SNR Denton on Cedell v. Farmers Insurance: Bad Faith Is Not Enough to Destroy Attorney-Client Privilege on a First-Party Claim in Washington

   By William T. Barker & Ronald D. Kent, Partners, SNR Denton

Cedell v. Farmers Insurance Co.¹ has clarified Washington law on discoverability of an insurer’s attorney-client privileged material in insurance bad faith litigation. Under Cedell, the “insurer has a right to the attorney-client privilege in a first-party-insurer claim for bad faith absent showing an established exception to the privilege applies, such as fraud.”² This commentary discusses the significance of the case in the context of Washington law and the law nationally.

The facts in Cedell were as follows:

The Cedells suffered an accidental fire at their home; a year later, Farmers still had not paid their claim.  They sued for bad faith.  Farmers had retained Ryan Hall, an attorney, to assist it in making a coverage determination.  Cedell demanded production of the claim file, and Farmers produced it with heavy redactions for privilege and work product.  Farmers moved for a protective order.  The trial court found adequate nonprivileged evidence to support a good faith belief that Farmers had acted in bad faith, and deemed that sufficient to invoke the fraud exception to the privilege.  It then ordered an in-camera review, and concluded that, on a bad faith claim arising from residential fire, the insured is entitled to discover the entire claim file, including privileged and work product material.  The court of appeals granted discretionary review, and reversed.

The commentary reviews the prior leading case in Washington, Escalante v. Sentry Insurance Co., which ruled on the scope of work product protection in bad faith cases and noted the possibility of piercing the attorney-client privilege for bad faith tantamount to civil fraud.  It then notes that a minority of courts, exemplified by a federal district court decision in Hearn v. Rhay, often find that an insurer’s defense of a bad faith claim puts the privileged communications “at issue,” and thereby waives the privilege.  But, the commentary points out,

A fairly heavy majority is to the contrary, finding waiver only where the insurer relies in some way on the content of the privileged communications.  Cedell appears to place Washington in the majority camp, by holding that “[a]n insurance company does not lose attorney-client privilege protection simply because its litigation opponent raises an issue where advice of counsel may be relevant.”

The commentary then discusses the ways in which various jurisdictions, in bad faith cases, apply a “crime or fraud” or “crime or tort” exception to the privilege.  It explains how Cedell has clarified previously uncertain implications of Escalante.

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1 Cedell v. Farmers Ins. Co., 2010 Wash. App. LEXIS 1670.

2 Id. ¶ 1.

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Lexis.com subscribers can access the complete commentary, SNR Denton on Cedell v. Farmers Insurance: Bad Faith Is Not Enough to Destroy Attorney-Client Privilege on a First-Party Claim in Washington. Additional fees may be incurred. (approx. 8 pages)

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William Barker and Ronald Kent are authors of New Appleman Insurance Bad Faith Litigation, Second Edition.

Access New Appleman Insurance Bad Faith Litigation, Second Edition on lexis.com.

Access New Appleman Insurance Bad Faith Litigation on the bookstore.

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