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North River Ins. Co. v. Columbia Casualty Co.

Issue Discussed: At Issue Doctrine

Submitted by Michael R. Kuehn

Date Promulgated: January 5, 1995

 

Court: Southern District of NY

Issues Decided: Whether and under what circumstances a ceding company waives privilege either by placing the good faith of its actions in an underlying alternative dispute resolution proceeding “at issue” in subsequent litigation with its reinsurer or through the application of the common interest doctrine.

In an opinion dated January 5, 1995, the Southern District of New York held that North River Insurance Company (“North River”) did not waive the attorney-client privilege covering communications with its coverage counsel in an underlying arbitration where North River was ordered to pay defense costs on behalf of its insured by bring an action to recover a portion of its defense costs from its reinsurers – Columbia Casualty Company (“Columbia”).  The Court upheld North River’s assertion of privilege because no common interest existed between North River and Columbia because Columbia did not contribute  to North River’s legal expenses, exert control over proceedings, and the parties’ legal interests diverged.  The Court also held that merely bringing an action to recover defense costs was insufficient to effectuate an “at issue” waiver of privilege.

North River issued an excess liability insurance policy to Owens-Corning for a policy period from 1974 – 1975.  North River denied it owed Owens-Corning any obligation to pay defense costs but agreed to submit to binding alternative dispute resolution (“ADR”).  The arbitrator found North River obligated to pay defense costs.  North River appealed the decision but ultimately abandoned the effort.   North River then brought suit against eight reinsurance companies alleging that each was responsible for a share of defense costs North River had paid on behalf of Owens Corning.

At the time of the decision, Columbia Casualty was the only remaining reinsurer.  Columbia contended that defense costs were not covered under the North River excess policy and therefore not covered under reinsurance agreement between North River and Columbia.  Columbia contended that North River’s obligation to pay defense costs was due to its failure to preserve its rights under the Wellington Agreement.

Columbia sought all documents between North River and its counsel related to the dispute with Owens-Corning over North River’s obligation to pay defense costs. North River asserted privilege over the communications.  Columbia filed a motion to compel arguing, inter alia, that (1) Columbia shared a common interest in the subject matter of the communications; and (2) North River had placed its good faith in the ADR proceeding “at issue” thereby waiving privilege.

The Court rejected Columbia’s contention that it had a common interest in North River’s communications with counsel.  The Court explained that the doctrine is an exception to the waiver of privilege when privileged communications are shared with a third party where there is (1) joint representation, or (2) a joint defense strategy undertaken by parties and their respective counsel.  The Court found there was no common interest between North River and Columbia in the ADR proceeding.  They were not represented by the same counsel and Columbia did not contribute to the expenses of the proceedings or exercise any control of the proceedings.  There was no evidence of coordinated litigation strategy.  The Court found that while the parties commercial interest may have overlapped, that was insufficient to find a common interest.

The Court also denied Columbia’s argument that North River had waived privilege by “putting in issue its utmost good faith in connection with all its actions” in the ADR proceeding.  The Court ruled that an “at issue” waiver only occurs where a party has asserted a claim that he intends to prove through the use of privileged materials.”  The Court ruled that Columbia had not shown that North River intended to prove its breach of contract claim through the use of privileged documents.  The fact that Columbia hoped to use the documents as part of its argument that North River did not act in good faith could not effect a waiver of North River’s privileges.