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Constance B. Foster, Esq.
(717) 238-7560


I.     Introduction

All business entities, including insurance companies, rely on the attorney-client privilege to manage their businesses. It is commonly known that the purpose of the attorney-client privilege is to facilitate open communication between lawyers and their clients and that it is the oldest privileges protecting confidential communications in the common law.

(The) purpose [of the attorney-client privilege] is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of the law and administration of justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client. Upjohn v. United States, 449 U.S. 383, 389 (1981)

In Upjohn, the Supreme Court held that the privilege is available to individuals and corporations alike - although "complications in the application of the privilege arise when the client is a corporation, which in theory is an artificial creature of the law and not an individual." Id. It is not surprising therefore that the law has been evolving in regard to application of the attorney-client privilege to business entities.

II.    Applicability of the Attorney-Client Privilege to Corporations

There is no dispute that corporations may rely on the attorney-client privilege in seeking advice from both outside and in-house counsel. Because corporations can only act through their employees, however, it is critical that attorneys know which corporate employees can speak with counsel and maintain the corporate attorney-client privilege.

In Upjohn, the U.S. Supreme Court rejected the "control group" test, under which communications were cloaked with privilege only if they were made with high-level corporate managers (i.e., those high-level employees who had the responsibility for deciding whether the corporation would act on the legal advice received from counsel). 449 U.S. at 390. In so doing, the Court refused "to lay down a broad rule" designed to determine which corporate employees could have privileged conversations with counsel. Id. at 386. Instead, the Court identified five factors to be considered when adjudicating whether an attorney's communications with lower level employees are covered by the privilege:

  • Was the information obtained from lower level employees necessary to supply the attorney with a sound basis to impart legal advice or ordered to be provided by superior officers;
  • Could the information have been obtained from someone within the "control group";
  • Did the lower level employees' communications with counsel concern matters within the scope of their corporate duties;
  • Were the employees aware that they were being questioned by counsel so that the corporation could obtain legal advice; and
  • Were the communications with lower-level employees considered confidential when made, and kept confidential thereafter.

Id. at 394-95.

If the answers to these questions are "yes," communications between the corporation's attorneys and non-control group corporate employees will be cloaked with privilege. Id.; see also Sandra T.E. v. South Berwyn School District 100, 600 F.3d 612, 619-20 (7th Cir. 2010) (citing numerous cases on point).1  Thus, under Upjohn and its progeny, an employee's position within a corporation does not determine whether a communication with that employee is covered by the privilege. Instead, the resolution of that question turns on whether the employee disclosed information to the attorney (or received advice from the attorney) on behalf of the corporation. See Upjohn, 449 U.S. at 394-95.2

For an interesting discussion of the applicability of the attorney- client privilege analysis in an insurance context, see Bertelsen v. Allstate Insurance Company. 796 N.W.2d 685 (S.D. 2011). In Bertelsen, plaintiffs were suing Allstate Insurance for bad faith. Plaintiffs claimed they were entitled to review the coverage opinions that Allstate had provided on the claim. The South Dakota Supreme Court disagreed. The court found that an "insurer's retention of counsel to provide coverage advice is a 'classic example of a client seeking legal advice from an attorney.'" Id. at 701 (quoting Aetna Cas. & Sur. Co. v. San Francisco Superior Court, 200 Cal. Rptr. 471, 476 (Cal. App. 1st Dist. 1984). The coverage opinions, therefore, were protected by the attorney-client privilege as any other client seeking advice from counsel. Id.

III.  Applying the Privilege to Communication with In-House Counsel

Notwithstanding Upjohn's identical treatment of in-house and outside counsel as lawyers from whom clients may seek privileged advice, lower federal courts frequently subject communications with corporate in-house counsel to a higher level of scrutiny than communications with outside counsel. Indeed, at least two U.S. Circuit Courts of Appeals have held that a rebuttable presumption exists that the information exchanged with outside counsel is for the purposes of obtaining legal advice. See U.S. v. Chen, 99 F.3d 1495, 1501 (9th Cir. 1996) ("If a person hires a lawyer for advice, there is a rebuttable presumption that the lawyer is hired 'as such' to give 'legal advice,' whether the subject of the advice is criminal or civil, business, tort, domestic relations, or anything else."); Diversified Industries, Inc. v. Meredith, 572 F.2d 596, 610 (8th Cir. 1977) ("Here, the matter was committed to [outside counsel], a professional legal advisor. Thus, it was prima facie committed for the sale of legal advice and was, therefore, within the privilege absent clear showing to the contrary.").

On the other hand, numerous courts have held that in order to demonstrate the communications with in-house counsel were for the purpose of securing legal advice, the proponent must make a "clear showing" in that regard.3 Specifically, in In re Sealed Case, Justice Ginsburg wrote as a judge of the U.S. Court of Appeals for the District of Columbia Circuit, as follows:

We note one further general consideration. The lawyer whose testimony the government seeks in this case served as in-house attorney. That status alone does not dilute the privilege. We are mindful, however, that [the unidentified in-house attorney] was a Company vice president, and has certain responsibilities outside the lawyer's sphere. The Company can shelter [in-house counsel's] advice only upon a clear showing that [in-house counsel] gave it in a professional legal capacity. 737 F.2d 94, 99 (D.C. Cir. 1984).

