Montana Supreme Court Finds Plan II Employers Are Not Within the Insurer's Attorney-Client Privilege

A Montana employer that elects to place its workers' compensation coverage under statutory Plan II turns all of the responsibility for adjusting and settling work comp claims over to the insurance company. The Montana Supreme Court relied on that principle when it held today that an insurer waived its attorney-client privilege by disclosing a confidential settlement strategy memorandum to representatives of the employer.

Our client, Phil Peters, alleges American Zurich Insurance Company committed several violations of the Montana statutes that regulate and constrain the tactics of insurance companies and their adjusters. In discovery we learned that Zurich's attorney had prepared a pre-settlement-conference memorandum for the adjuster, who then shared the memo with representatives of the employer. The employer in this case had elected Plan II, with the result under Montana law that it was to have no involvement in the adjustment or settlement of work comp claims against it. The attorney was working for the insurance company, not the employer. We therefore subpoenaed the record from the employer. The employer and Zurich resisted, but Judge Todd ruled against them. Zurich then sought review from the Montana Supreme Court by asking for a "writ of supervisory control," a procedure that applies in exceptional circumstances to permit an appellate ruling before the underlying case has reached final judgment in the trial court.

In today's ruling, the Montana Supreme Court noted the underlying principles that require a Plan II employer to keep out of the adjustment and settlement process, and found that Zurich could not reasonably expect to maintain the attorney-client privilege when it disclosed its attorney's memo to the employer, who was not the lawyer's client. Additionally, the Court rejected Zurich's claim that the adjuster did not have the necessary authority to waive Zurich's privilege. Under Montana Plan II law, the insurance company must have a Montana resident adjuster who has full authority to take all necessary actions to adjust and settle the claim. We argued, and the Court agreed, that the communications between the adjuster and the attorney were occurring to permit the adjuster to make those decisions and this necessarily meant the adjuster had authority over the privilege as well:

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