Potential discovery abuses in insurance coverage litigation.

• Author: O'Hare, Jean A.

Hardball tactics, such as taking attorneys' depositions and seeking settlement disclosures, can create bad law for both insurers and their insureds

In insurance coverage litigation, there is a growing tendency to notice the depositions of coverage counsel, as well as underlying defense counsel. While this tactic generally is targeted at in-house counsel, outside counsel are not immune. Another increasingly popular tactic employed by insurers, particularly in large multi-party coverage litigation, is for non-settling insurers to seek disclosure of confidential settlement agreements reached between the policyholder and other insurance companies.

Although these types of discovery appear to offer an immediate litigation advantage to the parties that employ them, in reality their use poses significant risks. They contribute significantly to a general weakening of the attorney-client, attorney work product, and settlement privileges.

There should be a uniform standard for addressing these discovery requests, and there should be restraint by all parties because of the potential for these discovery tactics to backfire on those who employ them. Insurers and insureds have equally strong interests in preserving the sanctity of the attorney-client and work product privileges, in ensuring that their own liabilities are not increased as a result of coverage litigation, and in resolving disputes through settlement, not litigation.

DEPOSITIONS OF COUNSEL

1. State of the Law

   The Federal Rules of Civil Procedure contain no prohibition against the taking of an attorney's deposition, even of the attorney of record in a case. Rule 30(a)(1) allows for the taking of the deposition of "any person," subject to various restrictions, none of which specifically exempts a party's attorney. State procedural rules likewise do not generally exempt attorneys from depositions.(1)

   Historically, the norms of professional courtesy have acted as a bar to the taking of attorney depositions.(2) The traditional reluctance to depose counsel also stems from a deeply ingrained respect for the importance of the attorney-client and work product privileges, from a need for the proper functioning of the adversary system, and from a recognition that most, if not all, information one would seek in such a deposition would be covered by these privileges.

   In holding that written statements prepared by counsel are protected by the work product doctrine, the U.S. Supreme Court stated in Hickman v. Taylor:

   Historically, a lawyer is an officer of the

   court and is bound to work for the advancement

   of justice while faithfully protecting the

   rightful interests of his clients. In performing

   his various duties, however, it is essential

   that a lawyer work with a certain degree of

   privacy, free from unnecessary intrusion by

   opposing parties and their counsel. Proper

   preparation of a client's case demands that

   he assemble information, sift what he considers

   to be the relevant from the irrelevant

   facts, prepare his legal theories and plan his

   strategy without undue and needless interference.(3)

   Despite the well-established importance of these privileges, their sanctity has been threatened recently by an increase in the use of attorney depositions as a discovery tool and litigation tactic. As a basis for permitting these depositions, courts have relied on the facts that (1) they are not explicitly prohibited, (2) objections on the grounds of privilege are "premature" because that determination should be made based on the information sought to be elicited by specific questions, and (3) a lawyer may be the most efficient and logical source of the needed information.(4)

   Under Rule 26(b)(2), courts may limit discovery if it is "unreasonably cumulative or duplicative or is obtainable from some other source that is more convenient, less burdensome, or less expensive." And Rule 26(c) provides that courts "may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or under burden or expense." However, efforts by parties to take attorneys' depositions have been met with mixed reactions in the federal courts.(5) Results in state courts also vary.(6)

   Shelton v. American Motors Corp.(7) is probably the best-known case in this area and contains one of the most extensive treatments of the subject. It involved a product liability claim brought against American Motors as the result of a roll-over accident involving an AMC Jeep. In the course of discovery, the plaintiff noticed and took the deposition of Rita Burns, AMC's in-house counsel responsible for supervising the action. At the deposition, plaintiff's counsel sought to ascertain the existence or non-existence of certain documents, questions which Burns refused to answer. The plaintiff was granted a default judgment on the basis of the refusal.

   In the context of this discovery dispute, the Eighth Circuit took the opportunity to articulate a restrictive set of conditions under which a lawyer's deposition may be taken. The court observed that attorney depositions lower the standards of the profession, disrupt the adversarial nature of the judicial system, add to the burdens of litigation, detract from the quality of the representation of the client, and have a "chilling effect" on communications between client and counsel. Additionally, the court pointed out, deposing an attorney increases the risk that the attorney will be required to testify at trial, which could mandate disqualification of the attorney under certain ethical rules.

   In the light of these concerns, the court fashioned a three-pronged test to determine when it would allow attorney depositions to go forward, with the burden on the moving party to demonstrate that: (1) no other means exist to obtain the information than to depose opposing counsel; (2) the information sought is relevant and non-privileged; and (3) the information is crucial to the preparation of the case.

   Since Shelton, a number of courts have adopted its test in its entirety.(8) Other courts have modified the Shelton test by requiring that the party seeking the deposition only show that there are no other "practical" means of obtaining the desired information.(9) Still other courts continue to follow an older line of cases that treat attorney depositions as any other for purposes of analyzing a party's entitlement to a protective order. These courts refuse to issue a protective order in advance of the deposition, preferring to evaluate assertions of privilege as they arise during the course of the deposition on a question-by-question basis.(10)

   Both the restrictive Shelton approach and the more traditional, permissive approach have their critics. Shelton has been criticized as imposing too onerous a burden on the party seeking discovery by requiring a showing that the information is not available by any other means without regard to the burden or the expense of those other means.(11) Shelton requires a demonstration that the information be "crucial" to the party's case. This requirement has been criticized as being too onerous to impose in the early stages of discovery.(12) However, courts also have been criticized when they treat motions to preclude attorney depositions as any other motion for a protective order--that is, by placing the burden of proving good cause on the party resisting the deposition.(13)

2. Proposed Uniform and Restrictive Standard

   The need for a uniform standard regarding attorney depositions is manifest. In order to preserve the viability of the attorney-client and work product privileges, that standard should provide for a protective order blocking the deposition of an attorney unless the three Shelton criteria are met. Without a standard, these vital privileges will be eroded by multiplying the risk of inadvertent waiver and increasing the opportunity for discovery abuse.

   First, there is the very real danger, illustrated by the facts in Shelton, that seemingly "innocent" deposition questions can raise the possibility of waiving attorney-client and work product privileges. In Shelton, the questions posed to counsel purportedly were aimed at determining the existence or non-existence of certain documents. In actuality, given the voluminous documents involved in the case, the mere fact that an attorney recalls the existence of documents could indicate not only that they have been reviewed but also that they were critical to the defense of the case, thus revealing "core" litigation work product.

   Likewise, recollection of a non-privileged conversation or meeting might reflect the attorney's views of the most significant or important aspects of the discussion, also revealing "opinion" work product.(14) Alternatively, an attorney's testimony may indicate avenues of research pursued in evaluating underlying claims.

   The approach taken by...