In an important case for any employer that has Employment Practices Liability (EPL) coverage (and lawyers that represent clients with EPL insurance), the Dallas Court of Appeals recently held that the communications between an employer’s in-house counsel and its EPL insurance adjuster were privileged communications and exempted from discovery. In In re Texas Health Resources, the dispute arose over a Texas Health Presbyterian Hospital (Presbyterian) nurse’s claim that she contracted Ebola when Presbyterian’s parent company, Texas Health Resources (THR), allegedly failed to properly prepare its affiliated hospitals to respond to Ebola and that, in an effort to mitigate the economic and reputational damage of the incident, invaded the nurse’s privacy while being treated as a patient at Presbyterian. The nurse brought claims against THR for negligence, gross negligence, premises liability, negligent undertaking, gross negligence, invasion of privacy and fraud. No claims were brought against Presbyterian, presumably because it had workers’ compensation insurance coverage and such claims against Presbyterian were barred. The nurse was receiving workers’ compensation benefits at all relevant times.
THR moved to abate the case arguing that the Texas Department of Insurance Workers’ Compensation Division had exclusive jurisdiction over the question of whether THR was also the nurses employer and thereby also obtained the benefit of the workers’ compensation bar against claims against THR. At issue in this discovery dispute was a Hartford insurance adjuster’s Diary Note regarding conversations between THR’s associate general counsel, THR’s risk manager and the adjuster. The notes were maintained in a file related to investigation and defense of claims under the employer’s liability portion of THR’s workers’ compensation and employers’ liability policy. All notes were made after the nurse sent an initial demand letter to THR. The nurse sought to compel production of the adjuster’s notes and the trial court signed an order compelling production of a portion of the notes. THR sought mandamus relief from the court of appeals.
The Dallas Court of Appeals held that the note was a communication protected by the lawyer-client privilege. It distinguished this case from other cases that holding that adjuster’s notes of communications with employers adjusting workers’ compensation claims because in this case, the insurance company was investigating and adjusting matters related to an Employment Practices Liability insurance policy. Significant to the court’s analysis was the fact that in a workers’ compensation case, the insurer is defending against itself whereas in an EPL claim, the insurer is defending on behalf of the insured employer. As the Court observed,
Insurance companies typically have the duty [under an EPL policy] to conduct the defense of the insured under the liability policy, including the authority to select, employ, and pay the attorney. Such liability policies “typically give the insurer ‘complete and exclusive’ control of the defense” including the ability to obtain professional legal services on behalf of the insured.
Because of the relationship between an EPL carrier, the employer and defense counsel, the Court held that “under proper circumstances, communications between an insurer and its insured may be shielded from discovery by the lawyer-client privilege. In the case, the notes at issue were made in the course of investigating THR’s claim under its EPL policy. The EPL claim file was opened after receiving the nurse’s demand letter. The notes at issue involved descriptions of conversations with representatives of THR, including a lawyer involved in the decision-making process about the defense of the claim and the adjuster who was working on the EPL claim. The notes reflected that the discussions related to the defense of the claim. Taken all together, the court held that the notes at issues were privileged communications protected by the lawyer claim privilege.
This is an important case for lawyer representing employers under EPL policies. The privilege to provide an insurer who has the duty to defend, adjust and pay claims with candid advice, evaluations and recommendations about covered litigation is as important as the lawyer’s need to provide that information to the employer-client. In my experience, most experienced opposing counsel representing employees do not seek to intrude upon the sanctity of these communications by attempting to obtain them, this is a case that should be in any attorney who represents EPL insured’s research files.
You can download a copy of In re Texas Health Resources case here.
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