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Are counsel's coverage opinions privileged in a subsequent coverage action with the insured? NY's First Department indicates not necessarily.

On 7/31/14, the First Department held that any documents that pre-date National Union's disclaimer are not protected from disclosure by the attorney-client privilege or the work-product doctrine or materials prepared in anticipation of litigation. National Union Fire Ins. Co. v. TransCanada Energy, USA, Inc., 114 A.D.3d 595 (1st Dep't 2014).

The insurers retained counsel to provide an opinion as to whether a claim was covered. The court concluded that the record indicated that "counsel were primarily engaged in claims handling-an ordinary business activity for an insurance company. Documents prepared in the ordinary course of an insurer's investigation of whether to pay a claim are not privileged and do not become so 'merely because the investigation was conducted by an attorney,'" quoting Brooklyn Union Gas Co. v. Amer. Home Assur. Co., 23 A.D.3d 190, 191 (1st Dep't 2005).

In National Union v. TransCanada, the court concluded that certain documents were privileged because they contained legal advice. This is consistent with its Brooklyn Union decision in which it stated that the attorney work-product doctrine applies to documents prepared by counsel acting as such and to materials "uniquely the product of a lawyer's learning and professional skills, such as those reflecting an attorney's legal research, analysis, conclusions, legal theory or strategy."

The TransCanada decision is likely to cause some mischief in coverage litigations as the parties and the courts try to navigate the confusing landscape created by the First Department's language. And the decision is a cautionary tale for those drafting coverage opinions and advising insurers in pre-disclaimer investigations.

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