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Bad Faith Allegations Versus an Insurer's Attorney-Client Privilege

By Lewis E. Hassett and Cindy Chang

This article addresses conflicting court decisions on the extent to which an insured's allegations of insurer bad faith eviscerate the insurer's attorney-client privilege. Not surprisingly, insureds argue that an allegation of bad faith is sufficient to waive the privilege, while insurers argue that an insurer's right to invoke the privilege should be revocable only under the same crime fraud exception applicable outside the insurer bad faith context.

The applicable rule can affect not only the outcome in the bad faith case itself, but also the insurer's incentives and ability to obtain candid legal advice in assessing coverage. Court decisions on the subject are mixed, and some are discussed below.

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