Court Extends Attorney-Client Privilege to “Insurance File” Sought in Bad Faith Litigation 1

The USDC for the Western District of Kentucky recently held that, in third-party bad-faith litigation, Kentucky’s attorney-client privilege protects an insurer’s file from discovery.  In Shaheen v. Progressive Insurance Co., 2012 WL 3644817 (W.D. Ky. Aug. 24, 2012), the adminstrator of the Nadia Shaheen Estate filed a bad-faith lawsuit against Progressive for its alleged delay in settling an underlying wrongful death case against Progressive’s insured.  The plaintiff sought production of Progressive’s “insurance file,” but Progressive refused, arguing that it contained communications between it and its insured.

Kentucky state law was silent on whether the attorney-client privilege covers insurance files from discovery in bad-faith litigation.  In predicting how Kentucky state courts would rule, the Kentucky federal court first noted that other courts had taken three different approaches.  First, some courts permit discovery of the entire insurance file in third-party bad-faith litigation.  Other courts permit insurance companies to preclude disclosure “by rigidly applying the attorney-client privilege.”  And a third line of courts take the middle-road approach by permitting insurance companies to claim privilege, but allowing a plaintiff to overcome the privilege through a sufficient showing of need.

Kentucky recognizes an insurer-insured privilege on grounds that the insured assumes that purpose of his communications is to transmit the information to an insurer-selected attorney.  And on this basis, the federal court predicted that Kentucky law would extend the attorney-client privilege to an insurance company’s file and prohibit compelled disclosure of the file’s contents.