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By Jenkins Fenstermaker, PLLC on 02/27/2018
Inadvertent Disclosure of Confidential Information: File Sharing and Privilege Waiver

Cloud computing services such as Dropbox, Google Drive, and Box, Inc. offer unprecedented convenience. File sharing has changed the way we do business, allowing us to share documents across our own devices or even with others. But how can sharing files affect a company’s legal position in a lawsuit? Does file sharing waive the attorney-client privilege? What about attorney work product protection? This blog examines the potential effects of inadvertent disclosure of confidential information.

File Sharing and Confidential Information

In traditional computing, users stored documents locally, on the hard drives of their computers. Each computer was an island unto itself, unable to share documents with others without using a physical medium, such as a floppy disk. Local area networks provided increased flexibility, allowing us to store and share materials within an office. 

But it wasn’t until cloud-based computing that we harnessed the power of the Internet to store and share documents like never before. We can now work from anywhere, our files seamlessly synchronized across our devices.

Collaborating on documents is simple using file sharing services such as Dropbox, Google Drive, and Box, Inc. No longer must we ship voluminous documents across the country or across town, as we can electronically share documents with others almost instantly. But this convenience does not come without risk.

Does File Sharing Result in an Inadvertent Disclosure of Confidential Information?

With any new technological advance comes a responsibility to understand potential risk. It’s easy to see the many benefits presented by cloud-based file storage and sharing. In the absence of active litigation, however, it can be a bit more difficult to recognize some of the potential drawbacks. Fortunately, these drawbacks can be effectively managed when they are understood.

Consider this recent lawsuit, which illustrates what not to do if you want to leverage the power of file sharing in your business.

One Court’s View of File Sharing and Privilege Waiver

A Virginia insurance company recently lost valuable legal protection in a declaratory judgment action in Harleysville Ins. Co. v. Holding Funeral Home, Inc. In the case, the funeral home submitted a claim for fire loss to its insurer, Harleysville Insurance (“Harleysville”).

A senior investigator for Nationwide Insurance uploaded a claim-related video to Box, Inc. (“Box”), an online file sharing service. He then sent an email containing a hyperlink to the video to the National Insurance Crime Bureau (“NICB”). Although the email included a confidentiality notice, the video could be accessed with no password by using the link.

Later, the same investigator uploaded the investigative files of both Harleysville and Nationwide to Box. He then sent an email containing the same link to Harleysville’s legal counsel.

Unbeknownst to Harleysville, Nationwide, or their counsel, the funeral home’s lawyer used a subpoena to obtain copies of documents from the NICB. The NICB provided a copy of the investigator’s email containing the unprotected link. Counsel for the funeral home downloaded both claims files and the video, later producing it in discovery.

A dispute ensued, with the insurers arguing that the funeral home’s counsel should be disqualified for having accessed confidential, legally privileged information. The funeral home’s counsel argued that the placement of the material on Box effectively waived any claim of privilege or confidentiality. This placed the issue of file sharing squarely before the court.

Unprotected Hyperlink Didn’t Protect Confidentiality

The judge denied the motion to disqualify. However, she found that the insurer had waived any claim of attorney-client privilege or attorney work product by placing the documents on Box with no password protection. Any person with Internet access could have accessed the documents, as an unprotected hyperlink was transmitted in the investigator’s email. Therefore, the company had taken insufficient precautions to maintain confidentiality.

Considerations about the Inadvertent Disclosure of Confidential Information

While file sharing can enhance productivity significantly, users must take reasonable steps to protect the confidentiality of documents stored or shared on those services. Failing to do so can result in the waiver of some of the strongest legal protections of information.

To avoid a result similar to that in the Harleysville case, explore best practices like these:

  • Advanced password protocols;

  • Two-step verification;

  • Employee training; and

  • File and email encryption during transmission and storage

Of course, the steps you take will depend on the nature of your business, the information it possesses, and the legal risks it faces.

Avoid Potential Pitfalls of File Sharing

To discuss how to best protect your legal interests in the era of cloud-based computing, contact the attorneys at Jenkins Fenstermaker, PLLC by calling (304) 523-2100 or completing this e-mail contact form. I can help you avoid the inadvertent disclosure of confidential information.