New Appleman on Insurance: Current Critical Issues in Insurance Law Dec. 2007: Sonnenschein Nath & Rosenthal LLP on the Attorney-Client Privilege and Opinion Work Product Protection in Insurance Bad Faith Litigation
This article, written by William T. Barker and Ronald D. Kent of Sonnenschein Nath & Rosenthal, L.L.P., first provides an overview of key aspects of bad faith law, as a foundation for discussing whether or in what circumstances examination of privileged or work product materials might be necessary or important to establish insurer misconduct. Then the basics of the attorney-client privilege and the work product protection are reviewed. The article proceeds to distinguish some areas in which there is significant litigation but which are outside of the scope of this article, specifically the work of defense counsel for the insured on liability claims and ordinary or fact work product generated in adjusting a claim. The article then addresses the availability and extent of attorney-client privilege protection where insurer bad faith is alleged. The article lastly considers the extent to which the same principles apply to opinion work product protection.
The article notes that there are three conceptually different types of litigation commonly described as involving insurance bad faith (and discusses each of them):
? “Excess judgment”: A liability insurer’s failure to settle third-party claims against its policyholder results in exposing the insured to personal liability for a judgment in excess of policy limits;
? “First-party claims mishandled”: The insurer has improperly denied or delayed payment to the policyholder or engaged in other types of misconduct; and
? “Third-party statutory claims”: Claimants asserting liability claims against policyholders who allege that the insurer has breached a statutory duty in handling their claims.
The article then begins its analysis of the attorney-client privilege by setting forth a widely accepted formulation of the privilege: Where legal advice of any kind is sought from a professional legal advisor in his capacity as such, the communications relating to that purpose, made in confidence by the client, are protected from disclosure by himself or the legal advisor, except where the protection is waived. The article discusses one area in which the jurisdictions diverge: the extent of the privilege for corporate or other organizational clients. The article proceeds to discuss the work product protection under federal and most states’ common law that protects against disclosure the “mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party” concerning litigation.
The article explores the circumstances under which the attorney-client privilege can be pierced based on various precedents:
? The majority narrow rule exemplified by Rhone-Poulenc Rorer, Inc. v. Home Indemnity Co., 32 F.3d 851 (3d Cir. 1994);
? The slightly broader test for waiver applied in State Farm Mutual Automobile Insurance Co. v. Lee, 13 P.3d 1169 (Ariz. 2000); and
? The minority broader rule exemplified by Hearn v. Ray, 68 F.R.D. 574 (E.D. Wash. 1975).
The article observes that the overwhelming majority of jurisdictions that have dealt with the issue have rejected arguments for broad waiver rules in bad faith cases, but notes that a few have been more receptive to such arguments. This seems particularly the case where the attorney-client communications were placed at issue. The article focuses on Texas, Illinois and Florida court decisions in that regard. The article also discusses situations where courts have allowed discovery in bad faith cases of attorney-client communications under the crime-fraud exception to the privilege.
The article next surveys circumstances under which the opinion work product protection can be pierced. Again, a frequently dispositive factor is the extent to which the sought-after material is directly at issue in the case.
The authors conclude: “Because the attorney-client privilege is absolute, not conditional, an insurer’s privileged communications ought not to be deemed ‘at issue’ in a bad faith case unless the insurer offers evidence that cannot be fairly met without access to those communications. The crime-fraud exception ought not to be triggered by mere insurance bad faith, and any application should require a prima facie showing that the attorney was consulted to assist the illegal conduct. Opinion work product is almost absolute and should be subject to similar rules.”
The article is accompanied by an appendix consisting of a state-by-state analysis of the different positions taken by the courts as to when an “at issue” waiver of the attorney-client privilege obtains.
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