Attorney–Client Privilege in Bad Faith Insurance Claims: The Cedell Presumption and a Necessary National Resolution

Authors

Klien Hilliard

Abstract

Attorney–client privilege is one of the most important aspects of our legal system. It is one of the oldest privileges in American law and is codified both at the national and state level. Applying to both individual persons and corporations, this expanded privilege covers a wide breadth of clients. However, this broad privilege can sometimes become blurred in relationships between the corporation and the individuals it serves. Specifically, insurance companies and those they cover have complex relationships, as the insurer possesses a quasi-fiduciary relationship in relation to the insured. This type of relationship requires that the insurer act in good faith towards its insured, giving equal weight to its own interests as well as the insured’s. When attorneys become involved in the claim-handling process—usually advising insurers about whether to accept or deny a claim—it is often difficult to determine whether the attorney is acting in an investigative capacity, thus merely a factual one, or in contemplation of litigation, thus a privileged and protected one. The separation of these duties is an important determination to make, especially in the event of a bad faith action. When an insured makes a bad faith claim against their insurer, presumably for fraudulently denying their claim, the insured would naturally be entitled to its claim file—the only documentation of its own claim assessment—right? Unfortunately, no uniform answer to that question exists in federal or state law. The insurer will likely claim attorney–client privilege to protect those documents, and the insured will likely seek to either pierce that privilege or to altogether abrogate it. And, to complicate matters further, different jurisdictions apply different standards and privilege exceptions in these difficult situations. Due to the fact that a large number of insurance companies are national entities that conduct business across various states, a uniform standard for addressing attorney–client privilege in insurance bad faith actions is paramount. Washington courts have imposed a presumption of no attorney–client privilege in insurance bad faith actions, recognizing the necessity of broad discovery and highlighting the importance of good faith in the often-unequal relationship between an insurer and its insured. It is this presumption that is recommended be nationally recognized by codifying it in either the federal rules, a national act, or adding an exception to the model rules of professional conduct, in order to promote discovery of vital case information and limit unfair practices.

Recommended Citation

Klien Hilliard, Attorney–Client Privilege in Bad Faith Insurance Claims: The Cedell Presumption and a Necessary National Resolution, 43 SEATTLE U. L. REV. 1299 (2020).