After a trial judge took the rare step of admitting that she had applied the wrong legal standard when ordering the disclosure of documents in an insurance dispute, the Colorado Supreme Court wondered Tuesday whether it would be an overreach for it to do so on appeal issued notices.
“That seems half-baked to me,” Judge Carlos A. Samour Jr. said during the hearing. “It just feels like more work needs to be done before an appeals court can really intervene.”
The Supreme Court had previously agreed to step in and address a judge’s order requiring an insurance company to disclose its lawyers’ communications with two engineering experts who were hired to assess a damages claim that subsequently turned into a lawsuit.
Lawyers for Hanover Insurance Company filed a petition with the Supreme Court alleging that there is a “growing privilege crisis” in Colorado, with judges ordering the release of documents supposedly protected by attorney-client privilege.
The Supreme Court record somewhat supports the claim. This year, the justices issued an opinion reversing a Jefferson County judge’s disclosure order and also asked a Denver judge to reconsider whether a range of confidential information could be disclosed. Last month, the Supreme Court asked two more justices to justify their orders to disclose information supposedly protected by the confidentiality of doctors or lawyers.
“You’re claiming that Colorado is somehow an outlier,” Judge Melissa Hart told Hanover’s attorney during argument. “‘This is happening all over the state’ makes it seem like it’s not just a few courts.”
Judge Melissa Hart listens during oral arguments at the Colorado Supreme Court’s Courts in the Community event May 9, 2024, at Central High School in Pueblo. (Photo by Jerilee Bennett, The Gazette)
In the underlying case, Hill Hotel Owner, LLC built a 189-room hotel in Boulder that opened this year. In 2022, there was damage to the concrete garage floor at the construction site. Hill Hotel claimed Regen was responsible for what was covered by its insurance policy. Hanover, meanwhile, believed that the damage was not covered because the construction workers’ negligence was responsible.
After Hanover denied coverage, Hill Hotel sued for breach of contract. When investigating the damage, Hanover contacted a civil engineer who believed it was due to negligence on the part of the contractor. After Hill Hotel hired a law firm, Hanover hired another civil engineer, whose conclusions Hanover used to deny the insurance claim again.
In March, the parties informed Denver District Court Judge Jill D. Dorancy of a dispute over emails and other documents involving the two engineers. Hanover claimed they were protected by attorney-client privilege, but Hill Hotel argued that documents “prepared by an insurer before denying coverage” were not protected because they were not prepared “in anticipation of litigation.” .
Dorancy agreed and ordered Hanover to disclose the engineers’ communications to Hanover’s lawyers.
In the Supreme Court appeal, the parties and outside agencies disputed when communications from an insurance company’s attorney are privileged. Hill Hotel alleged that an attorney who “gathers factual information” is engaging in claims processing activity that is not protected from disclosure. Hanover countered with a four-part test that examined the legal nature of the communications.
However, the appeal took an unexpected turn when Dorancy filed her brief. She admitted that the reasoning she gave in ordering disclosure – that the communications were not made “in anticipation of litigation” – was incorrect.
“The district court respectfully requests that this matter be remanded so that it can apply the correct privilege test in the first instance,” Assistant Attorney General Talia Kraemer wrote for Dorancy.
Despite Dorancy’s admission, Hanover urged the Supreme Court to stay its course and issue a decision on the appeal.
“There is disagreement about what the proper standard is,” said attorney Evan Stephenson.
“I agree, but typically in the first instance we have the advantage of the trial court or the appellate court seeking the proper standard,” Judge William W. Hood III responded. “Why shouldn’t we give the district court the opportunity to do that here?”
“You’re kind of asking us to issue this preliminary opinion laying it all out because the district court is going to do something wrong,” Judge Maria E. Berkenkotter reiterated.
Judge Richard L. Gabriel seemed poised to send the case back to Dorancy with an explanation of how to draw the line between an attorney’s involvement in claims investigation and the privileged work of providing legal advice.
“WWe have received briefings from both sides, both of which appear to have fairly extreme positions” he said.
The case is Hill Hotel Owner, LLC v. Hanover Insurance Company.