Insurer's Communications with In-House Counsel Not Privileged and Not To Be Sealed

In a case involving the sealing of records generated by an insurance company, the Hawaii Intermediate Court of Appeals found that communications between the insurer and its in-house counsel were not privileged and should not be sealed. Roy v. Government Employees Ins. Co., 2023 Haw. App. LEXIS 13 (Haw. Ct. App. Jan. 23, 2023).

GEICO employed Stephen Roy as Managing Attorney for its litigation department. One of Roy’s duties was to defend GEICO’s insureds against lawsuits arising from motor vehicle accidents. Roy sued GEICO, alleging GEICO violated the Hawaii Whistlebloers’ Protection Act and defamed Roy. The complaint also alleged GEICO interfered with Roy’s ethical obligations in exercising independent judgment for GEICO’s insureds. GEICO never filed a motion to seal or to redact Roy’s complaint or any of the exhibits before the lawsuit was settled. When approving the settlement, the court ordered the entire case file sealed.

Ed Wagner was a GEICO policy holder. His insured vehicle was damaged and he submitted a claim to GEICO. A dispute arose over GEICO’s repair estimate. Wagner became a vocal critic of GEICO by submitting testimony to the Hawaii state House of Representatives, creating his own YouTube channel, and posting a story about GEICO on an internet website.

After dismissal of the Roy lawsuit, Wagner sent a letter to the circuit court Chief Judge with an unfilled motion to unseal the Court’s file in the Roy case. After a hearing, the circuit court entered an order to unseal. The court determined that the prior sealing order failed to satisfy the procedural requirements for public notice and findings to support the sealing. The court ordered the clerk to unseal the file, but delayed implementation of the order to allow GEICO to file a motion to re-seal and file redacted versions of specific documents in the file. GEICO filed its motion, but it was denied based on Wagner’s constitutional right of access to court proceedings and records.

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GEICO appealed. It contended some of the exhibits in the file were subject to the attorney-client privilege. GEICO argued an email contained confidential communications created by Roy acting in his capacity as in-house counsel for GEICO. The document was made to facilitate his professional legal services between both GEICO and GEICO’s insureds. The second email contained communications to Roy solicited by GEICO’s staff counsel director requesting legal advice and analysis from Roy in his capacity as in-house counsel. GEICO made similar assertions of privilege regarding the paragraphs of the complaint it sought to reseal.

The circuit court found that the communications with Roy did not solicit legal advice. Instead, there were discussions between GEICO’s staff counsel and his supervisor questioning GEICO’s policy about what staff counsel may tell staff counsel’s client, GEICO’s insured, about whether GEICO would indemnify its insured for liability in excess of policy limits in cases where GEICO rejectrd a policy limits settlement demand. Similarly, none of the allegations contained in the complaint were protected by attorney-client privilege. GEICO was not asking Roy for legal advice and Roy did not offer legal advice to GEICO as GEICO’s lawyer.

Therefore, the circuit court did not err in determining that GEICO failed to meet its burden to prove that the communications were made for the purpose of facilitating the offering of professional legal services by Roy to GEICO. Further, the circuit court did not err in finding the communications were not protected by work product because GEICO failed to establish the materials were created in anticipation of litigation. Finally, the complaint did not reveal trade secrets with regard to GEICO’s managing litigation, specific techniques and alleged practices for creating and enforcing GEICO’s internal policies, or metrics for ensuring control of costs and calculating remuneration of employees.

See also A Warning to Hurricane Ian Policyholders About Loss Mitigation Versus Loss Prevention—A Sue and Labor Clause Analysis Can an insured recover costs to prevent a loss under a property insurance policy? If a loss occurs, can an insured recover the costs to reduce or mitigate damage from further damage? The answer is to read the full policy terms to make this determination. Generally, property insurance policies have terms which follow maritime and inland marine forms which require the policyholder to take steps to reduce or mitigate a previous loss and usually pay costs to do so. It is much less likely that a policy will reimburse fully for the costs to prevent a loss from occurring—but read the policy carefully. This issue involving a sue and labor provision was discussed by the Florida Supreme Court. Following prior case precedent interpreting the sue and labor clause, the court explained that: “An insured has the duty to exercise the care of a prudent, uninsured owner to protect insured property so as to minimize or prevent the loss for which the insurer would be liable. The purpose of the sue and labor clause is to reimburse the insured for those expenditures which are made primarily for the benefit of the insurer to reduce or eliminate a covered loss.” Did the sue and labor also pay for costs to prevent a loss? Not in that policy: “…Zurich correctly contends that the Sue and Labor clause in the Swire-Zurich policy is specifically applicable only after an actual loss has occurred or is occurring. Because Swire was acting to prevent a potential collapse of the building, and no actual loss had occurred, the $ 4.5 million expended by Swire is not recoverable under the policy’s Sue and Labor clause. …the policy’s Sue and Labor clause applies only in the case of an actual, covered loss. Any other conclusion would result in the Sue and Labor clause becoming the primary coverage provision of this contract without regard to the content of the contract or the coverage it was designed to provide. The reasoning suggested by Swire is certainly logical, to the effect that the preventive measures may have conferred a benefit upon the insurance company. If the Sue and Labor clause had been worded differently or if it had included language concerning the prevention of loss, the conclusion may have been different.” Hurricane Ian victims should be aware of property insurance provisions which require a policyholder to repair and take action to prevent further loss or damage. With soon to be Hurricane Nicole about to strike Florida, these provisions are important duties. Policies may also provide benefits to take these emergency and temporary repairs before the winds and rains of Hurricane Nicole cause further damage. Thought For The Day “You can never protect yourself 100%. What you do is protect yourself as much as possible and mitigate risk to an acceptable degree. You can never remove all risk.” Kevin Mitnick

Therefore, the unsealing order was affirmed.

Special thanks to my Damon Key blogging colleague, Mark Murakami, for forwarding this case.

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