Litigation: Without Prejudice

The spotlight has been put on Without Prejudice (WP) communications in a recent reinsurance case between English & American and Axa. WP communications are normally privileged from disclosure by either party in proceedings. The privilege exists to encourage parties to settle their disputes on the basis that concessions can be made in WP negotiations in the knowledge that they cannot be used by the other party in the proceedings.

The parties were negotiating the settlement of claims under various reinsurances and had met to explore settlement on a WP basis. After this meeting, Axa sent two letters to English & American which were not marked “WP”. The judge decided that the letters had been open offers, albeit hedged with conditions and constraints (including a statement in one letter that the settlement offer was made without prejudice to Axa’s right to deny liability). As such, they were not WP and did not attract privilege. English & American was therefore entitled to rely on the passages from its witness evidence which referred to the content of those letters in bringing an application for summary judgment against Axa.

It has long been established that correspondence does not have to be marked “WP” in order to attract privilege as long as it is clear from the surrounding circumstances that it is part of negotiations genuinely aimed at settlement. The court will look at the parties’ intentions and objectively determine whether the privilege will attach. In this case, Axa needed to write open letters (despite the on-going settlement negotiations) to record its position for an interested third party. They only tried to argue that the letters were WP in the context of defending the claim for summary judgment by English & American.

This case is a useful reminder that WP privilege does not always attach to letters written during settlement negotiations. If Axa had genuinely wanted to maintain privilege over elements of the settlement, they should have written separate letters (one headed “WP” dealing with anything sensitive with the insured, and one on an open basis setting out their position in more general terms for the third party).

Consider carefully your objectives in settlement proceedings and make it clear when you wish to be protected by WP privilege by marking it as such to prevent correspondence from being treated as open when that was not your intention.

Further reading: English & American Insurance Co. Ltd v Axa Re SA [2006] EWHC 3323 (Comm).