it, who recommended that the insurer's agent obtain a report from an expert. The insurer's agent (on behalf of the insurer) instructed a loss assessor to prepare a report for submission to the solicitors. The insurer's agent gave certain pages of the report to the insured's broker. This was all done prior to a decision on indemnity, although, critically, it was likely that indemnity would be granted.
The Court held that there was common interest privilege between insurer and insured. Whilst the insurer had not, at the time the copied pages were provided to the Insured (via the broker), decided whether or not to extend indemnity to the insured, there was a likelihood that it would do so, and certainly it had not declined to provide indemnity. The insurer therefore had an interest in seeing the best defence put forward by the plaintiff to the cross claim made against it by the defendant, and an interest in enabling the plaintiff to put forward in a timely manner the best cross claim against consultants involved in the project. They had an interest in the most advantageous conduct by the plaintiff of the proceedings then on foot.
They had those interests even prior to a decision to afford indemnity, because upon making such a decision they would become subject to the consequences of the steps earlier taken in the conduct of the litigation. Their interests in these respects were identical with those of the plaintiff.
Waiver of privilege
LPP may be waived by the client but not by the lawyer (although it is unfortunately not uncommon for lawyers to waive their client's privilege in error).
A client will be considered to have waived LPP where their conduct is inconsistent with maintaining that privilege, Mann v Carnell  201 CLR 1. LPP will also be waived where the communication is created to facilitate the commission of a crime or a fraud.
As confidentiality is key to maintaining LPP, loss of confidentiality will lead to waiver of LPP, through (for example):
- providing privileged communications to another party (copying and forwarding emails)
- reading out a privileged communication in open court
- where the content of the confidential communication is put in issue in the proceeding by the party entitled to the privilege, either by including reference to it in a Court document, or tendering it in Court
- public reference (say in a letter, or in discussions with the media) to the supporting legal advice
Voluntary disclosure of the gist or conclusion of legal advice amounts to a waiver of the whole communication, or possibly even a chain of communications. This can be dangerous.
Where LPP is inadvertently waived, an application can be made to the Court for a declaration to, in effect, reinstate the privilege (but this is not something that one would wish to rely upon). These issues come before the Court all the time, most recently in the matter of Idaport Pty Ltd (in liq) (recs apptd), National Australia Bank Limited (& Ors) v John Sheahan (& Ors) NSWSC 58. In short, the Court had to consider whether privileged documents relevant to the plaintiffs' state of mind had been put into issue in the proceeding, with the consequence that the privilege had been waived. After detailed consideration, the Court concluded that it had not (but not before lengthy argument by two sets of barristers and solicitors, and the attendant time and costs). Maintenance of the LPP is the preferable course.
Six top tips for protecting privilege
1. Protect confidentiality at all costs: avoid extensive internal distribution of legal advice or summaries of legal advice (particularly, be wary of the "reply to all' and forwarding functions on emails).
If it is legal advice, or to be sent to a lawyer, mark the document "Confidential and subject to legal professional privilege - do not forward without discussion with...". Remember, however, that simply marking a document "privileged" does not, of itself, make it so.
2. Why are you creating or disseminating the document? What is its purpose?
- Identify clearly the purpose for which the document is created or distributed and "carve out" non-legal advice into a separate stand-alone document.
- Take particular care in creating internal reports, minutes of meetings etc, and reports to auditors.
- Consider whether external consultants should be retained by the lawyer (and not the client) for the purposes of preparing advice or litigation, noting that this, of itself will be insufficient if merely an artificial "device" to attract LPP. Include a letter of instructions to experts outlining why they have been retained.
3. If you are an in-house lawyer, or claims manager, do you have your "lawyer's hat" on? Are you giving legal advice (LPP) or commercial advice (no LPP)? Are you sufficiently independent? Other issues for the in-house lawyer to bear in mind are:
- Ensure your job title and description accurately reflect the job that you are performing as a lawyer - consider the possible inclusion of an "independence clause".
- Where multiple roles (legal and non-legal) are performed, ensure that the work done in each role is separated, and recorded in separate communications.
- Maintain a current practicing certificate.
4. Have you a real common interest?
- Issues of common interest between insurer and insured need to be considered carefully at each stage, particular where there is a possibility that cover will be denied (for example, due to non-disclosure).
- Mark the communications "confidential and subject to common interest privilege", but again, remember that just calling them privileged, does not make them so.
5. Avoid the inadvertent waiver:
- Keep the communications strictly confidential.
- Beware the phrase, "we have received legal advice to the effect that...". If you say in a communication that you have done something "with the benefit of" external legal advice, that advice may need to be produced.
6. Have a clear and well-communicated document management policy that addresses the creation and circulation of documents and gives clear guidance on the importance of, and ways to protect, LPP.