This update examines how the protections afforded to insurers by attorney-client privilege and the work product doctrine have been challenged and stretched through recent cases across the United States, particularly where bad faith of an insurer is alleged.

It is in the context of bad faith that insureds have tested the boundaries of attorney-client privilege and work product doctrine. An overwhelming majority of the cases examined involved bad-faith allegations against an insurer; the few that did not relied on work product protection to preserve documents from production.

Claim files: discovery in context of bad-faith related discovery

It has long been recognised "that an insurance company's retention of legal counsel to interpret the policy, investigate the details surrounding the damage, and to determine whether the insurance company is bound for all or some of the damage, is a classic example of a client seeking legal advice from an attorney".(1)

However, an examination of recent case law makes it apparent that the parameters of this privilege are being tested, particularly when courts have determined that there has been an implied waiver of attorney-client privilege by the insurer. Such a finding will result in the discovery of documents and communications to the insured (or requesting party), where such documents are no longer protected by attorney-client privilege.

The argument that appears most compelling to courts handling bad-faith insurance litigation is that attorney-client privilege may be "deemed waived when application of the privilege would deny an opposing party access to necessary information to counter a claim or defense asserted by the other party".(2) However, whether the privilege is waived will depend on the facts of each case, as well as the nature of an insurer's alleged bad faith.

Where an insurer does not assert a defence of advice of counsel, insurers will have a stronger argument that there has been no implied waiver of attorney-client privilege. In Everest Indem Ins Co v Rea, the Arizona Court of Appeals held that "the assertion of a subjective good faith defense coupled with consultation with counsel did not, without more, waive the attorney-client privilege".(3)

However, even if an insurer asserts that it will not utilise a defence of advice of counsel, the federal district court of Arizona has characterised Arizona law as holding that an implied waiver of attorney-client privilege may be found where:

  • the assertion of the privilege was a result of some affirmative act, such as filing suit, by the asserting party;
  • through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case; and
  • application of the privilege would have denied the opposing party access to information vital to its defence.(4)

The court further noted that attorney-client privilege is impliedly waived when an insurer "assert[s] some claim or defense invoking the subjective reasonableness of its evaluation and that analysis must have incorporated information [the insurer] learned from counsel".

Insurers can only hope that courts will balance the discovery interests of an insured in bad-faith litigation with the long-recognised value, and necessity, of an insurer to retain legal counsel to aid in its investigation of claims.

Implied waiver of privilege

Where the advice of counsel has been placed into issue, some courts have found that there is an implied waiver of privilege.

The Tenth Circuit has stated that "attorney-client communications cannot be used both as a sword and a shield", and permitted the production of correspondence in which an insurer's counsel advised the insurer concerning the reasonableness of a settlement in the underlying case, particularly where the insurer relied on an "advice of counsel" position to establish the reasonableness of that settlement and stated that the advice of counsel was a reason – "if not the primary reason" – for reaching such settlement.(5)

Assertion of a rescission claim may be deemed to place attorney client-communications at issue. In Charter Oak Fire Ins, Co v Am Capital, Ltd,(6) the court ruled that the "general rule" is that:

"documents 'either shared with or created by lawyers including facts and non-legal opinions and thoughts about facts' are within an insurance company's 'ordinary course of business' and thus are not protected by either the attorney-client privilege or the work product protection doctrine….

[O]rdinarily, a factual investigation regarding coverage that is done by an insurance company is not protected, whether it is performed by in-house or outside counsel."

The court clarified that while an insurer could seek legal advice while performing its ordinary business function of claims handling, it had failed to meet its burden of establishing the privilege's existence and applicability. The court suggested that the insurer could have met this burden by making a "more targeted, selective assertion of the attorney-client privilege" instead of a "broad, near-blanket assertion of attorney-client privilege as to all claims handling materials" (created after a certain date).

