Comply with your insurance company's cooperation clause, but preserve your privilege

Insurance companies often invoke a policy’s cooperation clause to compel a policyholder to share privileged defense information even after the insurance company has reserved the right to deny coverage at a later date.  At one extreme, the policyholder might withhold all defense information and risk prompting the insurance company to issue a disclaimer of coverage for failure to cooperate.  At the other end of the spectrum, a policyholder might lose the protection of litigation privileges by giving the insurance company unfettered access to defense information, potentially rendering the material discoverable by the policyholder’s adversary in the underlying action.  Policyholders can avoid these outcomes by taking proactive steps to preserve the privileged nature of defense materials shared with their primary or excess insurance companies.

Policyholders are familiar with insurance companies’ practice of reserving rights to disclaim coverage early in the policyholder’s defense of the underlying action.  Insurance companies nevertheless often demand privileged defense materials from their policyholders and ground the demand in the policy’s cooperation clause, which purports to impose an undefined “duty to cooperate” on the policyholder.  While the stated purpose is to gather information relevant to the defense of the underlying action, insurance companies often mine this material for information that could support a disclaimer of coverage.