The Attorney-Client Privilege in Insurance Coverage and Bad Faith Lawsuits

Like all of you, I am sure, I receive almost daily pitches in my in-box for seminars, podcasts, books and publications that promise to educate me on various topics that the pitchers have decided I must be interested in. Of course, these may be the same marketing wizards who send me twenty pitches a day for on-line pharmacies, so I may be giving them too much credit when I assume they are actually targeting their offerings to my professional interests in such topics as patent litigation, ERISA and insurance coverage. Nonetheless, sort of like playing horseshoes, they do sometimes come close to the mark with the offerings they email me.

This one caught my eye the other day, for a teleconference on the attorney-client privilege, with the hook that the privilege is supposedly under assault in the context of insurance coverage litigation. The short version pitch that was sent to me goes like this:

The sanctity of attorney-client privilege has been shaken by court decisions allowing discovery of attorney-client communication in the context of certain insurance lawsuits. Attorneys and clients must always be conscious of preserving the privilege, but insurance disputes gives rise to unique areas of concern.

In insurance cases, counsel often become involved prior to litigation, during the claims process - for coverage advice or to assist with investigations. These pre-litigation communications often end up subject to discovery.

Some courts have found the privilege waived in bad-faith suits where the insurer relies on an advice-of-counsel defense - sometimes even without that defense being raised. Insured's counsel also argue that attorneys who participate in insurance investigations are not providing legal advice but are acting as adjusters whose communications with the insurer are not privileged.

Now, I have litigated these issues a number of times. While I have sometimes won these disputes outright, more often than not, the court finds a way to split the baby and give some limited and controlled discovery while at the same time imposing some restrictions intended to protect the primary communications at the heart of the attorney-client relationship, namely those in which actual legal advice itself is transmitted.

There are a couple of points that jump out at me about this whole issue that I wanted to mention. The first is that there is some truth to the argument that it is hard to investigate the facts at issue in both insurance coverage and bad faith litigation because of the attorney-client privilege and work product doctrine, and it is often necessary to carve out some exceptions to those protections against discovery to allow discovery in those kinds of cases to proceed. This often holds true for both insurers trying to learn the underlying facts of the claim over which coverage is being disputed and for insureds trying to learn the facts of what the insurer did with regard to coverage, or the denial of coverage, for such claims. The simple fact is that lawyers for the insured, in defending and settling the underlying claim, and lawyers for the insurer, in providing coverage analysis and recommendations, are participating in activities that are at the heart of insurance coverage and bad faith litigation, but do so while engaging in what would normally be privileged communications. Effective prosecution and defense of these types of lawsuits therefore often raises the question of the extent to which discovery is proper in light of, or instead precluded by, the attorney-client privilege.

The second point that jumped out at me is that this is another one of those issues that is, much like what I talked about in my post yesterday, deja vu all over again. It seems like every several years - maybe it works out to be once every generation of seminar presenters - the books and the articles and the seminars appear declaring the attorney-client privilege to be under assault as a result of discovery rulings issued in the context of insurance coverage and bad faith litigation. I don't know for sure, but it sure seems to me that, despite these periodic "the sky is falling" pronouncements, the attorney-client privilege is still alive and well, and being raised in response to all sorts of discovery requests.