January 1, 1900

by Todd J. Leon

When an insured reports a claim to his or her insurance carrier, the company commonly assigns one of its employees to investigate the events giving rise to the claim. In so doing, the employee - acting on behalf of the insurance company - may interview any number of individuals, including the insured (who is likely to be the defendant in any lawsuit) and third-party witnesses. However, down the road in the litigation, a major issue may arise regarding these statements: are they discoverable by the plaintiff and, therefore, potentially damaging to the insured or even the insurer itself?

Is the Attorney-Client Privilege Applicable?

Most everyday people have watched enough television or movies to have heard of the "attorney-client privilege". According to the privilege, statements made by and between the client and attorney (or his agents) with regard to the litigation are shielded from discovery by the opposing party. But what about statements made by an insured to his insurance company's adjuster handling the claim file?

In addressing this issue in a recent decision, Pfender v. Torres, the New Jersey Appellate Division ruled that statements by an insured to an adjuster were not protected by the attorney-client privilege. In Pfender, the plaintiff (Pfender) was injured when the defendant (Torres) twice drove his employer's car over her foot while she was crossing the island in a gas station parking lot. Torres testified at trial that the accident occurred while he was driving approximately five miles per hour, although he later admitted on cross-examination that he might have been traveling as fast as ten miles per hour. Torres also maintained during the trial that he did not see the plaintiff until she was at the side of his car.

However, long before the trial actually took place - and in fact before the complaint was even filed by Ms. Pfender, an adjuster working for Torres' employer's insurance company interviewed Torres about the accident. During the first of those interviews, which was taken one month after the insurance company had received notice of the claim from plaintiff?s attorneys, Torres stated that he was driving ten or fifteen miles per hour at the time of the accident and, that when he first saw Pfender, she had just stepped down from the island in front of his car. In the second statement taken by the insurer, Torres said he was only traveling five miles per hour when the accident occurred. Obviously, these statements to the adjuster differed not only from each other, but from Torres' trial testimony as well. Although the plaintiff?s attorneys sought discovery of these statements, the trial judge ruled that they were not discoverable as they were protected under the attorney-client privilege.

On appeal, however, the Appellate Division overruled the trial judge. The appellate court noted that the majority view in most jurisdictions in the United States is that an insured's post-accident statements to his or her insurer are generally not protected by the attorney-client privilege and are, therefore, discoverable. However, this permissive discovery is not an absolute rule, and a careful adjuster can ensure that such potentially damaging statements will not be required to be produced to a plaintiff.

The Pfender court noted that the attorney-client privilege will shield from discovery those communications made to an adjuster for the "dominant purpose of the defense of the insured by the attorney." In making this determination, courts will look at whether the statement was made at the direction of an attorney; whether there was anything indicating that the insured was seeking legal advice; whether there was pending litigation; and whether the insurance company might have interests other than protecting the insured's rights. The instruction from our Appellate Division is clear-if an attorney is already involved and the adjuster-insured interview occurs at the attorney's behest, the statements will be privileged. However, if defense counsel is not yet involved, the statements may well be discoverable by a plaintiff, who may later use this basic investigatory work by the adjuster to his or her own advantage.

What About the Work Product Doctrine?

Another basis for protecting the statements made by an insured to the adjuster is the "work product rule" which, while similar to the attorney-client privilege, protects a slightly different interest. According to the work product rule, documents prepared by an attorney or party in anticipation of litigation can only be obtained by the opposing party upon showings that the party seeking discovery has a substantial need of the materials and that the party cannot obtain the substantial equivalent of the materials by any other means without undue hardship.

In rendering its decision, the Pfender court also considered whether the work product doctrine would prevent the plaintiff from obtaining Torres' statements to the adjuster. The appellate panel noted that the party seeking the discovery will always satisfy the first requirement for production-namely, that he or she has substantial need for the documents-where the party seeks the statements of another party or witness. Therefore, the question in these instances becomes whether the discovering party can obtain the materials, or their substantial equivalent, without undue hardship. Because the Pfender court was persuaded that there is no equivalent to an individual's inconsistent previous statement, the court ordered Torres' statements to be produced to the plaintiff.

However, the entirety of the materials prepared by the adjuster may not necessarily be subject to production to the plaintiff. The work product rule protects from discovery the mental impressions, conclusions, opinions or legal theories of an attorney or other representative of a party concerning the litigation. Thus, while the statements of an insured to the adjuster regarding the accident which gave rise to the claim may be discoverable, the notes made by the adjuster may not be discoverable. Rather, any mental impressions should arguably be redacted prior to the document being produced to the opposing party.

From an everyday perspective, insurers can take simple precautions to ensure that their investigation of an incident will not be used as a weapon by a claimant against the insured. The opinion handed down on April 17, 2001 by the Appellate Division in Miller v. J.B. Hunt Transport, Inc. provides clear advice to carriers who desire to keep statements of insureds obtained during a claims investigation confidential: insurers should retain an attorney to handle the file at an early stage.

In Miller, the plaintiff (Miller) was injured in an accident on March 6, 1998 with a driver (Watford) employed by the defendant trucking company. Watford immediately notified J.B. Hunt Transport, Inc. (J.B. Hunt) of the accident, and without delay the company's Litigation Manager retained a New Jersey attorney to represent the interests of both the company and the driver in connection with the accident. On the same day the accident occurred, the attorney obtained a statement from Watford regarding the accident.

During pretrial discovery, J.B. Hunt disclosed the existence of Watford's statement in response to Interrogatories propounded upon the company. Miller sought production of the statement, and J.B. Hunt moved for a protective order in order to prevent such disclosure. The trial court ordered the statement be produced to Miller, finding that the statement was not "taken in anticipation of litigation" since no suit had yet been filed at the time the statement was taken.

The Appellate Division reversed, finding that the statement was shielded from production on the basis of the work product doctrine. The court specifically relied upon the fact that the statement had been obtained by an attorney, and that the sole purpose for taking the statement was the potential for litigation. The panel agreed that, in order for the statement to be protected, the company (or insurer) must have had an "objectively reasonable" basis for believing that litigation would ensue from the incident at the time the statement was taken. Because Miller suffered extensive damages and was hospitalized as a result of the accident, the court found that J.B. Hunt had such an "objectively reasonable belief" and held that the statement did not have to be produced to the plaintiff.

The two recent cases from our Appellate Division can thus be harmonized into one simple pronouncement: when an incident occurs, the adjuster should immediately assess the potential for litigation. If the nature of the injuries and/or property damage suffered by the potential claimant are substantial, the adjuster should promptly retain counsel to perform or direct an investigation of the incident. By following these simple steps, the adjuster can best protect against the later discovery of sensitive and sometimes damaging information obtained by the carrier itself during the claims investigation process.

Todd J. Leon is an associate of Hill Wallack where he is a member of the Litigation Division and Trial & Insurance Practice Group.