AIU Insurance Company v. TIG Insurance Company

Issue Discussed: Access to Records

Submitted by Eric A. Haab, Kerry Slade

Date Promulgated: November 25, 2008

Issue Decided: Whether an insurer waives attorney-client and work product privileges when it files suit against its reinsurer for breach of contract, where the reinsurer asserts a prompt-notice affirmative defense.

In AIU Insurance Co. v. TIG Insurance Co., the Southern District of New York held that a insurer had not implicitly waived attorney-client and work product privileges by filing suit against its reinsurer because filing suit was not a sufficient affirmative act to place the privileged communications “at issue,” and the material was not “vital” to the reinsurer’s affirmative defense of prompt-notice.


In January 2007, AIU sought reimbursement from its reinsurer, TIG, for payments made to third-party Foster Wheeler under umbrella insurance policies. In 2006, Foster Wheeler and AIU had settled an action for declaratory relief and AIU began to make payments to Foster Wheeler pursuant to the settlement agreement.

After receipt of AIU’s claims, TIG requested information about when AIU first received notice of potential liability to Foster Wheeler. AIU sent TIG an opinion of its coverage counsel, which provided background to the dispute and demonstrated that AIU had received notice of its potential exposure in March of 1992. TIG then requested an audit of AIU’s records relating to these claims, and AIU granted TIG access to all records relating to Foster Wheeler under a Confidentiality Agreement that specifically reserved all privileges.

After the audit, AIU filed suit against TIG, alleging that TIG breached the reinsurance contracts by failing to indemnify AIU for the settlement payments. TIG asserted an affirmative defense of “prompt-notice,” claiming that AIU breached the contracts by failing to provide prompt notice of AIU’s potential exposure to Foster Wheeler. In support of its defense, TIG sought documents concerning AIU’s knowledge of its potential exposure under the umbrella policies, including some documents created by AIU’s coverage counsel that were provided to TIG during the audit. AIU objected to TIG’s request on the grounds of attorney-client and work product privilege. TIG argued that any privilege had been waived implicitly, because AIU put the documents at issue by bringing its breach of contract claim against TIG, or expressly when AIU provided TIG with the documents during the 2007 audit.


The court held that AIU had not implicitly waived its claims of privilege by filing suit against TIG because TIG had not proven any of the three elements of the “at-issue” doctrine that governs implied waivers of privilege under New York law. First, AIU’s act of filing suit to obtain coverage was not a sufficient “affirmative act” to place the documents at issue, and TIG’s affirmative defense could not constitute an affirmative act by AIU. Second, AIU had not placed the communications “at issue” because it did not intend to rely on the contents of the privileged documents. The court reasoned that while the advice of AIU’s coverage counsel may be relevant to the dispute, it was not “at issue” in the breach of contract claim. Last, upholding the privilege would not have prevented TIG from discovering material “vital” to its prompt-notice defense because the defense relied on an objective evaluation of AIU’s knowledge of the facts of its liability. TIG was able to discover such facts through normal discovery methods.

The distinction between insurance and reinsurance contracts under New York law was crucial to the court’s decision in favor of AIU. In disputes over insurance contracts, prompt notice is a condition precedent that the insured must plead and prove in order to prevail on the merits. With regard to reinsurance contracts however, prompt notice is not a condition precedent to coverage absent clear language in the contract; rather, prompt notice is an affirmative defense of the reinsurer. Because there was no express language in the contract between TIG and AIU requiring AIU to prove that it gave prompt notice of claims, AIU had not placed prompt notice at issue by suing TIG.

The court also rejected TIG’s assertions that AIU had expressly waived the privilege by providing TIG with privileged documents during the 2007 audit. TIG argued that the Confidentiality Agreement signed by the two parties at the outset of the audit applied only to disclosure of documents to third parties. The Court held that this interpretation was at odds with the language of the agreement and that the documents were protected by the Confidentiality Agreement.

AIU, however, had waived its privilege surrounding the counsel opinion that it sent to TIG in response to TIG’s initial request for information regarding AIU’s notice of Foster Wheeler’s claims. The court reasoned that AIU was aware of the possibility of litigation when TIG expressed concern about the promptness of notice of the claims, so the parties’ interests were not aligned when AIU voluntarily exposed the document to TIG.

The court also ordered AIU to produce documents from previous claims paid to Foster Wheeler’s affiliate and indemnified under the TIG reinsurance contracts because they were relevant to determining how AIU gave notice under the contracts in previous circumstances. Additionally, because AIU had provided TIG with such documents during the audit in order to assist TIG in understanding the resolution of Foster Wheeler’s claims, AIU had implicitly conceded that the documents were relevant to the current dispute.

*Eric Haab and Kerry Slade are partner and associate, respectively, in the insurance/reinsurance group of Lovells LLP. They each represent cedents and reinsurers in disputes involving a wide variety of issues.