The Effect of Disclosure of Information to an Insured Employer

Does the attorney-client privilege extend to communications between a carrier’s legal counsel or adjuster and its insured employer?

This query often arises in cases where the employer, bound by standard clauses in the workers’ compensation policy, is obligated to collaborate in claims investigation, settlement, and defense, and where a substantial dollar deductible per claim is involved. In such cases, the insured employer either desires direct communication from the carrier’s attorney or to otherwise obtain access to communications between the attorney representing the carrier and the carrier.

If the privilege does not apply, then any such communications is discoverable by the injured employee.

Confidential communications between clients and their attorneys serve to foster open dialogue and facilitate effective administration of justice. However, the privilege’s application can sometimes restrict the presentation of relevant evidence. To strike a balance, the courts restrict the scope of this privilege, and Texas’s evidentiary rules provide guidelines for its application.

The Texas Workers’ Compensation Act certainly anticipates interactions between workers’ compensation insurers and employers regarding such claims. However, except for certified self-insured employers and political subdivisions, in Texas, workers’ compensation claims are brought directly against a workers’ compensation carrier. There is limited legal involvement of the employer in the adjudication of the rights to benefits. That is, the carrier takes direct responsibility for benefit payments, making the carrier – not the employer – the party directly accountable.

As a result, it is the carrier, not the insured employer, that is the client and participant in the ongoing legal action, retaining legal representation for its own interests. This stands in contrast to the system in some other states or in standard liability insurance cases, where only the insured party is a participant, and the insurer typically secures legal representation on behalf of the insured.

Thus, in 2012, the Texas Supreme Court established that in most circumstances these communication will not be privileged. While there have been occasional legislative attempts to overturn this decision, they have not succeeded.

In the presence of a substantial deductible arrangement, the employer may share common interests with the carrier in the outcome of the administrative proceedings. However, regardless of the extent of shared interests, Texas rules dictate that the communication must occur with an attorney or her representative who represents another party in an ongoing legal action. The insured employer is simply not considered a party to a workers’ compensation claim in Texas.

There is even less legal protection between communications between a carrier’s adjuster and the insured employer.

For this reason, insurance carriers must be aware that any disclosure of confidential information to an insured employer will waive any privilege that may otherwise have attached to the information and the information will then be discoverable by the injured employee.

Please reach out to the attorneys at FOL should you have any questions about this in the context of your claims handling: GQS@fol.com.