Fraud Exception to Attorney-Client Privilege May Apply in Bad Faith Action
Insurance Law Update
Hutchinson v. Farm Family Casualty Ins. Co
Connecticut Supreme Court
In Hutchinson v. Farm Family Casualty Ins. Co., 273 Conn. 33, 867 A.2d 1 (Conn. March 1, 2005), the Connecticut Supreme Court held that the civil fraud exception to the attorney-client privilege may apply in a bad faith action, but requires the applicability of a heightened evidentiary standard.
The decedent was killed in an automobile accident involving an underinsured driver. Plaintiffs alleged that the insurer initially agreed to pay its underinsured motorist limits less any amounts plaintiffs recovered from the other driver’s insurer, but later refused. Plaintiffs sued for breach of contract and bad faith.
The insurer produced its claims file, but redacted portions it claimed represented privileged attorney-client communications. Plaintiffs filed a motion seeking production of the redacted materials. After an in-camera review, the trial court determined that the privileged materials were relevant to the bad faith action, and granted the motion.
The Connecticut Supreme Court reversed. Id. at 37-38. The court recognized the two exceptions to the attorney-client privilege, the "at issue" exception and the "crime-fraud" or "civil fraud" exception, and held that the civil fraud exception can apply to a bad faith action: "[J]ust as there is no justification for the attorney-client privilege when a communication was made for the purpose of committing fraud, there is no justification for the privilege when a communication was made for the purpose of evading a legal or contractual obligation to an insured without reasonable justification." Id. at 41-42.
However, the court further explained that, in order to invoke the civil fraud exception, the plaintiffs must show probable cause that (1) the defendant acted in bad faith, and (2) the defendant sought the advice of its attorneys in order to conceal or facilitate its bad faith conduct. Id. at 42-43. The plaintiffs failed to meet this heightened evidentiary standard, and thus not entitled to obtain the privileged documents. Id. at 48-49.