Previously, Chris Harris provided an Australian perspective of the law of legal professional privilege (LPP) as it affects communications between insured and insurer in respect to third party claims, and the types of documents that are frequently the subject of applications for production and claims for LPP. In this follow up article, Chris focusses on loss adjuster reports, citing various case laws to illustrate the principles derived in relation to LPP attaching to such reports.
LPP in Australia differs in some respects from the rules in other jurisdictions, including the UK. Documents are subject to LPP in Australia (whether under the principles of legal or client advice privilege (LAP) or litigation privilege) according to a number of factors including a requirement that that the dominant purpose of the confidential communication was for obtaining legal advice or the provision of legal services (Esso Australia Resources Ltd v Commissioner of Taxation (Cth) (1999) 201 CLR 49), known as the “dominant purpose test”. The cases sometimes mix the dominant purpose test with a related inquiry as to whether the communication was created at a time when litigation was at least contemplated.
Protecting sensitive information in a loss adjuster’s report
One type of document we identified previously for the purpose of the above enquiry was the report of an investigator or loss adjuster retained by an insurer to assist it in understanding and determining liability in the claim prior to retaining lawyers.
Loss adjusters are often appointed in substantial claims by an insurer as part of their investigations. A loss adjuster’s report can provide recommendations on questions such as repair, replacement, rectification, policy coverage, contribution, fraud and subrogation. Such a report thus might contain sensitive information, and it is often not in the interest of an insurer or a party generally for such sensitive information to be made available to an opposing party. The question arises as to whether such a report (or at least the sensitive information) can be protected by LPP and if so, what needs to be done to ensure LPP is protected.
In many instances, a loss adjuster is retained by an insurer well prior to litigation being commenced. In these circumstances, successfully protecting a loss adjuster’s report from disclosure using LAP principles can be most challenging, assuming that all the other relevant criteria of relevance to a dispute apply and that, tactically, the insurer prefers to withhold the information from production.
Legal professional privilege (LPP) case law
There is a plethora of case law addressing this area and they have varied in their outcomes. An examination of those cases and most recently Ensham Resources Pty Ltd v AIOI Insurance Company Limited  FCA 710 (Ensham), can assist in understanding what can be done in appropriate circumstances to maximise the prospects of LPP (generally litigation privilege) being preserved in these types of communications.
In Brunswick Hill Apartments Pty Ltd v CGU Insurance Ltd  VSC 532, the Court denied that litigation privilege applied in regards to correspondence passing between an insurer and a loss assessor. It was held that mere assertions regarding litigation were insufficient to satisfy the dominant purpose test.
In contrast, in Mitsubishi Electric Australia Pty Ltd v Victorian WorkCover Authority (2002) 4 VR 332, the court determined that litigation privilege did attach to reports of loss assessors. The court was influenced in this instance by the fact that at the time the reports were created, the event leading to a claim being made (being an explosion resulting in a large loss) was held to be inherently likely to lead to litigation and solicitors had already been instructed at the time.
Samenic Ltd (formerly Hoyts Cinemas Ltd) v APM Group (Aust) Pty Ltd  VSC 194 (Samenic) confirmed that LPP will not attach if the document allows an insurer to make a decision in its ordinary course of its business as to whether to grant indemnity.
In Samenic, a report prepared by a fire consultant was held to be for the dominant purpose of providing legal advice to the client and was subject to LPP and protected. The Court acknowledged the report contained confidential information and there were references to various potential legal issues. The fact that the loss adjuster in this case was retained before lawyers were retained was held not to be determinative on the application of privilege, as the nature of the incident required the insurer to act quickly.
Insurer’s claim for LPP upheld in recent Ensham’s case
Most recently, the issue of LPP was considered in Ensham, cited above. Generally a notification of a substantial claim will prompt an insurer to appoint a loss adjuster and this happened in Ensham.
The case involved large loss arising out of a flooding incident at a coal mine owned by Ensham that was caused by heavy rainfall. Ensham gave notice of a potential claim under its industrial special risk insurance policy in January 2008 and made claims on this policy between 2008 and 2010. Following a denial of indemnity by the insurer, Ensham commenced proceedings against its insurer for failing to indemnify under the policy. In the meantime, the insurer had retained a loss adjuster to investigate the claims made by Ensham. Ensham sought access to these reports once litigation had been commenced.
The insurer’s claim for LPP was ultimately upheld. The magnitude of the claim and the fact that reference was made in the reports to potential legal issues were identified as indicating circumstances which were highly conducive to litigation. The reports were protected by litigation privilege even though they were prepared some time prior to litigation being commenced.
Principles derived from Ensham in relation to LPP attaching to loss adjuster reports (or at least the parts relevant to legal advice) include that:
- A court must approach its examination on an objective basis whether in respect of a claim for LAP or litigation privilege, and labelling a document as privileged does not of itself determine its classification as such
- With respect to litigation privilege, a court will examine whether there was any real prospect of litigation at the time of the correspondence and the court will examine whether the prospect of litigation was foreseen by the person engaging the loss adjuster at the time of correspondence
- With respect to litigation privilege, there needs to be a real prospect of anticipated litigation in existence (as opposed to a mere possibility)
- LPP can attach to loss adjuster reports despite their being commissioned and obtained well in advance of any litigation eventuating, in appropriate circumstances
- Correspondence with a loss adjuster which has multiple purposes does not necessarily preclude those communications from being subject to LPP (although a dominant purpose must be identified)
- A loss adjuster report which is obtained in the normal course of investigating an insurance claim will not likely be subject to LPP as the dominant purpose is not for the purpose of litigation or for legal advice
The cases indicate that a key element in ensuring that LPP attaches to a loss adjuster report is to satisfy the dominant purpose test. Assuming that litigation privilege is relied upon, it will also need to be demonstrated objectively that litigation was contemplated at the time the communication was made.
It is important to consider whether relevant legislation displaces the common law protection of LPP, as is the case in some Australian jurisdictions. Legislation will displace LPP where clear words or necessary implication require the report to be produced: Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543.
The type of legislation in question imposes legal obligations on parties to disclose investigations reports (examples include sections in the Personal Injuries Proceedings Act 2002 (Qld), Motor Accident Insurance Act 1994 (Qld) and the Worker’s Compensation Rehabilitation Act 2003 (Qld)).
Jennifer McKenna By Her Next Friend David Upton v Australian Capital Territory and Others  ACTSC 115 highlights the situation where the protection of LPP can be eroded by the application of legislation such as the Civil Law (Wrongs Act) Act 2002 (ACT) where s. 72 requires the disclosure of documents, including investigative reports, to be disclosed even when they would otherwise be protected by LPP. It is important to be aware of such requirements to avoid a nasty surprise in the event a claim in relation to which such legislation is relevant applies.
If you would like further information on any issue raised in this article, please contact Chris Harris.