## Facts

- FMC Corporation sued Liberty Mutual Insurance Company and other insurers in Illinois state court seeking a declaration of insurance coverage obligations arising from environmental and related liabilities.
- During discovery, the insurers served a subpoena duces tecum on KPMG Peat Marwick, FMC’s independent accounting firm, seeking documents connected to FMC’s finances, tax filings, and third-party claims.
- FMC moved to quash the subpoena, asserting that the requested KPMG materials were protected by Illinois’s statutory accountant-client privilege.
- The circuit court quashed the subpoena in full based on a blanket privilege ruling.
- The insurers appealed the discovery order, challenging the breadth of the privilege determination and the wholesale quashal.

## Issues

1. Whether Illinois’s statutory accountant-client privilege protects all documents in an accountant’s files relating to a client, including tax-return-related materials and documents concerning third-party claims.
2. Whether the circuit court erred by quashing the subpoena in its entirety rather than separating privileged confidential communications from non-privileged materials.

## Decision

- The appellate court reversed the order quashing the subpoena to the extent it applied a blanket accountant-client privilege to all requested materials.
- The court held the Illinois accountant-client privilege is limited to confidential client communications and information received from the client for professional accounting services, and it must be narrowly construed.
- The court ruled that documents prepared for disclosure to third parties (including tax filings) and pre-existing business records are not rendered privileged merely because they are in the accountant’s possession.
- The case was remanded for a more particularized determination of which documents, if any, were privileged and which were discoverable.

## Legal Principles

- Statutory privileges that restrict access to relevant evidence are construed narrowly and confined to their terms.
- Illinois’s accountant-client privilege protects confidential communications and information received from the client in the course of professional services; it does not create a blanket shield over an accountant’s entire file.
- Materials intended for disclosure to third parties (such as filed tax returns and related submissions) are generally outside the privilege or inconsistent with confidentiality.
- Pre-existing business records do not become privileged solely by being transmitted to an accountant.
- Courts should not resolve privilege disputes through categorical quashal where requests encompass mixed privileged and non-privileged materials; a document-by-document or category-specific review is required.

## Conclusion

The appellate court limited the scope of Illinois’s accountant-client privilege, rejected a blanket privilege claim over an auditor’s files, and required a more targeted review to permit discovery of non-privileged accounting and tax-related materials sought by insurers in coverage litigation.


FMC Corp. v. Liberty Mut. Ins. Co., 603 N.E.2d 716 (Ill. App. Ct. 1992)