COURT OF APPEALS REJECTS BROAD APPLICATION OF FRAUD EXCEPTION TO ATTORNEY CLIENT PRIVILEGE IN BAD FAITH LITIGATION
Last week, in Cedell v. Farmers Insurance Company of Washington, 2010 WL 3003535 (August 3, 2010) (.pdf) the Court of Appeals (Div. II) reversed a Grays Harbor trial court order imposing sanctions and ordering Farmer's Insurance to produce the file of an attorney it had hired to investigate a first party residential fire loss claim.
Rejecting the insured's argument that "an insurance company does not have any right to attorney-client privilege in a bad faith claim," the Court emphasized that "[t]o qualify for the fraud exception to [the] attorney-client privilege, [an insured] must show fraud, as opposed to just bad faith." The Court of Appeals concluded that, while Farmer's handling of the claim could support a finding of bad faith, the trial court had not made any finding of fraud -- such as a misrepresentation of material facts to the insured -- such that it was an abuse of discretion to order an in camera review of the attorney's file.
