A New York appellate court ordered AIG and other insurers to provide TransCanada Energy USA Inc. with communications involving attorneys and claims handling personnel in a $70 million coverage battle over the repair costs and business interruption losses stemming from the shutdown of a damaged turbine at a power plant in Queens, New York.

The insurers argued that the documents at issue were protected by the attorney-client privilege, the work product doctrine, or as materials prepared in anticipation of litigation.  Following in camera review, the trial court determined that some of the documents were privileged because they contained legal advice.  But, as to the balance of the documents, the trial court found that the insurance companies had not met their burden of demonstrating privilege.

The record reflected that the documents at issue were generated by counsel retained by the insurance companies to provide a coverage opinion, i.e., an opinion regarding whether the insurance companies should pay or deny claims.  The record also indicated that counsel were primarily engaged in claims handling – an ordinary business activity for an insurance company.  The appellate court upheld the trial court’s order requiring production of the documents:  “Documents prepared in the ordinary course of an insurer’s investigation of whether to pay or deny a claim are not privileged, and do not become so merely because the investigation was conducted by an attorney.”  National Union Fire Ins. Co. of Pittsburgh, PA v. TransCanada Energy USA, Inc., No. 11815N (N.Y. App. Div. July 31, 2014).