Washington Supreme Court creates presumed waiver of the insurer’s attorney-client and work product privileges.

February 21st, 2013

In Cedell v. Farmers Insurance Company, decided on February 21, 2013, the Washington Supreme Court has held: “In first party insurance claims by insureds claiming bad faith, other than UIM claims, there is a presumption of no attorney client privilege” to protect attorney communications and work product in the insurer’s claim file.  The insurer may overcome the presumption only upon a showing that the attorney was providing strictly legal counsel to the insurer, and not assisting the insurer in performing its quasi-fiduciary functions in the investigation and adjustment of the claim.  However, even if the insurer succeeds in defeating the presumption that its entire claim file is discoverable, the insured claiming bad faith may obtain privileged portions of the file by showing that the “civil fraud exception” applies.  Upon a showing that “a reasonable person would have a reasonable belief that an act of bad faith has occurred,” the trial court should review the file in camera.  If the court finds there is a basis for a bad faith claim to proceed, “the attorney client privilege shall be deemed to be waived.” 

In short, from this point forward, the attorney-client and work product privileges will be very narrowly construed in the context of first party insurance claims.  The insurer will carry a heavy and often insurmountable burden to show that portions of its claim file reflecting communications with counsel should be shielded from discovery on the grounds of privilege. 

You can view the majority and dissenting opinions at the links shown below. 

Feb. 21, 2013 - 85366-5 - Cedell v. Farmers Ins. Co. of Wash.      
http://www.courts.wa.gov/opinions/?fa=opinions.disp&filename=853665MAJ

Feb. 21, 2013 - 85366-5 - Cedell v. Farmers Ins. Co. of Wash.  (Dissent)    
http://www.courts.wa.gov/opinions/?fa=opinions.disp&filename=853665Di1