Changes in Washington Practice (#22) / Attorney-client privilege in bad faith insurance cases

October 22, 2014

Washington State LawThis is installment #22 in a continuing series of Changes in Washington Practice Reports.

The attorney-client privilege may be modified in cases that involve alleged bad faith by an insurance company.

This situation arises when the insured person brings suit against an insurance company for inadequate performance of its duties under a policy.

This issue has recently been addressed in Evidence Law and Practice by Tegland, volumes 5 to 5C of Washington Practice (in the 2014 pocket part to volume 5A, section 501.20.50).

As noted by Tegland, a 2014 decision by the Washington Supreme Court (Cedell v. Farmers…, 176 Wash. 2d 686…) addressed this issue in detail.

The Court found that the “default rule” when an insurer breaches its duty of good faith is that the insurance company cannot invoke the attorney-client privilege.

However, if attorney communications involve advice regarding the company’s exposure to liability, instead of “investigation, evaluation and processing” of the claim, the communications may be entitled to protection.

But the privilege may be overcome by a showing that the “the communications in question were in furtherance of a crime or fraud”.

This exception involves an in camera review by the court.

Different rules may apply for an Uninsured Motorist claim.

The ruling by the Supreme Court was a 5 to 4 decision, accompanied by a lengthy dissent (also discussed by Tegland).

The four dissenters said that the “default rule” should be that the privilege applies, subject to the crime-fraud exception.

As also noted by Tegland, “At the risk of stating the obvious, further litigation in this area of the law seems inevitable”.

Such close court rulings that raise many additional questions are likely to provide only interim insights when attorneys seek to determine the scope of the attorney-client privilege.

Whenever attorneys wish to locate specific resource materials, Methods of Practice (volumes 1 to 1C) of Washington Practice, can also provide useful assistance. Evidence law is summarized in volume 1B of Methods of Practice. Excerpts from all of the volumes of Washington Practice are presented in an easily-searchable format, so that potential cites may be quickly located. The individual volumes of interest may then be examined for the needed details.