Establishing an additional evidentiary basis for privilege, beyond the privilege log, may be required by some courts. In Charter Oak, the federal District Court of Maryland further stated that a privilege log should be detailed enough to identify:

"each document withheld,…information regarding the nature of the privilege/protection claimed, the name of the person marking/receiving the communication, the date and place of the communication, and the document's general subject matter."

However, even if such a privilege log is produced, if the requesting party challenges the sufficiency of the asserted privilege/protection:

"the asserting party may no longer rest on the privilege log, but bears the burden of establishing an evidentiary basis – by affidavit, deposition transcript, or other evidence – for each element of each privilege/protection claimed for each document or category of document. A failure to do so warrants a ruling that the documents must be produced because of the failure of the asserting party to meet its burden."(7)

This additional burden will be particularly difficult to meet where an insurer has hundreds of documents or communications listed on its privilege log.

Attorneys acting as claims adjusters

Claims files where an attorney acts as a claims adjuster and not as a legal adviser will not benefit from attorney-client privilege. In Amerisure Mutual Insurance Company v Crum & Forster Specialty Insurance Company, the court utilised a "primary purpose" test and stated that the party asserting the privilege "has the burden to show that the 'primary purpose of the communication in question was for the purpose of obtaining legal advice, not business advice'".(8)

In Cedell v Farmers Ins Co of Wash(9) the Washington Supreme Court termed such functions as a "quasi-fiduciary" function of an attorney and held that there is a presumption of no attorney-client privilege when an attorney is engaged in quasi-fiduciary functions such as investigating and evaluating or processing a claim.

The insured must show probable cause concerning an insurer's bad faith in order to obtain claims documents. In Hartford Roman Catholic Diocesan Corp v Interstate Fire & Cas Co the federal District Court of Connecticut held that the Connecticut Supreme Court essentially placed a burden on the insured who seeks documents from its insurer and claims attorney-client privilege is eroded due to its bad-faith allegation. In order to obtain such documents, the insured must still show, "on the basis of nonprivileged materials, probable cause to believe that (1) the insurer acted in bad faith and (2) insurer sought the advice of its attorneys in order to conceal or facilitate its bad faith conduct" .(10) It is unclear what constitutes probable cause sufficient to erode the privilege.

Work product

Significant dates for work product protection
Date claim is established

Absent unique circumstances, the date that an insurer first begins to investigate a claim is likely to be viewed as in the ordinary course of business for an insurer.(11)

Date of reservation of rights letter
Except in unusual circumstances, most courts are likely to note that insurers investigate claims "with an eye towards litigation" and the issuance of a reservation of rights letter is part of the ordinary course of an insurer's business.(12) The federal District Court of Kansas, when referring to reservation of request letters, stated that the work product doctrine "requires more than a mere possibility of litigation".(13)

Date of claim denial
In Amerisure, the court stated that:

"Documents constituting part of a factual inquiry into or evaluation of a claim in order to arrive at a claim decision are generated in the ordinary course of business and are not considered work product…in an insurance-coverage dispute, the date insurance coverage is denied is generally the boundary between documents that are generated under the work product doctrine and those discoverable as produced in the ordinary course of business…This is not, however, a bright-line test…The 'determinative question' is whether litigation was the primary motivating factor behind the creation of the document."(14)

Some courts have gone as far as stating that:

"Courts have routinely applied a rebuttable presumption 'that neither attorney work product nor attorney-client privilege protects an insurer's investigatory file on an insured's claim from discovery before a final decision is made' as to that claim".(15)

Date when coverage counsel is engaged in connection with claim
Courts often find that coverage counsel is usually engaged within the ordinary course of business of an insurer and does not necessarily signify (without additional facts) that litigation was anticipated.(16)

Date when insured refused to meet with its insurer
In Pearson, the court found that the insured had not "demonstrated the requisite substantial need and undue hardship to overcome the [work-product] protection" after evaluating documents in camera pursuant to an insured's objections to its insurer's privilege log.(17)

When is protection afforded?