See also Ames v. Black Entertainment Television, No. 98-Civ-0226 (LMM) (AJP), at *8 (S.D.N.Y. Nov. 18, 1998) ("Because an in-house attorney, particularly one who holds an executive position in the company, often is involved in business matters, in order to demonstrate that the communication in question is privileged, the company bears the burden of 'clearly showing' that the in-house attorney gave advice in her legal capacity, not in her capacity as a business advisor."); Kramer v. Raymond Corp., No. 91-5026, 1992 WL 122856, at *1 ( E.D. Pa. May 29, 1992) ("[T]he corporation must clearly demonstrate that the communication [with in-house counsel] in question was made for the express purpose of securing legal not business advice.").

As the above-cited cases demonstrate, the primary rationale for the disparate treatment of outside and in-house counsel is that in-house attorneys often have other legal and business responsibilities. Communications seeking or providing legal advice are covered by the privilege, but business-related advice is not. Given the heightened scrutiny of communication between in-house counsel and their business-side clients, in-house attorneys would be prudent to contemporaneously, and clearly, state (both orally and in writing when possible) whether a particular communication is being made for the purposes of imparting legal advice to the corporation.

For example, if in-house counsel is participating in a meeting with business-side executives, where the business people seek counsel's advice about the legal ramifications of a choice of law contract provision that is in the process of being negotiated, counsel's notes should explicitly reflect the nature of the legal advice sought. Litigation generally occurs years after agreements are negotiated and executed - during that period of time, memories of particular meetings are likely to fade. However, if the counsel's contemporaneous notes are submitted for in camera review, the reviewing court may well credit them and rule that the notes are privileged. Absent such notation, the purpose of counsel's participation in the meeting may be unclear, and her notes may thus be discoverable because a clear showing of legal purpose was not made.

Where a communication with an in-house attorney has a mixed legal and business purpose, courts generally look to whether the "primary" or "predominant" purpose was to seek or impart legal advice. See, e.g., In re County of Erie, 473 F.3d 413, 420 (2d Cir. 2007) (in assessing a privilege question, the court held that the dispositive question is "whether the predominant purpose of the communication is to render legal advice"); Cooey v. Strickland, 2010 WL 3238972, at *5 (S.D. Ohio Aug. 16, 2010) ("When communications contain both legal advice and non-legal considerations, a court must consider whether the predominant purpose of the communication is to render or solicit legal advice."); Stoffels v. SBC Communications, Inc., 263 F.R.D. 406, 411 (W.D. Tex. 2009) ("The critical inquiry is, therefore, whether any particular communication facilitated the rendition or predominantly legal advice or services to the client.") In cases where in-house attorneys are acting primarily as a business advisor, negotiator, or scrivener, the privilege is unlikely to bar discovery into the communications.

IV.   Conclusion

An insurance company enjoys the same attorney-client privilege as any other corporate client seeking legal advice from counsel and like other business entity it needs to take steps to protect the privilege especially in the context of its own in-house counsel. Courts appear to be shifting towards a more restricted attorney-client privilege for corporations and in- house counsel, making it even more imperative that Insurers review their processes and procedures to ensure that legal and business functions are carefully and clearly separated.



1. Upjohn applies only to the federal common law of attorney-client privilege. Although many states have adopted Upjohn's approach, others have not. See, e.g., Motorola, Inc. v. Lemko Corp., No. 08C 5427, 210 WL 2179170, at *1-2 (N.D. Ill. June 1, 2010) (stating that Illinois continues to apply the control group test and assessing the privilege question pursuant to that test).

2. Although not discussed in detail here, lawyers speaking with a corporate employee should inform the employees at the outset of the communication that they are representing only the corporation and not the employee as an individual. That way, if a conflict arises between the corporation and employee (which is not at all unusual), it would be difficult for the employee to assert an individual privilege between herself and the corporation's counsel. See In re Bevill, Bresler Schulman Asset Mgmt. Corp., 805 F.2d 120, 124 (3d Cor. 1986) (setting forth a five-factor test to determine whether a corporate officer could assert an individual claim of privilege based on communications with the corporation's attorneys); U.S. v. Graf, 610 F.3d 1148, 1160 (9th Cir. 2010) (adopting Bevill test and listing other federal appellate and district courts that have applied the Bevill test)

3. The European Union has gone even further. See Case C-550/07, Akzo Nobel Chemicals, Ltd and Akcros Chemicals v. Commission, bin/ ce=ARRET (June 27, 2011). The European Union court held that communications with in-house counsel are not protected by the attorney-client privilege because the attorney cannot be considered independent. In-house counsel is employed by the company and will therefore have an inseparable interest in the company's commercial success or failure. For this reason, the in-house counsel does not enjoy a level of independence and professionalism as that enjoyed by external attorneys.