Is the Insurer-Insured Privilege Broader than the Attorney-Client Privilege?
A review of the Insurer-Insured relationship when used as a shield by a corporate defendant.

By Benjamin Crane

Imagine the run-of-the-mill slip and fall case, occurring in a grocery store. The occurrence is witnessed by a minimum wage produce clerk who also happened to create the hazardous condition that caused the plaintiff’s injuries. The risk manager for the self insured grocery store takes a recorded statement of the clerk. Under Consolidation Coal, this statement would not be protected. Under the same scenario, what if the grocery store is covered by liability insurance, and the clerk gives a recorded statement to an insurance adjuster? Does this fact now make the same statement privileged?

This article will map the cases that have defined the scope of the insurer-insured privilege, the issues that arise when a corporate defendant asserts the privilege on behalf of their employees, and the ever expanding interpretation of the privilege by local practitioners.

The insurer-insured privilege was established by the Illinois Supreme Court in People v. Ryan¹. Defendant was charged with drunken driving following a car crash that killed two people. The defendant gave a handwritten statement to an investigator employed by her insurance carrier. Upon request of defendant’s criminal attorney, the claims file was transmitted to him to aid in the defense of the criminal case. The defense attorney refused to produce the handwritten statement and a contempt citation was issued.

On appeal, the Supreme Court was asked to extend the attorney client relationship to insurers and their insureds. Persuaded by out-of-state decisions, our Supreme Court stated:

We concede that such communications are normally made by the insured to a layman and in many cases no lawyer will actually be retained for the purpose of defending the insured. Nevertheless, by the terms of the common liability insurance contract, the insured effectively delegates to the insurer the selection of an attorney and the conduct of the defense of any civil litigation. The insured is ordinarily not represented by counsel of his own choosing either at the time of making the communication or during the course of litigation. Under such circumstances we believe that the insured may properly assume that the communication is made to the insurer as an agent for the dominant purpose of transmitting it to an attorney for the protection of the interests of the insured.

Nearly twenty years later, the Supreme Court of Illinois analyzed the control-group test with regard to the attorney-client privilege in Consolidation Coal Co. v. Bucyrus-Erie Co., 89 Ill.2d 103 (1982). The control-group test was first announced in City of Philadelphia v. Westinghouse Electric Corp., as follows:

If the employee making the communication, of whatever rank he may be, is in a position to control or even to take a substantial part in a decision about any action which the corporation may take upon the advice of the attorney, or if he is an authorized member of a body or group which has that authority, then, in effect, he is (or personifies) the corporation when he makes his disclosure to the lawyer and the privilege would apply.²

In Consolidation Coal, the Supreme Court of Illinois believed the attorney-client privilege “ought to be limited for the corporate client to the extent reasonably necessary to achieve its purpose.”³ The Court concluded under the control-group test that an employee whose opinion forms the basis of any final decision by those with actual authority is properly within the control group, however, the individuals that employee relied upon for information are not members of the control group⁴. Accordingly, “the only communications that are ordinarily held privileged under this test are those made by top management who have the ability to make a final decision.”⁵

The First District opinion in Claxton v. Thackston was the first case to address the insurer-insured privilege in the context of the corporate control group considerations enunciated in Consolidation Coal. Claxton involved a premises liability action in which a director of the defendant corporation was an eyewitness to the incident. He made a statement to his corporation’s insurer, and the defense asserted the insurer-insured privilege⁶. Though it seems likely that facts giving rise to the privilege could have been proven, the court found that the privilege did not attach, because the defendant did not provide sufficient evidence to support the claim of privilege⁷. Specifically, the Court stated:

The record presented to us on appeal does not show that Mayer met its burden. MacGregor's affidavit does not state facts to show whether he was a member of the Mayer control group. It does not specify if he had an advisory role in top management, whether a decision in this area would normally not be made without his advice, or whether his opinion would in fact form the basis for any decision by others with authority in the company. (Consolidation Coal, 89 Ill.2d at 120, 59 Ill.Dec. 666, 432 N.E.2d 250.) Although the affidavit states MacGregor was a corporate director, Mayer does not cite authority for the proposition that directors are ipso facto members of the control group. Nor did Mayer present any evidence about the actual decision making power of the only non-family director in Mayer family firm.