Various courts apply different tests for determining when work product protection is afforded.

In Amerisure the Florida district court utilised the 'primary motivating factor' test.

In AKH the federal district court of Kansas applied the 'solely' test, holding that documents produced by an insurer to evaluate an insured's claim "in order to arrive at a claims decision in the ordinary and regular course of business is not work product regardless of the fact that it was produced after litigation was reasonably anticipated". So long as a final decision has not yet been reached, these documents will be presumed to have no protection. In order to overcome the presumption, an "insurer must demonstrate, by specific evidentiary proof of objective facts, that a reasonable anticipation of litigation existed when the document was produced, and that the document was prepared and used solely to prepare for that litigation, and not to arrive at a (or buttress a tentative) claim decision".(18)

Evidence required for protection

In Esposito v Cutler(19) the Superior Court of Connecticut provided one possible definition of 'work product' as:

"the result of an attorney's activities when those activities have been conducted with a view to pending or anticipated litigation…The attorney's work must have been an essential step in the procurement of the data which the opponent seeks, and the attorney must have performed duties normally attended to by attorneys."(20)

It further cited a distinction between "documents prepared in the ordinary course of an insurer's business of investigation of a claim" and documents created "because of" anticipated litigation:(21)

"Because all insurance investigations are likely performed with an eye toward the prospect of future litigation, it is particularly important that the party opposing production of documents, on whom the burden of proof as to the privilege [or protection] rests, demonstrate by specific and competent evidence that the documents were created in anticipation of litigation."(22)

Specific in-house counsel considerations

While all of the cases cited above should be reviewed in determining in-house counsel privilege, given the complexities and various roles of in-house counsel within a corporation, courts may examine claims of privilege involving in-house counsel more closely. The decision in Kleen Prods LLC v Int'l Paper(23) outlines what should not be characterised as privileged and what steps can be taken to strengthen a claim for privilege.

At the outset, the Kleen court recognised that in examining in-house counsel communications, "drawing a distinction between business and legal advice is not always easy".(24) However, the court was "troubled" that numerous emails alleged to be privileged contained "nothing more than mundane chatter about routine business matters".(25) The court also stated that the "mere fact" that in-house counsel were copied on an email did "not automatically transform the contents of that message into a privileged request for legal advice".(26)

Where in-house counsel also hold an operational/corporate title or role, courts may examine the advice more closely to determine the distinction between legal and business advice.

The court also noted that any attachments to emails alleged to be privileged do not automatically obtain privilege status, and that a separate showing of privilege for each attachment must be made.(27)

Examples of the types of document that the Kleen court did not find to be privileged include:

  • business communications, especially where only business advice was rendered and no legal advice was contained within the content of the email;
  • communications routed through an attorney, especially where in-house counsel did not respond or where the subject matter was purely business matters;
  • general or vague description in privilege logs;
  • failure to identify attorneys in privilege logs;
  • third-party communications (unless the third party was a consultant/adviser for the client);
  • non-responsive redactions; and
  • over-redactions which were business related only and contained no confidential legal information.(28)

Similarly, a federal district court in Alaska stated that, in general, documents or communications involving an attorney performing a non-legal function or an attorney simply being copied on a strong of inter-office emails will not protect such communication under attorney-client privilege.(29)

Exceptions to attorney-client privilege

Several exceptions to attorney-client privilege may be utilised to circumvent the privilege.

