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The Federal District Court for the Northern District of Illinois, Eastern Division, recently decided that correspondence between a ceding company's attorney and the company's reinsurers, directly or through a reinsurance broker/intermediary, is protected by the attorney work product privilege if the privilege would apply to the correspondence but for the communication to a third party.

In Minnesota School Boards Association Insurance Trust v. Employers Insurance Company of Wausau, a Mutual Company, Civ. No. 98 C 6285 ( January 6, 1999, D. Ill.), Minnesota School Boards Association Insurance Trust sought recovery for losses under an excess policy issued by Employers Insurance Company of Wausau. [The main action between Minnesota and Wausau was pending in Minnesota Federal District Court.] Wausau's reinsurer was CNA Reinsurance and the reinsurance broker was Aon Re, Inc. Minnesota sought discovery from CNA Re and Aon Re of three documents: a "confidential statement" letter from a Wausau litigation attorney to a Federal Magistrate in the main action; a letter from the same attorney to a Wausau employee regarding the status of the main action, and; a letter from a Wausau employee to an Aon Re employee regarding the status of the main action. Wausau objected to the production of these documents on the grounds that they were protected by the attorney client privilege and the attorney/work product privilege. All of the documents were in the possession of CNA Re and Aon Re.

The Court began its discussion by addressing the work product privilege, stating that the purpose of that privilege is to keep one party from gaining "an unfair advantage over another party by learning the other party's counsel' s strategies and legal theories." The Court recognized that "ordinary" work product is accessible under Federal Rule of Civil Procedure 26 when the requesting party has proven a substantial need for the production.

Here, however, the Court determined that the documents Wausau sought to protect were "opinion" work product setting forth the mental impressions, conclusions, opinions, and/or legal theories of Wausau's counsel. This work product is "nearly absolutely protected" and discoverable only in "very rare and extraordinary circumstances."

Minnesota argued that Wausau had waived the work product privilege by communicating the documents to CNA Re and Aon Re. In response, Wausau argued that waiver of the privilege occurs only if disclosure to a third party is "inconsistent with the maintenance of secrecy from the disclosing parties' adversary." Wausau argued that it disclosed these documents in response to requests from CNA Re and Aon Re, which each had a stake in the outcome of the litigation, and that Wausau therefore could rely upon the expectation of confidentiality. Minnesota disputed Wausau's argument that CNA Re and Aon Re had an interest in the litigation because Aon was not a reinsurer but rather a reinsurance broker.

The Court found Minnesota's argument unavailing, and instead relied on cases in which it had been decided that disclosure of work product by a ceding company to a reinsurance broker does not waive the work product privilege any more than would disclosure to an actual reinsurer. Citing United States Fire Ins. Co. v. General Reinsurance Corp., 1989 U.S. Dist. LEXIS 8280 1989 WL 82415 (S.D.N.Y. 1989), the Court pointed out that "[i]n the reinsurance context, a broker/intermediary's role is to bridge the information gap between ceding office and reinsurer." Aon Re therefore was merely a conduit for communications between CNA Re and Wausau. As a result, disclosure of privileged information to Aon Re was consistent with the purpose of maintaining the secrecy of privileged information from current or potential adversaries. Western Fuels Ass'n, Inc. v. Burlington Northern R.R. Company, 102 F.R.D. 201 (D.Wy. 1984).

The Court also addressed the "common interest" exception to the rule that disclosure to a third party waives of the work product privilege. Under the common interest rule, where the third party shows a common interest with the disclosing party and that interest is adverse to the interest of the party seeking discovery, there is no waiver of privilege. The Court then distinguished the case cited by Minnesota, Allendale Mutual Insurance Company v. Bull Data Systems, Inc., 152 F.R.D. 132 (N.D. Ill. 1993), which declined to apply the work product privilege to documents between Allendale and its reinsurers because those documents were not prepared by lawyers or agents on behalf of lawyers. Rather, unlike the documents before it here, the Court noted that the documents in Allendale were "merely insurance business material."

The decision, then, accepts the principle that, at least as relates to "opinion" work product, correspondence between an attorney for a ceding company and that company's reinsurer is privileged, even though the communications may have been routed through a broker/intermediary, as long as that correspondence would otherwise be protected as privileged under the work product doctrine.