Furthermore, Mayer did not provide information about the insurance carrier and its duty to defend Mayer against suits arising out of the accident. The affidavit does not say who the insurance carrier was, attach a copy of the policy, specify policy coverage, or state whether or not the carrier had a duty to defend for this occurrence. Finally, because the statement was not produced for in camera inspection, we are unable to determine if it was a communication for the purpose of securing legal advice.⁸

Claxton provides a wonderful roadmap for how to assert or attack the insurer-insured privilege. It is required reading for anyone confronted with this issue.

Additionally, in Hyams v. Evanston Hosp., the First District further enumerated this principle when it held that a hospital’s nurses were not members of the hospital’s corporate control group, and therefore, their statements to the hospital’s insurer were not protected from disclosure by the attorney-client privilege ⁹. The Court announced that the “focus of the court for finding the privilege is on individual people who substantially influenced decisions, not on facts that substantially influenced decisions.”¹⁰ In reaching its’ decision, the Court concluded that the defendants had presented insufficient evidence tending to prove the nurses were part of the hospital’s control group.¹¹

The Court’s policy for the creation of the insurer-insured privilege in People v. Ryan was that "the insured may properly assume that the communication is made to the insurer as an agent for the dominant purpose of transmitting it to an attorney for the protection of the interests of the insured."¹² The court, in effect, extended the attorney-client privilege to claims persons for insurance companies. Other courts, in deciding this issue, have enumerated the following rule:

In order for an insured to assert the attorney-client privilege, one need only establish: (1) the insured’s identity; (2) the insurance carrier’s identity; (3) the insurance carrier’s duty to defend the insured; and (4) that a communication was made between the insured and an agent of the insurance carrier.¹³

Likewise, in Lower v. Rucker, the Appellate Court for the Second District extended the privilege to communications made to independent investigators acting on behalf of the insurer.¹⁴ The Court reasoned:

The privilege attaches even where such communication is made to a layman, and not an attorney, and even where no lawyer is actually retained to defend the insured, because the insured may properly assume that the communication is made to the insurer as an agent for the dominant purpose of transmitting it to an attorney for the protection of the interests of the insured.¹⁵

Additionally, in Rapps v. Keldermans, the Appellate Court for the First District of Illinois found there to be no substantial distinction between an independent contractor and an insurer’s employee in connection with the applicability of the attorney-client privilege.¹⁶ The Court reasoned that “in the case of the insured giving a statement to an independent contractor, the possibility that the statement will ultimately be used by an attorney chosen by the insurer to defend the insured is not less than in the case of the insured giving a statement to an insurer’s employee.”¹⁷

There is, in this writer’s experience, a recent trend in the Cook County trial court towards expanding the scope of the insurer-insured privilege as it relates to corporate defendants and their employees. There appear to be no pending appeals that address this issue, but the defense bar has articulated an interpretation of this issue that is making this issue increasingly ripe for an appellate determination.

¹ People v. Ryan (1964), 30 Ill.2d 456, 460, 197 N.E.2d 15 (1964).

² See City of Philadelphia v. Westinghouse Electric Corp. (E.D.Pa.1962), 210 F.Supp. 483.

³ Consolidation Coal, 89 Ill.2d at 118.

⁴ See id. at 120.

⁵ Id.

⁶ See Claxton v. Thackston, 201 Ill.App.3d 232, 559 N.E.2d 82 (1st Dist. 1990).

⁷ Id. at 237.

⁸ Id. at 236-37.

⁹ See Hyams v. Evanston Hosp., 225 Ill.App.3d 253, 587 N.E.2d 1127 (1st Dist. 1992).

¹⁰ Id. at 258; See also Archer Daniels Midland Co. v. Koppers Co., 138 Ill.App.3d 276, 280, 485 N.E.2d 1301 (1985).

¹¹ Hyams, 225 Ill.App.3d at 258.

¹² Ryan, 30 Ill.2d at 460.

¹³ See Exline v. Exline, 277 Ill.App.3d 10, 13, 659 N.E.2d 407 (2nd Dist. 1995); Rapps v. Keldermans, 257 Ill.App.3d 205, 212, 628 N.E.2d 818 (1st Dist. 1993).

¹⁴ See Lower v. Rucker, 217 Ill.App.3d 1, 576 N.E.2d 422 (2nd Dist. 1991).

¹⁵ Id; See also Ryan, 30 Ill.2d at 460-61.

¹⁶ See Rapps v. Keldermans, 257 Ill.App.3d 205, 211, 628 N.E.2d 818 (1st Dist. 1993).

¹⁷ Id.