Crime fraud exception

The Third Circuit has defined the crime fraud exception to attorney-client privilege as applying "[w]here there is a reasonable basis to suspect that the privilege holder was committing or intending to commit a crime or fraud and that the attorney-client communications or attorney work product were used in furtherance of the alleged crime or fraud".(30)

The Connecticut Supreme Court has adopted a standard similar to the federal standard in cases where the crime fraud exception is claimed, concluding that:

"an insured who makes an allegation of bad faith against his insurer is entitled to an in camera review of privileged materials when the insured has established, on the basis of nonprivileged materials, probable cause to believe that (1) the insurer acted in bad faith and (2) the insurer sought the advice of its attorneys in order to conceal or facilitate its bad faith conduct'".(31)

In Hutchinson v Farm Family Cas Ins Co the court analogised the crime fraud exception to a civil fraud exception to attorney-client privilege, finding that "there is no justification for attorney-client privilege…when a communication was made [by an insurance company] for the purpose of evading a legal or contractual obligation to an insured without reasonable justification".(32)

An extreme adoption of the civil fraud exception was exemplified in Cedell by the Supreme Court of Washington, which stated that "[b]ad faith [is] tantamount to civil fraud" and also held that there is a presumption of no attorney-client privilege so long as an attorney engaged in "quasi-fiduciary" functions such as investigation of a claim. The court stated that in reviewing documents in camera, the relevant inquiry is whether "a reasonable person would have a reasonable belief that an act of bad faith has occurred".(33)

Insurers may argue that cases holding for a presumption of no attorney-client privilege are relegated to first-party suits.

Joint client exception

When insurers act on behalf of their insureds in investigating claims or defending the insured under a duty to defend (a duty stemming from the policy), insureds may seek to invoke the joint client exception to waive privilege, particularly in the third-party context. This is due to the tripartite attorney-client relationship between the insurer, defence counsel appointed by the insurer to defend the policyholder and the policyholder. Arguments may be made that, due to a mutual interest of the insured and the insurer in prevailing against an underlying claim against the policyholder, a common interest exists and privilege is waived as to attorney-client communications.

Insurers may find that communications made with defence counsel during the tripartite relationship will not be afforded attorney-client privilege in a subsequent bad-faith action by the insured, for example.

However, various courts continue to find that attorney-client privilege still attaches to communications unrelated to the defence of the underlying action, as well as to those communications regarding issues adverse between the insurers and the insured, such as issues relating to coverage.

Disclosure to third parties

In a case where counsel for an insurer retained for coverage advice directly sent a letter to the insured communicating its coverage interpretation to the policy and the insured later sought the counsel's coverage opinion to the insurer, the Supreme Court of Appeals of West Virginia held that the third-party communication did not waive the privilege and that attorney-client privilege continued to apply to protect the coverage opinion from disclosure to the insured. The court held that it has not found "any case in the country that has held that attorney-client privilege does not apply to a coverage opinion letter when an insurer communicates the gist of the recommendation contained in the letter to the insured".(34)

Exception to the exception: common-interest doctrine

The Maine Superior Court has held that the common-interest doctrine is:

"'not an independent basis for privilege, but an exception to the general rule that the attorney-client privilege is waived when privileged information is disclosed to a third-party…In order for the [exception] to apply, the party asserting the privilege must show that (1) communications were made in the course of a joint defense effort, (2) the statements were designed to further the effort, and (3) the privilege has not been waived.'"(35)

However, the court further constrained the common-interest doctrine to apply to communications involving attorneys, and found that email communications that did not include counsel for the insurer in the email were not privileged, even though the parties had a common litigation interest.(36)


Despite the increasingly intrusive nature of discovery of insurers' files and attacks to attorney-client privilege, privilege appears to be a stronger ground for asserting protection than a standalone assertion of work product. Whether an insurer has impliedly waived attorney-client privilege continues to be a case-by-case analysis, but it is clear that asserting the 'advice of counsel' defence weakens an insurer's ability to claim the privilege where bad faith is alleged.

Discovery of other types of insurer files show that personnel files are increasingly produced, while requests for other policyholder documents continue, for the most part (absent insurer errors in failing to submit burden affidavits), to be rejected absent a particular need or narrowed request. There is a split of authority with respect to the production of reserves-related information; but there are steps that an insurer can take to protect privilege, such as making it clear that reserves are set on a case-by-case basis and not in the aggregate, and that the setting of the reserve entailed some examination of legal analysis. Underwriting documents have also been ordered to be produced, but an insurer is not without its arsenal of objections to production of underwriting materials.

