When is a loss adjuster’s file subject to privilege?

Eli Lilly and Company Limited (Eli Lilly) stored products in a DHL Supply Chain Limited (DHL) chiller room, pursuant to a written agreement. On 11 February 2015, a DHL employee operating a fork hoist hit a sprinkler head in the chiller room, which discharged onto cartons holding Eli Lilly products.

Loss adjusters Crawford were appointed on 19 February 2015 by Eli Lilly’s insurer to look into the incident. Eli Lilly claims that Crawford first referred to the prospect of recovering against DHL in a report dated 5 March 2015. Solicitors were appointed to take recovery action on 6 May 2015. DHL maintains that solicitors were only instructed in July 2015.

A letter of demand was first sent to DHL on 9 September 2015. Eli Lilly filed proceedings against DHL in relation to the incident on 15 December 2020.

DHL sought discovery from Eli Lilly of Crawford’s file in relation to the incident for the period 19 February 2015 to 30 June 2015. Eli Lilly claimed litigation privilege over the documents in question.

Section 56 Evidence Act 2006 (Act) provides that a party to a proceeding has a privilege in respect of communications or information made or received for the dominant purpose of preparing for a proceeding or an apprehended proceeding.

Associate Judge Taylor cited two recent decisions of the High Court setting out the principles to be applied in evaluating claims for litigation privilege,¹ which are summarised as follows:

1. Whether litigation was reasonably apprehended, and whether documents were prepared for the dominant purpose of litigation are both questions of fact.
2. There must be a real likelihood of litigation.
3. The fact that documents were made available to lawyers in the context of possible litigation is insufficient to prove that they were prepared for the dominant purpose of litigation.

His Honour considered that:

1. Litigation was only a possibility and not reasonably apprehended at the time the Crawford documents were prepared. It was apparent from the documents that the focus of Eli Lilly, its insurer and Crawford was to investigate and quantify the damage, not on recovery. Statements of a general nature relating to recovery rather than foreshadowing a specific likelihood of litigation in the current claim are insufficient to prove litigation was apprehended. Statements which were made before the plaintiff had sufficient details on which to base a reasonable apprehension of litigation are also insufficient.
2. The documents failed the “dominant purpose” test, as preparing for litigation was only one of the purposes for which they were created. Of at least equal importance was investigation of the insurance claim and quantifying the damage.

Reports from loss adjusters and assessors are a tricky category of documents for the purposes of assessing privilege. By their nature they are often multi-purpose and created at a time when a dispute is possible, but not certain.

Where the dominant purpose of the document is to enable the insurer to make a decision on whether or not to accept the claim, it will not be protected by privilege.

Documents have been treated as privileged:

1. In the context of a fire claim, after insurers received advice that arson was reasonably suspected and engaged counsel.²
2. After the insurer had made a tentative decision to decline the claim and advised the insured of its likely decision.³

Practically speaking, having reports addressed to a solicitor does not necessarily assist,⁴ but where the advice in question has clearly been sought to enable the insurer’s solicitor to draft or defend proceedings, it is more likely to be protected by privilege. This can be done in the form of instructions sent to the loss adjuster or expert, which should be clear about the purpose and the content of the advice being sought. Where advice is being sought for more than one purpose, it may be useful to prepare separate reports.

Where the insurer communicates through an investigator with its solicitor, the communications may also be subject to legal professional privilege. This is a communication for the purpose of obtaining legal advice. However, this only applies where the insurer has appointed the investigator as their agent rather than as an independent contractor.⁵

This publication is intended as a general overview and discussion of the content dealt with. It should not be used in any specific situation, in which case you should seek specific legal advice.