Zurich has updated its “Litigation Management Guidelines” to give the insurer an unprecedented level of control over defense counsel’s activities. The new Guidelines adopt the Recommended Case Handling Guidelines for Insurers created by The Defense Research Institute, and also append an extensive Addendum covering business policies, expense and professional fee payment, and other administrative points.
The Guidelines purport to impose a sweeping waiver of attorney-client privilege and work product protection, even though the law in most states imposes significant limitations on an insurer’s access to privileged or protected information developed by defense counsel – especially where the insured is entitled to so-called Cumis or independent counsel as a result of conflicts of interest with its insurer. Zurich’s Guidelines mandate almost complete and constant transparency in case development and strategy, stating “counsel should provide a significant development report to immediately communicate important case developments to the claims professional, such as settlement overtures by other parties, codefendant strategies or developments, new information obtained through discovery, etc.” The Addendum also requires counsel to “enunciate the impact of the information being conveyed,” specifically on “case strategy, evaluation, posture, and resolution opportunities.” Zurich essentially attempts to coerce insureds to waive the attorney-client privilege and work product protection by expressly stating that Zurich reserves the right to review defense counsel’s files and will not pay for defense activities for which Zurich is not given access to “full” explanation and documentation.
The Guidelines require development reporting by the defense counsel to Zurich including:
• Acknowledgement – counsel should send a letter acknowledging receipt of the new case and outlining the legal team assigned, along with any matters of immediate concern/information that may resolve the case quickly
• Initial Report – counsel should send an initial report with:
– a summary of the complaint allegations, factual basis for litigation, a summary of preliminary investigation information, and preliminary evaluation of liability and damages – a litigation plan identifying significant activities (investigation, motions, discovery, etc.) counsel proposes to initiate, discovery and motions that have been or may be initiated by others, and estimated completion dates and expenses for each activity – settlement discussion with any recommendations on arbitration, mediation, or negotiations – discussion on the potential success of dispositive motions before/after the commencement of discovery and when motions to dismiss or for summary judgment are appropriate – trial date estimate
• Significant Development Report – counsel should communicate significant developments including summaries of depositions, pretrial reports, and, if applicable, settlement options and/or dispositive motions, updated liability and damages evaluation, updated litigation plan, and trial report (no later than 45 days prior to the trial date)
Other specific guidelines and restrictions are included, regarding such issues as time charges, multiple attorney attendance at certain functions, and required measures on updating. On matters of planning and case building, Zurich requires that any discovery contemplated by counsel must be discussed during the Case Management Conference (“CMC”) between counsel and the insurer’s claims professional and confirmed in the Case Management Plan (“CMP”) completed by counsel and sent to the claims professional to be reviewed and authorized with a corresponding budget. CMPs must be also re-evaluated at least every 180 days, and the CMC must include an Early Resolution Action Plan. The Guidelines require defense counsel to obtain Zurich’s permission before performing such core defense functions as conducting legal research, pursuing discovery, retaining experts, filing dispositive motions, preparing exhibits, and deciding how a matter should be staffed and whether more than one attorney should attend major litigation events.
Courts across the country have refused to enforce litigation management guidelines that unduly interfere with the independent professional judgment of defense counsel. For example, in Dynamic Concepts, Inc. v. Truck Insurance Exchange, 61 Cal. App. 4th 999, 1009 (Cal. Ct. App. 1998), the California Court of Appeal made clear that an insurer cannot impose restrictions on defense counsel that hinder counsel’s ability to provide a full and complete defense, stating that “[i]nsurer-imposed restrictions on discovery or other litigation costs may well violate the insurer’s duty to defend as well as the attorneys’ ethical responsibilities to exercise their independent professional judgment in rendering legal services.” Thus, if Zurich’s Guidelines are challenged and shown to encroach upon defense counsel’s ethical and professional responsibilities, they are unlikely to be enforced.
State ethics boards have also refused to permit such rigid oversight of the policyholder’s defense counsel as is mandated by Zurich’s Guidelines. The Supreme Court of Ohio Board of Commissioners on Grievances and Discipline, for example, has expressly forbidden such insurer influence on the defense, stating in an advisory opinion that “it is improper under DR 5-107(B) for an insurance defense attorney to abide by an insurance company’s litigation management guidelines in the representation of an insured when the guidelines interfere with the professional judgment of the attorney. Attorneys must not yield professional control of their legal work to an insurer.” Again, provided an influence upon the professional judgment of defense counsel is shown, guidelines like Zurich’s are likely to fail before the ethics boards of many jurisdictions.