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Benjamin Karalus & Stephanie Price | October 2012 | General Insurance

The recent Federal Court decision of Ensham Pty Limited v AIOI Insurance Company Limited [2012] FCA 710 sought to clarify when legal professional privilege may attach to the reports of loss adjusters.

Who does this impact? Insurers generally, Claims officers and Teams. Technical managers; Loss adjusters.

What action should be taken? Where a dispute relating to a claim is foreseeable and the insurer wants to attract legal privilege to their loss adjuster reports, the instructions to the loss adjuster should come from the insurer’s solicitor. This will bolster the argument that legal privilege applies.


Loss Adjuster Reports when does privilege attach?

The recent Federal Court decision of Ensham Pty Limited v AIOI Insurance Company Limited [2012] FCA 710 raises important issues in relation to the application of the rule of privilege over Loss Assessment Reports.

Facts Ensham Resources Pty Limited (“Ensham”) ran an opencut coal mine in Queensland. Following a flood on 19 and 20 January 2008 some of the coal mine “pits” filled with water, and as a result there was damage to the pits and other property. Consequently Ensham suffered interruption to its business. Ensham subsequently notified its insurer, AIOI Insurance Company Limited (“AIOI)”, of a potential claim under its policy, an industrial special risk insurance policy (“the policy”). Between August 2008 and April 2010 it made claims, but nothing had been paid by AIOI. Ensham issued proceedings against AIOI seeking indemnity under the policy. The Court considered that the contentious issues relevant in the proceedings were: 1. Whether Ensham complied with its duty of disclosure; and thereafter to determine; 2. Whether certain ‘at risk’ property was covered by the policy, particularly the flood levee which had allegedly failed, possibly causing the pits to fill with water.


The manager of AIOI retained solicitors on 1 February 2008 to act for the company in relation to the Ensham Flood. Prior to this AIOI had appointed Crawford & Company Australia Pty Ltd (“Crawford”) as their loss adjuster.

of legal services, including representation in proceedings in a court”.

The insurer’s solicitor gave evidence to the Court that he had a discussion with Crawford regarding a number of issues relating to the cause of the water flowing into the mine, the effectiveness of the flood levy, the fact that the levy may not be an insured “asset”, the estimated cost of removal of debris from the mine (which would far exceed the limit of cover), and the policy section under which the Ensham claim was to be made.

1. Whether litigation was reasonably contemplated at the time the reports were prepared; and 2. Whether the reports were prepared for the dominant purpose of assisting or advising in relation to anticipated legal proceedings.

The insurer’s solicitor also gave evidence that following the discussion between Crawford and himself, due to the nature of the issues discussed, he wrote to the Manager of AIOI on 13 February 2008 and recommended AIOI withdraw the instructions to Crawford, and that thereafter that Crawford should be instructed directly by the solicitor so that any reports prepared by Crawford would be subject to a claim for privilege.

The counsel for Ensham argued that there was not enough information known at the time the reports were prepared to determine whether there would be a likelihood of legal proceedings. It was further submitted that the reports were prepared to determine whether to accept the claim, and if covered, the extent of coverage and the future relationship between the parties.

The instructions from the insurer’s solicitor to Crawford stated that they were to advise in relation to “policy response and to deal with certain issues that, we understand, are likely to be contentious between the parties”. Ensham then issued proceedings, as AIOI failed to make payment under the policy. The solicitors for Ensham sought production of the reports authored by Crawford. The insurer’s solicitor provided only some of the Crawford reports claiming legal privilege over the balance. Ensham sought interlocutory orders for production of the balance of the Crawford reports.

Legal Principles The Court was asked to consider the extent to which legal privilege applied to the loss adjuster reports prepared pre-litigation. The principle applied by the Court was espoused in the case of Esso Australia Resources v FCT1 that “legal professional privilege protects the confidentiality of communications made in connection with giving or obtaining legal advice or the provision

The two questions effectively considered by the Court were:

Submissions by the Parties


Loss Adjuster Reports - when does privilege attach? Benjamin Karalus & Stephanie Price | October 2012

The counsel for AIOI submitted that there were contentious issues at the time the loss adjusters were instructed and the reports prepared, and further that the reports were prepared in order to give legal advice on those issues that were likely to be in dispute.

