295 P.3d 239
Wash.2013Background
- Cedell’s home burned; he was uninsured for a period while insurer delayed coverage decision.
- Insurer Farmers offered a one-time $30,000 settlement with a 10-day deadline after attorney Hall’s involvement.
- Cedell sued Farmers for bad faith; Farmers produced a heavily redacted claims file and claimed attorney-client privilege.
- Trial court ordered an in camera review of the claims file under a fraud-exception theory to pierce privilege.
- Court of Appeals reversed; this Supreme Court decision clarifies privilege scope in first-party bad-faith claims and the fraud exception.
- Major issue is whether an insurer may claim attorney-client privilege in first-party bad-faith actions and how the fraud exception applies.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of privilege in first-party bad-faith claims | Cedell argues no blanket privilege in such claims; needs access to file. | Farmers asserts privilege unless an exception applies. | Presumption against privilege; insurer may overcome with in camera showing quasi-fiduciary conduct. |
| Fraud exception standard for piercing privilege | Bad faith evidence suffices to invoke fraud exception. | Requires actual fraud; mere bad faith not enough. | Two-step process: in camera review after showing foundation for civil fraud, then determine privilege waiver. |
| Role of in camera review in non-UIM first-party claims | In camera review unnecessary if bad faith shown. | In camera review required to assess foundation for fraud before piercing privilege. | In camera review is required to establish foundation for civil fraud before piercing privilege. |
| Distinction between UIM and non-UIM claims | Barry/Escalante controls; privilege may be different for UIM. | Distinction matters; UIM has different fiduciary considerations. | Distinction not dispositive; framework applies to non-UIM as well; UIM has separate analytic path but principle supports privilege piercing when warranted. |
| Remand instructions | Court should allow broad discovery consistent with prior rulings. | Maintain privileges unless fraud foundation established. | Remand for in camera inspection and proper application of the two-step fraud-exception process. |
Key Cases Cited
- Barry v. USAA, Barry v. USAA, 98 Wn. App. 199 (1999) (establishes non-UIM privilege considerations and in-camera review framework)
- Escalante v. Sentry Ins. Co., Escalante v. Sentry Ins. Co., 49 Wn. App. 375 (1987) (fraud exception requires foundation in fact; two-step process)
- Seattle Nw. Sec. Corp. v. SDG Holding Co., Seattle Nw. Sec. Corp. v. SDG Holding Co., 61 Wn. App. 725 (1991) (in camera review when foundation for fraud is alleged)
- Soter v. Cowles Publishing Co., Soter v. Cowles Publishing Co., 131 Wn. App. 882 (2006) (discovery and privilege interplay in context of claims)
- St. Paul Fire & Marine Ins. Co. v. Onvia, Inc., St. Paul Fire & Marine Ins. Co. v. Onvia, Inc., 165 Wn.2d 122 (2008) (fiduciary considerations in insurer-insured relationship)
- Kallevig v. Industrial Indem. Co., Industrial Indem. Co. of Nw., Inc. v. Kallevig, 114 Wn.2d 907 (1990) (insurer denial without justification akin to bad faith)