First published November 2001
Obtaining otherwise privileged documents by virtue of their "common interest" is an under-deployed weapon that is available to reinsurers in disputes with their cedants; it is also a way in which reinsurers can obtain two sets of legal advice for the price of one.
Imagine this scenario. A cedant takes legal advice on a claim presented to it. The lawyers advise that the claim is not covered because of an exclusion that is contained both in the original policy, and in the reinsurance, and therefore, advise that the cedant will not recover any sums paid from its reinsurers. Notwithstanding this, the cedant pays the claim and seeks indemnity from its reinsurers.
Clearly it will be in the reinsurers' interests to obtain a copy of this advice in any subsequent dispute with its cedant, so as to establish that the claim falls outside cover.
The cedant will refuse to disclose this advice voluntarily to his reinsurers on the basis that it is protected by legal professional privilege. This is a rule of law that allows clients to obtain full and frank advice from their lawyers in the knowledge that it will not be seen by an opposing party.
However, it is settled law that no privilege attaches to communications between a solicitor and his client against persons having a joint or common interest with that client in the subject matter of the communications; for example, where a solicitor advises a company, its shareholders are also generally entitled to see this by virtue of their community of interest.
Does this principle also apply to the cedant/reinsurer relationship? If it does, then reinsurers in the scenario above will be entitled to see the legal advice that the cedant obtained concerning the coverage of the underlying claim. Furthermore, to the extent that it is inextricably linked to the advice concerning the underlying claim, the reinsurers may also be entitled to see the advice that the cedant obtained regarding the recovery under the reinsurance.
Mr Justice Moore-Bick considered this very issue in Commercial Union v Mander 1 . In that case, Commercial Union insured the potential purchasers of a ship against the loss of their deposit in the event of the cancellation of the contract. When delivery of the ship was delayed, the insured threatened to cancel the contract and claim on the insurance policy. In order to prevent a greater loss, Commercial Union agreed to provide the funds necessary to enable the ship to...