Decision The Court noted that the insurer’s solicitors deliberately attempted to attract legal professional privilege by ensuring they directly retained the loss adjuster and by utilising specific wording in the retainer which suggested the reports were for the purpose of advising with regard to a number of issues likely to end up in dispute between the parties. Justice Cowdroy went on to say that these self-serving statements are not in themselves enough to attract privilege to such documents, rather the Court will look at all the circumstances objectively. Indeed the Court considered and recited the comments of Marks J in the case of Protean (Holdings) Limited v American Home Assurance Company2 when he noted ‘it is clear that a studious cast of verbiage cannot work the alchemy of transforming what would be otherwise unprivileged into privileged documents’.


The Court ultimately found that litigation was reasonably contemplated, as the items investigated were considered to be “contentious issues� when the reports were prepared (i.e. in March 2008). It was at this time clear that the damages suffered would exceed the policy limits and further it was in issue as to whether the levee bank was an insurable asset. The Court also considered that the timing of the incident was coordinate with the timing of other extensive flood events, and disputes regarding claims in connection with flooding were conducive to litigation. The reports were considered by the Court to be prepared for the dominant purpose of the insurer’s solicitor advising in relation to contentious issues and potential litigation. Given the large sum claimed under the policy, and the costs involved, it was likely that these issues may be in dispute. The interlocutory application to view the loss adjuster reports was dismissed, it being held that privilege applied to the withheld loss adjuster reports.

Comment In order for loss adjuster reports to attract legal professional privilege Insurers should: 1. Attempt as early as possible to identify whether the claim is likely to be partially or wholly subject to dispute; and 2. If in dispute, instruct solicitors to engage the loss adjuster, and indeed any forensic experts and investigators. Thereafter, the instructions sent by the solicitor for the insurer to the adjuster should clearly set out the scope of the issues in dispute and confirm that the purpose of any subsequent reports is to advise the insurer client as to those issues. It is only where issues are in dispute and there is a reasonable prospect of litigation in relation to those issues that adjuster reports in respect of these issues may attract privilege. It should be noted that there are local rules in some jurisdictions throughout Australia which may compel the production of reports notwithstanding this common law protection afforded to such communications.

Ultimately a Court, in considering whether legal professional privilege applies to loss adjuster reports, will look at the circumstances objectively. The Court will seek to determine whether at the time the instructions were issued by the solicitor to the adjuster there was any real prospect of litigation. Further a court will look at whether the reports were prepared in order to obtain legal advice in respect of any contentious issues arising. The protection of legal professional privilege will not arise merely because the instructions to an adjuster originate from the office of a solicitor. These principles can equally be applied to other investigation or expert reports which investigate or provide opinions on issues in dispute in relation to a claim made or notified. Esso Australia Resources v FCT (1999) 201 CLR 49 at para [35] 1



Loss Adjuster Reports - when does privilege attach? Benjamin Karalus & Stephanie Price | October 2012

(1985) VSC 5 September 1985 at para [6]

For more information, please contact: Benjamin Karalus Senior Associate T: 03 8600 5013 M: 0417 209 771

Stephanie Price Lawyer T: 03 8600 5017 M: 0400 445 427 Melb | Lvl 10 North Tower, 459 Collins St, VIC 3000 T: 03 8600 5000 | F: 03 8600 5099 Syd | Lvl 44, 2 Park St, NSW 2000 T: 02 8257 5700 | F: 02 9264 5600

Loss Adjuster Reports - when does privilege attach?  

The recent Federal Court decision of Ensham Pty Limited v AIOI Insurance Company Limited [2012] FCA 710 sought to clarify when legal profess...

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