99 Wall Development Inc. v. Allied World Specialty Insurance Company

Background

99 Wall sought insurance benefits for losses from water incidents on July 29, 2016, and October 6, 2016, involving a 29-story office building that it had converted into residential condominiums. Allied World paid nearly $3 million for certain parts of the claims. After the parties did not resolve the remaining claims, 99 Wall filed this action, alleging bad-faith conduct during the claims-adjustment period and breach of the insurance contract.

During the claims process, 99 Wall used consultants including a public adjuster, a forensic accountant, a construction and physical-damage consultant, and a delay consultant. Allied World later obtained documents from two of those consultants through subpoenas. After reviewing 99 Wall’s privilege log, Allied World argued that some documents had been improperly withheld and that other relevant documents had not been listed or produced. 99 Wall produced 14 additional documents but continued to assert protection over others.

Legal Standards

The attorney-client privilege protects confidential communications made in an attorney-client relationship for the purpose of requesting or giving legal advice. It does not protect communications that primarily serve a business function, including ordinary insurance-claims work, merely because a lawyer was copied or involved. Under New York law, the party claiming the privilege must show that it applies and was not waived.

The work-product doctrine generally protects documents and tangible materials prepared because of the prospect of litigation. The material must involve investigative or analytical work connected to litigation preparation; the fact that a lawyer requested or received it is not enough. Ordinary business documents prepared in the usual course of submitting an insurance claim are not protected. Opinion work product, such as mental impressions and legal theories, receives heightened protection. Factual work product may be disclosed when the opposing party shows substantial need and cannot obtain the equivalent without undue hardship.

Court’s Review

The court reviewed 25 documents selected from 99 Wall’s privilege log. 99 Wall withdrew its objections to three documents and withdrew its claim under the parties’ White Waiver Agreement as to one document, leaving 22 documents for review.

The court ruled that most documents marked as attorney-client privileged were not protected because they did not request or convey legal advice. The unprotected materials included communications about scheduling, other nonlegal matters, and the preparation and support of insurance claims. The court stated that 99 Wall had been overzealous in asserting attorney-client privilege.

The court found attorney-client protection for communications about a draft of 99 Wall’s March 27, 2017 letter to Allied World, client notes on Allied World’s April 3, 2017 letter prepared to obtain legal advice, and an April 28, 2017 email exchange reflecting legal advice sought and given. Two other email chains were partly privileged: specified emails requesting or conveying legal advice were protected, while other portions were not.

The court also rejected work-product protection for the three documents dated January 4, 2017, or earlier, because they appeared to concern ordinary preparation of the insurance claim and 99 Wall provided no facts showing that they were prepared because of litigation. The court protected a March 13, 2017 planning communication for the March 16 settlement meeting because it reflected strategy for resolving the claim instead of litigating it and was covered by the White Waiver Agreement.

For documents created between March 16 and March 27, 2017, the court found protection for specified portions that discussed the prospect of litigation or reflected litigation strategy. It rejected protection for the remaining portions because they gathered information to answer Allied World’s questions and support the insurance claim. At that stage, Allied World had not formally denied the claim or requested an independent adjuster, and the communications appeared directed toward resolving the claim rather than preparing a lawsuit.

The court found that documents discussing Allied World’s final settlement offer before the lawsuit were created in anticipation of litigation and contained opinion work product. It rejected work-product protection for another document that merely conveyed a draft letter among nonlawyers and did not reveal legal strategy.

Disposition

The court granted in part and denied in part Allied World’s motion to compel. It ordered 99 Wall to re-review its privilege log and produce documents in full or in redacted form consistent with the decision. The court attached a chart specifying its rulings on the sampled documents.