Attorney-Client Privilege and Work-Product Protection in Insurance Bad Faith Litigation

This article explores two issues that often arise in litigation over insurance claim practices, commonly referred to as bad faith litigation. In first-party bad faith litigation, the policyholder is entitled to receive in discovery a copy of the insurer’s "claim file"—the record of the insurer’s investigation and evaluation of the claim that underlies the dispute. Insurers often seek to protect elements of the claim file from disclosure under one or both of two theories: attorney-client privilege or work-product doctrine. Litigation collateral to the main issues in the case inevitably ensues about whether the protection claimed is applicable. The doctrines that control these disputes are not uniform among the jurisdictions, but the structure of the doctrinal analysis is widely accepted. For attorney-client privilege, two questions direct the inquiry. First, was the insurer a client seeking and did the lawyer provide legal assistance, which would be within the scope of the privilege,or was the attorney engaged in the ordinary investigation and evaluation of a claim, in which case the privilege does not attach? Second, even if that element of the standard is met, is there some exception to the privilege such that it does not apply? For work-product protection, the key issue is whether the documents at issue were prepared in the ordinary course of the insurer’s business in processing the claim or in anticipation of litigation. Under both of these doctrines, there is not a consensus on results but there is an accepted way of framing disputes. In any endeavor, where one starts has much to do with where one ends up. This article starts from an understanding of the practices an insurer uses in processing a claim and its obligations to a policyholder in doing so, rather than starting from a formulation of the two doctrines. Starting there leads to different conclusions and supports a principle common to both doctrines: Neither attorney-client privilege nor work-product protection attaches to any communication made before the insurer has made a final determination on the claim and communicated that determination to the insured.Peer reviewe