When a professional faces a PI claim, the file that matters most is often the one that cannot readily be shared. Advice given to the client, working papers and internal notes may all be protected by legal privilege — sometimes belonging to the professional, sometimes to the client, sometimes to no one at all. Understanding which category each document falls into, and how privilege can be preserved or inadvertently lost during notification and investigation, is a discipline to engage with early.
English law recognises two forms. Legal advice privilege protects confidential communications between a lawyer and a client made for the dominant purpose of giving or receiving legal advice. The scope of "client" was narrowed in Three Rivers District Council v Bank of England (No 5) [2003] EWCA Civ 474, where the Court of Appeal held that only those employees specifically tasked with instructing lawyers count as the "client" for privilege purposes. Communications with other employees, however senior, sit outside the privilege.
Litigation privilege protects communications and documents produced for the dominant purpose of actual or reasonably contemplated adversarial litigation. In SFO v Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006, the Court of Appeal clarified that documents produced to investigate whether proceedings might follow can qualify. Litigation must be a real likelihood rather than a mere possibility, and the dominant purpose test must be satisfied on the facts of each document.
A recurring assumption is that once a claim is notified, the insurer stands in the same privileged position as the insured. It does not. The insurer is a separate legal person whose interests may diverge from the insured's — on coverage, reservation of rights, or subrogation. Sharing privileged material without a properly constructed common-interest arrangement can, in principle, waive privilege against the wider world. See the discussion of inadvertent disclosure in Guinness Peat Properties Ltd v Fitzroy Robinson Partnership [1987] 1 WLR 1027, where the Court of Appeal considered when a document mistakenly shared can nonetheless retain protection.
Common-interest privilege can bridge the gap where insured and insurer share an interest in the defence, but it is not automatic. A written arrangement recording the shared interest, confidentiality obligations, and limits of disclosure is the cleanest way to record the position.
A professional facing a claim typically holds three overlapping categories of material. First, the underlying advice file, often subject to a privilege that belongs to the client (usually a former client). Second, internal notes and communications produced after the claim or circumstance emerged, potentially attracting litigation privilege if produced for the dominant purpose of contemplated proceedings. Third, communications with the professional's own lawyers appointed on the claim, squarely within legal advice privilege belonging to the professional. The first category matters most: the professional does not own the privilege in the underlying advice — the client does — and waiving it is not the professional's decision to make alone.
Worked example. A solicitor firm faces a PI claim brought by a former client, who alleges the firm's tax advice was negligent. The underlying advice files contain confidential communications between the firm and that client — communications subject to solicitor-client privilege belonging to the client, not the firm. The insurer, reasonably, wants to see the files to assess merits and set reserves.
The firm cannot simply hand the files to the insurer. Doing so without the client's consent risks a breach of confidence and, potentially, a waiver of privilege. Two options usually work in practice. Either the firm and the insurer enter into a common-interest privilege deed recording their shared interest in the defence and the confidentiality regime governing disclosure, and the client is asked to consent to disclosure on that basis. Or the client, having brought the claim, is treated as having impliedly waived privilege in material relevant to the issues — but the scope of any implied waiver is fact-sensitive and should be tested with counsel before disclosure proceeds.
The commonest waiver risk is internal: an email chain drawing in employees outside the "client" for Three Rivers purposes, or a reflection note written without any structured privilege claim. Safeguards are procedural — document control from notification, a defined "client group", separate legal representation for privileged aspects, and a common-interest arrangement with the insurer where cooperation requires disclosure.
Solicitors face a specific tension. The SRA Minimum Terms and Conditions require the firm to cooperate with the insurer in the investigation and defence of claims. That duty does not override the firm's obligation to preserve client privilege. Where cooperation would require disclosure of material privileged to a client, the firm should seek the client's consent, structure the disclosure through a common-interest arrangement, or take separate legal advice on the scope of any implied waiver. The insurer cannot compel the firm to waive a privilege that is not the firm's to waive.
Related reading: notification of circumstance — what and when, and the profession pillars for solicitors, financial advisers and accountants.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.