Third-Party Bad Faith Litigation - Insurers' Attorney-Client Privilege And Work Product Doctrine Protections Limited By Tripartite Relationship In Underlying Liability Action

In what may be the continuation of a trend toward the erosion of the attorney-client privilege and work product doctrine in bad faith litigation, another court has held that an insurer's communications with defense counsel retained for the insured in an underlying liability suit are discoverable and not subject to the attorney-client privilege or work product doctrine in a subsequent third-party bad faith lawsuit, this time under Georgia law. Camacho v. Nationwide Mut. Ins. Co., No. 1:11-CV-03111-AT., 2012 WL 6062029 (N.D. Ga., Dec. 3, 2012); see also In re XL Specialty, et al., 373 S.W.3d 46 (Tex. 2012) (communications between counsel for insurer and employer in workers' compensation administrative case not privileged in subsequent bad faith lawsuit). In Camacho, the U.S. District Court for the Northern District of Georgia (the District Court) rejected the insurer's attorney-client privilege and work product doctrine arguments, (1) holding that the joint defense/common interest exception to the attorney-client privilege applies except for communications solely between the insurer and the insurer's in-house claims counsel, (2) ordering the production of the insurer's entire claims file despite the work product doctrine, subject to the redaction of only the mental impressions, conclusions, opinions or legal theories of the insurer's in-house counsel and insurer's claims representatives handling the file regarding the litigation, and (3) ordering the depositions of the insurer's personnel to proceed.

UNDERLYING FACTS

Jesus Camacho, the surviving spouse of Stacey Camacho, and Lajean Nichols, as administratrix of the estate (plaintiffs), filed a state court wrongful death suit against Seung C. Park (Mr. Park), insured by Nationwide Mutual Insurance Company (the insurer), that ultimately resulted in a verdict in excess of policy limits against Mr. Park. Mr. Park assigned to plaintiffs his claims against the insurer for negligent and bad faith failure to settle the claim within policy limits. Plaintiffs, standing in the shoes of Mr. Park, filed a third-party bad faith suit against the insurer in the Northern District of Georgia, based on diversity jurisdiction.

Mr. Park's settlement with plaintiffs, which included the assignment, also stated he agreed to waive any attorney-client privilege he had with defense counsel and any work product doctrine he had with respect to the records, thoughts, activities and communications in the possession of the insurer or the law firms hired by the insurer. He...