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Twin Tower Insurers Win Discovery Fight

Mark Hamblett
New York Law Journal
06-20-2002


The attorney-client privilege does not shield conversations between the insurance broker for World Trade Center leaseholder Larry Silverstein and Silverstein's lawyers, a federal judge in the Southern District of New York has ruled.

In a victory for insurance companies in their multibillion-dollar fight against Silverstein's claim that the Sept. 11 attacks amounted to two occurrences for insurance purposes, U.S. District Judge John S. Martin ordered brokers from Willis of New York Inc. to answer questions in a deposition about their understanding of the scope of coverage following the terrorist assault.

The conversations were between the brokers and Silverstein attorneys Wachtell, Lipton, Rosen & Katz. Insurance company attorneys claim the conversations will include evidence that Willis employees considered the destruction of the twin towers a single event. Silverstein has argued from the outset that the attacks were two occurrences, a claim that, if successful, would double the amount of insurance payments he receives, to $7.1 billion.

The ruling in SR International Business Insurance Co. Ltd. v. World Trade Center Properties and World Trade Center Properties v. Allianze Insurance Co., 01 Civ. 929, also marks the second setback to the Silverstein team this month. On June 3, Martin refused to grant Silverstein summary judgment on whether the attacks amounted to two occurrences, ruling that extrinsic evidence must be considered before deciding how much Silverstein should be compensated for the destruction.

The motion to compel discovery of the conversations between Willis and Wachtell Lipton lawyers was sought by Travelers Insurance Co., one of several defendant counterclaimant's in the Allianze case. Travelers' assertion that it is obligated to pay Silverstein only $210 million, instead of double that amount, has been used as the test case for pretrial motions and discovery in more than 20 suits concerning World Trade Center insurance coverage.

Herbert M. Wachtell's grounds for resisting the motion were that Willis was acting as an agent for the Silverstein parties and was therefore protected by the privilege, that Willis and the Silverstein parties shared a "common interest privilege," and that the conversations were protected by the attorney work product privilege.

Harvey Kurzweil and Saul Morgenstern of New York's Dewey Ballantine, who represent Travelers, are the lawyers seeking to question the Willis employees. Kurzweil and Morgenstern go into depositions armed with already-discovered documents: notes taken by a Willis employee in London during a conversation with another Willis employee who was stranded in Nashville, Tenn., following Sept. 11. The employee in Nashville allegedly implied that the understanding of the parties to the still-unsigned insurance agreement was that the attacks were one occurrence.

AGENCY ISSUE

As to agency, Judge Martin said: "a limited number of cases have held that the corporate attorney-client privilege can extend to communications between the corporation's attorney and outside agents or consultants to the corporation whose role is the functional equivalent to that of a corporate employee."

But Martin said the facts in this case are substantially different because the conversations were "between Willis, a multi-national corporation with its own retained counsel, and the lawyers for one of its many clients."

While competent lawyers need to be fully informed of all the facts of a case for a client, Martin said, "that interest does not extend the attorney-client privilege to all those who may have relevant information. The privilege is much more limited."

Addressing the common interest privilege, Martin said it is a "limited exception to the general rule that the attorney-client privilege is waived when a protected communication is disclosed to a third party." He said the 2nd U.S. Circuit Court of Appeals has warned that courts should be cautious about extending the attorney-client privilege through the exception.

But Martin said further that "Sharing a desire to succeed in an action does not create a 'common interest.'"

"There has been no showing that Willis and the Silverstein Parties have an identical legal interest, as required by the cases," he said. "Willis is not a party to this litigation, and its legal position will be unaffected by the outcome of this case."

Finally, Martin found that the conversations were not protected by the attorney work-product privilege.

"It must be remembered that, at least as codified in the Federal Rules of Civil Procedure, the work product doctrine applies only to tangible things -- not testimony," he said. "Clearly, much more can be learned about a lawyer's strategy and tactics from documents that the lawyer prepares than can be gained from general questioning concerning a witness's recollection of conversations with an attorney concerning the events about which the witness is expected to testify."

The judge said that the work product privilege would apply only to the extent that questions are "specifically designed" to discover Wachtell Lipton's work product.

So the judge allowed insurance company attorneys to question Willis witnesses about conversations that occurred before the sessions at which the witnesses were being prepared for depositions, and during the preparation sessions.

Stuart Green of Epstein, Becker & Green in New York represented Willis.