• First Lattes, Then Legal Precedent: Waiver Of Attorney-Client Privilege In Bad Faith Cases
  • November 27, 2013 | Author: Erica L. Parsons
  • Law Firm: Carlock, Copeland & Stair, LLP - Atlanta Office
  • What happens in Washington may not stay in Washington. Earlier this year, the Washington Supreme Court addressed the scope of the attorney-client privilege and work product for an insurer defending against a bad faith claim brought by its insured. See Cedell v. Farmers Ins. Co. of Washington, 176 Wash. 2d 686, 295 P.3d 239 (2013). In that case, the insured filed suit against his homeowners insurer for bad faith when it refused to pay his fire loss claim for a year after the loss. The insurer retained coverage counsel to assist in its evaluation of the claim. During discovery, the insurer produced a heavily redacted copy of its claim file, including a privilege log that cited the attorney-client privilege and work product as bases for more than 200 redactions and withholdings. The insured filed a motion to compel, claiming that the attorney-client and work product privileges did not apply in bad faith litigation. The insurer moved for a protective order.

    The trial court conducted an in camera iStock&under;000018773097XSmall.jpgreview of the redacted documents and decided that the attorney-client privilege would never apply because “[i]n the context of a claim arising from a residential fire, the insurer owes the insured a heightened duty—a fiduciary duty, which by its nature is not, and should not be adversarial.” The trial court also found that the insured was entitled to the insurer’s work product and awarded sanctions and attorney’s fees against the insurer.

    On appeal, the Washington Supreme Court held that when an insured brings a first-party bad faith claim against its insurer, attorney-client privilege and work product protection are presumptively not relevant to claims adjustment communications. The court in Cedell outlined a process by which the insurer may overcome this presumption:

    first, the insurer must show that “its attorney was not engaged in the quasi-fiduciary tasks of investigating and evaluating or processing the claim[,]”; then, “[u]pon such a showing, the insurance company is entitled to an in camera review of the claims file, and to the redaction of communications from counsel that reflected the mental impressions of the attorney[,]”; finally, should the trial court find privilege protection warranted, it must then address whether the insured has any claims that would “pierce the attorney-client privilege.”

    In other words, the insurer likely will not receive the benefit of the doubt simply by asserting the attorney-client privilege in the context of a bad faith claim.

    Subsequent district court decisions in that circuit interpreted Cedell as broadening the scope of discoverable information in insurance disputes. See, e.g., Stewart Title Guar. Co. v. Credit Suisse, Cayman Islands Branch, Case No. C11-227-BLW, 2013 WL 1385264, at * 4 (D.Idaho April 3, 2013) (“as Cedell makes clear, not all coverage communications are protected”); see also Philadelphia Indem. Ins. Co. v. Olympia Learning Center, Case No. C12-5759-RBL, 2013 WL 3338503, at * 4 (W.D.Wash. July 2, 2013) (“If nothing else, it is now clear that the scope of discovery in first-party bad faith actions is very broad, and the attorney-client privilege and work product doctrine are less difficult to overcome now than they were prior to the opinion”). Moreover, at least one court has found Cedell applicable to third-party bad faith actions. Carolina Cas. Ins. Co. v. Omeros Corp., Case No. C12-287-RAJ, 2013 WL 1561963, at * 3 (W.D.Wash. Apr.12, 2013) (finding Cedell applicable to third-party insurance actions because “[t]he Cedell court grounded its ruling in the quasi-fiduciary duty of an insurer to its insured, along with the public policy interest in regulating the business of insurance”).

    Over the past few months since the Cedell ruling came down, newsletters, articles and blogs have been buzzing with analyses and responses. “With this decision, a major weapon has been given to the bad faith plaintiff in proving their case,” writes Joseph Edwards of Spokane firm Ewing Anderson. (Reported in Washington Defense Trial Lawyers, Defense News, Spring 2013 edition.) Expert coverage attorney Pam Okano of Reed McClure writes in a comment on her website (Coverage Uncovered: A Periodic Update of Washington Insurance Coverage Law, www.wdtl.org) “I initially thought it could have been worse. The more I think about it, maybe not.”

    So what importance does this ruling have in Georgia? Maybe none. Certainly, rulings from the Supreme Court of Washington are not binding precedent on the courts of this state. On the other hand, district courts in this state, applying Georgia law, have been somewhat inconsistent in their interpretation of the scope of discovery in bad faith cases leading to more questions than answers as to how far the attorney-client privilege and work product doctrine extend in the bad faith context. See Camacho v. Nationwide Mut. Ins. Co., 287 F.R.D. 688 (N.D.Ga.,2012) (court ordered production of the claims file and permitted depositions of claims personnel, but precluded discovery of certain privileged communications and protected the mental impressions, conclusions, opinions, or legal theories of counsel and insurance representatives pursuant to the work product doctrine), but see Marshall v. Safeco Ins. Co. of Indiana, CV112-113 (S.D. Ga. 5/14/13) (barring production of claim file and awarding attorney’s fees to defendant as discovery sanction against plaintiff). See also  http://www.insurancecoveragecorner.com/discoverability-of-insurers-claims-files-in-bad-faith-cases/ (previous post with thorough analysis of these cases). Such inconsistencies may encourage courts in this state to look outside our borders for indications of trends in the bad faith arena.

    That has been true in other states, as at least two district courts outside of Georgia have embraced the Camacho ruling and held that the attorney-client privilege did not prevent the insurer’s production of records and information related to communications with counsel. MapleWood Partners, L.P. v. Indian Harbor Ins. Co., 08-23343-CIV, 2013 WL 3853388 (S.D. Fla. July 16, 2013) (holding that corporate representatives of the insureds under financial and professional services indemnity policy did not have independent right to assert attorney-client privilege as to corporate communications with attorney in connection with three underlying actions; they did not obtain legal advice as to underlying actions in distinctly individual, rather than representative, capacity, and communications related to their duties with insured); Woodruff v. Am. Family Mut. Ins. Co., 291 F.R.D. 239 (S.D. Ind. 2013) (holding that under Indiana law, attorney-client privilege of insurer of automobile insurance policy did not apply to protect documents created by insurer's staff attorney while the attorney was acting as the sole claims adjuster for a negligence action against the insured, where the documents did not contain any opinions on liability and insurance coverage issues, and did not appear to have been generated for the purpose of seeking legal opinions).

    Maybe the Cedell case will have no influence on Georgia case law whatsoever. But if you simply believe that what happens in Washington, stays in Washington, just look down the street to your nearest Starbucks!