From the case law analysis – which is available in full in the National Survey of 2014-2015 Cases Relating to Attorney-Client Privilege/Work Product Doctrine(37) – what emerges is a need for practical pointers that an insurer can take as suggested means of optimally setting up its files for protection from production and for showing courts that it is willing to fight for the protection of privileged/protected documents, on a document-by-document basis, while simultaneously showing the court a reasonable posture and a willingness to reach compromises as to production.

For further information on this topic please contact Rachel Kim at Mendes & Mount LLP by telephone (+1 212 261 8000) or email ([email protected]). The Mendes & Mount website can be accessed at


(1) State ex rel Montpelier US Insurance Company v Bloom, 757 SE 2d 788 (Sup Ct App W Va 2014).

(2) Everest Indem Ins Co v Rea, 236 Ariz 503, 504 (quoting State Farm Mut Auto Ins Co v Lee, 199 Ariz 52, 62).

(3) Id at 505.

(4) Ingram v Great American Insurance Co, 2015 U.S. Dist. LEXIS 88783.

(5) Seneca Ins Co v Western Claims, Inc, 774 F 3d 1272 (10th Cir Dec 22 2014).

(6) Civil Action DKC 09-0100 (D Maryland May 17 2013).

(7) Charter Oak, 2013 US Dist LEXIS 180504 (Dec 24 2013)(emphasis added).

(8) 2014 US Dist LEXIS 59265 (MD Fla April 29 2014).

(9) 295 P 3d 239 (Wa 2013).

(10) 297 FRD 22 (Jan 28 2014).

(11) See Esposito v Cutler, 2015 Conn Super LEXIS 1733 (June 30 2015).

(12) See Esposito v Cutler, 2015 Conn Super LEXIS 1733 (June 30 2015).

(13) AKH Co v Universal Underwriters Ins Co, 300 FRD 684 (2014).

(14) 2014 US Dist LEXIS 59265 (MD Fla April 292014).

(15) AKH Co, 300 FRD 684 (citations omitted).

(16) See Esposito v Cutler, 2015 Conn Super LEXIS 1733 (June 30 2015).

(17) 2014 US Dist LEXIS 44506, *6.

(18) AKH Co v Universal Underwriters Ins Co, 300 FRD 684 (2014) (emphasis added).

(19) 2015 Conn Super LEXIS 1733 (June 30 2015).

(20) Id at *3.

(21) Id at *5.

(22) Id at *5.

(23) 2014 US Dist LEXIS 163987 (ND Ill 2014).

(24) Id at *10.

(25) Id at *10-11.

(26) Id at *11.

(27) Id at *13.

(28) Id at *16-23.

(29) Johnson v RLI Insurance Company, 2015 US Dist LEXIS 115308 (D Alaska August 31 2015).

(30) In re Grand Jury Subpoena, 745 F 3d 681,691 (3rd Cir 2014).

(31) Hartford Roman Catholic Diocesan Corp, 2015 US Dist Lexis 3542 (Jan 13 2015)(citation omitted).

(32) 273 Conn 33 (2005).

(33) 295 P 3d 239 (2013) (citations omitted).

(34) State ex rel Montpelier US Insurance Company v Bloom, 757 SE 2d 788 (Sup Ct App W Va 2014).

(35) Irving Oil v Ace Ina Ins, 2015 Me Super LEXIS 72 (March 17 2015).

(36) Id.

(37) Please contact Rachel Kim at [email protected] concerning her case law compendium of 150 cases decided in 2014-2015 relating to attorney-client privilege in the context of insurance coverage litigation

Published by permission of DRI (Voice of the Defense Bar –; copyright of this article and any portion of this article (including edited versions) belongs to DRI and the author, as set forth in the DRI Agreement.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.