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High Court confirms documents prepared in coverage investigation are privileged
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 had been repudiated by Eagle Star on the grounds 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), which 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 in respect of the claim.
The plaintiff argued that the documents could not be protected by litigation privilege because they were prepared before litigation could have been contemplated by the insurers. Litigation privilege protects confidential documents assembled with the dominant purpose of preparing to bring or to defend against a litigation. The privilege extends to communications created before the actual commencement of litigation, provided that 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 in apparently 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 be taken only after appropriate investigation as to the availability of reliable information to 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. Further, 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. 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 was the dominant purpose for which they were prepared that attracted privilege and not the point in time that 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 during the investigation. Steps should be taken to protect the confidential nature of such documents and communications and they should be marked 'Privileged – litigation privilege applies'.
This article was first published by International Law Office on 13 August 2013.