By: Emily Walton, Sarah Ulmer
Published: 23/08/2012
If and when litigation privilege attaches to reports obtained by insurers is a hotly debated issue. The general principles can be easily stated and are well accepted: the document in question must have been prepared for the dominant purpose of providing advice in respect of reasonably anticipated litigation. Arguments arise over the true dominant purpose of commissioning the report, and whether litigation was in fact reasonably anticipated at the time the document was created.
 
The Federal Court of Australia has recently delivered a decision on the extent to which loss adjusters' reports are privileged.1   Ensham suggests a new, slightly relaxed approach to considering claims for litigation privilege.
 
Ensham owned and operated an open-cut coalmine in Queensland, which suffered extensive damage when earth levees failed during heavy rainfall in January 2008. Ensham notified its insurers of a potential claim under its industrial special risks insurance policy. The insurer retained loss adjusters and then lawyers. The lawyers were retained in February 2008, shortly after which the loss adjusters' retainer with the insurers was terminated and the lawyers retained the loss adjusters directly. The lawyers' letter of retainer stated that "any dispute over the extent to which the policy responds is likely to result in litigation. Your report should therefore be prepared on a privileged and confidential basis and in anticipation of future litigation."
 
Ultimately, the insurers declined Ensham's claims and Ensham issued proceedings to recover its losses as a result of the insurers' refusal to indemnify it under the policy.
 
During discovery, one of the insurers disclosed the first loss adjuster's report. Privilege was claimed over the
remaining nine reports, as those had been prepared under the retainer with the insurers' lawyers.
 
The Court noted that statements claiming privilege over communications are not persuasive, quoting an extract from Protean Holdings Limited v American Home Assurance Company: 2
 
"It is clear that a studious cast of verbiage cannot work the alchemy of transforming what would otherwise be unprivileged into privileged documents." 3
 
Insurers and lawyers are accustomed to being involved in litigation, and just because a claim may be litigated, it does not mean that documents prepared in connection with claims automatically attract litigation privilege. Each privilege claim will still require careful scrutiny.
 
The Court in Ensham was persuaded by the circumstances of the claim that the reports had been prepared for the dominant purpose of providing advice in respect of reasonably anticipated litigation. It found that, following the test in Australia's leading case on the issue,4 "the circumstances at the time the reports were prepared were of the kind that human experience (and the expertise of lawyers) would recognise as being highly conducive to litigation."5    Those were:
 
•     The consequences of the flood on the mine were catastrophic;
•     There was a very real possibility that the cost of remedial measures would exceed the policy limits; and
•     Whether the levee bank was covered under the policy was a contentious issue.
 
The court also accepted that the reports were prepared for the dominant purpose of litigation. However, the court stated that in determining the dominant purpose of a document, the court must inquire into the state of mind
of the solicitor for the party claiming privilege, not the party itself. This finding in particular is the subject of an
appeal to the Full Bench of the Federal Court of Australia.
 
In New Zealand, litigation privilege is codified under s 56 Evidence Act 2006, however the tests and issues are the same, and a decision of the Federal Court of Australia is likely to be persuasive in New Zealand. Currently, case law here suggests that litigation cannot be reasonably anticipated until a claim decision has been made that would create a cause of action for it.6   The Ensham decision could make it significantly easier to establish a claim of litigation privilege over documents created where the circumstances of a claim are of a kind recognised to be "highly conducive" to litigation, even if those reports would also be of interest to the insurers generally.
 
Disclosure of loss adjusters' reports is not only a thorny issue in litigation, but also where requests for information are made under the Privacy Act 1993 or the Official Information Act 1986. Information can be withheld under both Acts in order to maintain legal professional privilege.7 Again, if the Ensham decision on privilege is not overturned on appeal, it could become easier for insurers to withhold reports under the litigation privilege arm of legal professional privilege.
 
If claim value is part of the test to be used to establish whether litigation can be reasonably anticipated, then it is likely that many disputed earthquake claims could result in litigation, and indeed are of a kind 'highly conducive' to litigation given that it is people’s homes that are at stake, and they have high monetary and personal value.
 
In Christchurch, insureds are making requests under the Privacy Act or Official Information Act for information they feel otherwise unable to access from insurers and EQC. For those acting for insureds, this can be quite a good way to progress information requests (and often claims themselves by creating priority) due to the statutory time limits.
 
Ensham serves as a reminder that substance is more important than form, and that claims for privilege must be assessed on a case by case basis. The court was not persuaded simply by the insurers’ early retention of lawyers, nor their 'self-serving' statements about the privileged status of the loss adjusters’ reports.
 
The Ensham decision is under appeal to the full Federal Court, and it's expected the appeal will be decided reasonably soon as the substantive trial is scheduled for March 2013.
 

 
 
  1. Ensham Resources Pty Ltd v Aioi Insurance Company Limited (2012) 17 ANZ Insurance Cases 61-942. Ensham granted leave to appeal decision to Full Court.
  2. Supreme Court Victoria, 5 September 1985
  3. Ibid at page 6, per Marks J
  4. Mitsubishi Electric Pty Ltd v Victorian Workcover Authority [2002] VSCA 59
  5. Above n1 at [50].
  6. Guardian Royal Exchange Assurance of New Zealand Ltd v Stuart [1985] 1 NZLR 596. See also Jupiter Air Ltd v Australian Aviation Underwriting Pool Pty Ltd (2003) 13 ANZ Insurance Cases 77,577, which was not cited in the Ensham decision.
  7. Section 29(1)(f) Privacy Act 1993 and s 9(2)(h) Official Information Act 1986.
 
 



 Security code

Wynn Williams Christchurch
Level 5, Wynn Williams House, 47 Hereford Street, Christchurch 8013, New Zealand.
PO Box 4341, DX WX11179, Christchurch 8140.
+64 3 379 7622
+64 3 379 2467
Wynn Williams Auckland
Level 11, AIG Building, 41 Shortland Street, Auckland 1010, New Zealand.
PO Box 2401, Shortland Street, Auckland 1140.
+64 9 300 2600
+64 9 300 2609
Top

This page is best viewed in an up-to-date web browser with stylesheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so. The latest version of Firefox, Safari or Google Chrome will work best if you're after a new browser.