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.

The Risk of Forfeiting Privilege

The tension between the policyholder’s desire to comply with the cooperation clause and fear of arming its insurance company is compounded by the risk that privilege could be lost in the process and the plaintiff in the underlying action might thereby gain access to the information. Generally, disclosure of privileged information to parties outside the attorney-client relationship results in a waiver of that privilege.

Some states seek to mitigate this risk through a doctrine called the “common interest privilege” (a.k.a. the “joint defense privilege” or “community of interest privilege”).  Whether your state recognizes this doctrine should play a role in deciding what information to disclose to your insurance company.  The common interest privilege preserves the privileged nature of documents and information with respect to those outside the confidential relationship, so long as the disclosure is made to further a common interest and in a manner that demonstrates an intent to maintain confidentiality.  Depending on the applicable state law, privileged defense material shared with a policyholder’s insurance company to further a common interest – namely, minimizing the policyholder’s liability – may be done without waiving the privilege or rendering the material subject to discovery by the plaintiff in the underlying action.  Some states, however, have declined to recognize the common interest privilege as between a policyholder and its insurance company if the insurance company has disclaimed coverage.

Protect Yourself in Advance with a Confidentiality Agreement

A carefully drafted agreement between the policyholder and the insurance company can address these risks and not only preserve privilege, but also limit the scope of what will be shared with the insurance company.   A “common interest and confidentiality agreement” can both demonstrate that the policyholder seeks to satisfy its duty to cooperate and protect the policyholder from having to divulge harmful defense materials to the plaintiff in the underlying action.

Not much case law has developed regarding a plaintiff’s right to obtain access to privileged information that a defendant has shared with its insurance company under a confidentiality agreement.  A confidentiality agreement should identify the parties’ common interest and their adverse interests.  The confidentiality agreement should clearly and unequivocally confirm that the only purpose of the agreement is for the policyholder to share privileged defense information with the insurance company in order to further the parties’ common interest in reducing the policyholder’s ultimate liability to the plaintiff.

Meanwhile, there are a host of adverse interests stemming from the policyholder’s desire to maintain coverage and the insurance company’s goal of avoiding or limiting coverage.  A confidentiality agreement should identify those adverse interests and make clear that the policyholder has no obligation to share any information that could further the insurance company’s adverse interest – that is not a “common” interest.  Finally, a confidentiality agreement should specify that by sharing information within the bounds of the agreement, the policyholder is in compliance with the policy’s cooperation clause.

Disclosure of privileged defense information to insurance companies presents a risk of waiver of the privilege such that the plaintiff in the underlying action might also be able to obtain that information.  Meanwhile, absolute nondisclosure risks a loss of insurance coverage due to violation of the policy’s cooperation clause. The “common interest privilege” may not be available in all states and circumstances.  Even when it is available to provide general protection to a policyholder, a written agreement that details the understanding of the parties will provide enhanced protection to the policyholder and will be available to refute assertions of failing to cooperate.  A carefully drafted common interest and confidentiality agreement can protect the policyholder from loss of coverage and from greater liability in the underlying action.  As with so many areas of potential conflict between a policyholder and its insurance company, advance understanding and preparation, via the confidentiality agreement, can greatly increase the odds that the two parties’ interests will remain aligned.

About the Authors:

Allen R. Wolff ( is a shareholder in Anderson Kill’s New York office. Mr. Wolff’s practice concentrates in construction litigation, insurance recovery, and the nexus between the two, as well as in complex commercial litigation.

Vivian Costandy Michael ( is an attorney in Anderson Kill’s New York office. Ms. Michael’s practice concentrates in insurance recovery, exclusively on behalf of policyholders, and in corporate and commercial litigation.