Journal of American Law

SPRING 2015

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Spring 2015 // Journal of American Law 37 When there is a dual purpose to the work conducted by the attorney, "the court must make a determination of which pur- pose was primary." 31 Te court must determine "the dominant purpose of the relationship between the insurance company and its...attorneys, i.e., was it one of attorney-client or one of claims adjuster-insurance corporation." 32 If the latter, then the letters would be discoverable. Privilege extends to Communications Between the Attorney and third Parties Although attorney-client communications shared with a third party generally are not privileged, "an exception ex- ists for one serving as an agent of either attorney or client." 33 Tus, communications between an attorney and a third par- ty administrator acting as the agent of the insurance compa- ny are privileged. 34 Bad faith Litigation A recent case from Washington State has garnered a great deal of attention as the Washington Supreme Court has held that there is a presumption that the attorney-client privilege does not apply to prelitigation communications between the insurer and its counsel. In Cedell v. Farmers Ins. Co. of Wash- ington, 35 the Washington Supreme Court held that there is a "presumption that there is no attorney-client privilege rele- vant between the insured and insurer in the claims adjusting process and that the attorney-client and work product priv- ileges are generally not relevant." 36 Although the case dealt with a frst party claim of bad faith, the language of the deci- sion was broad and could be applied to liability claims as well. Te court held that bad faith could be regarded as a form of civil fraud for purposes of the crime-fraud exception to the 31 Ivy Hotel San Diego, LLC v. Houston Casualty Co., No. 10cv2183-L (BGS), 2011 U.S. Dist. LEXIS 119746, at *11 (S.D. Cal. Oct. 17, 2011) (quoting Umpqua Bank v. First Am. Title Ins. Co., No. CIV S-09-3208 WBS EFB, 2011 U.S. Dist. LEXIS 34088, at *7 (E.D. Cal. March 17, 2011)). 32 See Aetna Cas. & Sur. Co. v. Superior Court, 153 Cal. App. 3d 467, 476 (1984). 33 Robert v. Straus Prob. V Pollard, 289 AD2d 130 (1st Dep't 2001) (quoting People v. Osorio, 75 NY2d 80, 84 (1989)); see also Sev- enson Envtl. Servs. Inc. v. Sirius Am. Ins. Co., 64 AD3d 1234 (4th Dep't 2009), leave to appeal dismissed, 13 NY3d 893 (2009). 34 See VGFC Realty II LLC v. D'Angelo, No. 28211/2011, 2013 NY Slip Op 30359(U), at *4 (N.Y. Sup. Ct. Feb. 14, 2013) (reversed on other grounds) (in addition, in the First-Party context, communi- cations between the attorney retained by the insurance company and the insurance company's independent adjuster have also been held to be privileged); See Friedman Route 10 LLC v. Certain Un- derwriters at Lloyd's, London, No. A-0434-13T1, 2014 N.J. Super. Unpub. LEXIS 191 (App.Div. Jan. 31, 2014); Markwest Hydrocar- bon, Inc. v. Liberty Mut. Ins. Co., Civ. A. No. 05-cv-01948-PSF- PAC, 2007 U.S. Dist. LEXIS 27243, at * 4 (D. Colo. 2007). 35 Cedell v. Farmers Ins. Co. of Wash., 176 Wn.2d 686 (Wash. 2013). 36 Id. at 698-699. privilege. 37 Te court provided an insurance company with a means of overcoming the presumption that the attorney-cli- ent privilege does not apply "by showing its attorney was not engaged in the quasi-fduciary tasks of investigating and eval- uating or processing the claim, but instead in providing the insurer with counsel as to its own potential liability; for exam- ple, whether or not coverage exists under the law." 38 Tus, the burden is on the insurance company to prove that its coverage counsel was engaged solely in providing legal advice. It is not yet possible to predict the impact of Cedell on courts in other jurisdictions. It has already been adopted by the United States District Court for the District of Idaho, 39 but the Intermediate Court of Appeals of Hawai'i has declined to do so. 40 While the expansive language of this case is of concern to insurers that wish to protect the legal opinions of counsel from disclosure, as the broad presumption seems to favor complete disclosure of these materials, the decision allows insurers and counsel the ability to protect coverage opinions. First, the court sets forth a procedure for overcoming the presumption whereby a carrier can submit documents to the court for in camera inspection 41 so that the court can determine "that the attorney was providing counsel to the insurer and not engaged in a quasi-fduciary function." 42 Second, the court states that the presumption does not apply when an attorney is provid- ing the insurer with an opinion regarding whether coverage exists. However, much like in New York and New Jersey, a cov- erage opinion more likely will be subject to disclosure and the privilege waived if the attorney also conducted investigations and interviews on behalf of the carrier and this information is incorporated into the coverage opinion. 37 Id. at 700; but cf. Ferrara & DiMercurio, Inc. v. St. Paul Mercury Ins. Co.,173 F.R.D. 7 (D. Mass.1997) (crime-fraud exception not applicable in bad faith case against insurance company). 38 Cedell, 176 Wn.2d 686, at 699. 39 Stewart Title Guar. Co. v. Credit Suisse, No. 1:11-CV-227-BLW, 2013 U.S. Dist. LEXIS 49804 (D. Idaho April 3, 2013). 40 Anastasi v. Fid. Nat'l Title Ins. Co., NO. 30557, 2014 Haw. App. LEXIS 585 (Haw. Ct. App. Dec. 30, 2014). 41 It is important to note that the federal courts are not obligated to follow this procedure and to date have refused to do so. See Ingenco Holdings LLC v. Ace Am. Ins. Co., NO. C13-543RAJ, 2014 U.S. Dist. LEXIS 170357, at *8-9 (W.D. Wash. Dec. 8, 2014) ("every federal court to consider the issue has held that the in camera review mandate of Cedell does not apply in federal court."); as explained in Indus. Sys. & Fabrication v. W. Nat'l Assur. Co., NO: 2:14-CV-46-RMP, 2014 U.S. Dist. LEXIS 154021, at *4 (E.D. Wash. Oct. 30, 2014) ("[u]nder the Erie doctrine, a federal court sitting in diversity generally applies the substantive law of the forum state but federal procedural law.") (citing MKB Constructors v. Am. Zurich Ins. Co., C-13-0611-JLR, 2014 U.S. Dist. LEXIS 78883, at *5 (W.D. Wash. May 27, 2014) and Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-79(1939)). Te Eastern District of Washington went on to explain that the while federal courts are obligated to follow the substantive holding of Cedell, they are not required to conduct an in camera review as outlined in Cedell as that is a matter of procedure. 42 Cedell, 176 Wn.2d 686, at 700.

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