Common Interest Exception? Third Party Denied Privileged Communications

• Author: Stephen Carr
• Pages: 14-15

14 | SEC TION OF LITIGATION

Published in Litigation News Volume 45, Number 3, Spring 20 20. © 2020 by the Ameri can Bar Association. Re produced with per mission. All rights re served. This info rmation or any porti on thereof may not be c opied or disseminated in any

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Insurance brokers hoping to u se

the common interes t exception to

discover an insu red’s privileged

communication s may need to look

for new strategies. T he common

interest doctr ine—an exception to

attorney- client privi lege often impor-

tant in insur ance cases —is a narrow

one based on the unique publ ic policy

concerns that ar ise in an insurance

relationship, not one that is gener ally

available to third par ties who share a

“de facto” interest.

Insurance Oversight Leads to

Big Liability

The controversy in Robe rt R.

McCorm ick Found ation v. Arthur J.

Gallagher Ri sk Management Ser vices,

Inc. began when t wo charitable foun-

dations, the Rober t R. McCormick

Foundation and the Ca ntigny

Foundation, hire d Arthur J. G allagher

Risk Managem ent Services to act as

their insura nce broker. The founda-

tions are large cha ritable organizations

that rely on their sec urities holding s

to fund much of their cha ritable giv-

ing. As a result, t hey sought compre-

hensive insurance coverage against the

risk of being sued for violat ing securi-

ties laws, includi ng coverage for their

directors and of cers.

According to the found ations,

Gallagher of fered them two options:

continue with thei r current insur-

ance coverage or switch to a cheap er

plan that would save the foundat ions

$3,400 a month whi le offering the

same “apples to apples” coverage. The

foundations chose to sw itch carriers.

In 2011, a group of shareholders of

the Chicago Tribune Compa ny sued

the foundations and t heir directors

and ofcers. T he shareholders alleged

that the foundations h ad violated secu-

rities laws by orchestrat ing a leveraged

buyout that allowed the foundat ions to

sell their preferre d shares for $2 billion

just a year before the compa ny went

bankrupt. T he foundations tendered

the claims aga inst them to their new

insurance compa ny. The carrier denie d

coverage based on the polic y’s exclu-

sion for claims “in any way relati ng to

any purchase of secu rities.”

The foundations the n sued

Gallagher for bre ach of contract and

professional neglig ence. The foun-

dations alleged t hat the new policy

Gallagher h ad recommended offered

far less coverage, bar ring indemnity

for all claims alleging securities viola-

tions. The foundat ions furt her claimed

that if Galla gher had not recom-

mended they change p olicies, the foun -

dations would have cont inued with

their origin al coverage, which would

have saved them ex tensive litigation

costs. The found ations alleged t hat the

old policy had a more lim ited excep-

tion and would not have excluded

these securities claims.

During the litigation, Gallagher

moved to compel production of all

Common Interest

Exception?

Third Party Denied

Privileged Communications

By Stephen Carr,

Litigation News Associate Editor

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