In most jurisdictions, evidentiary privileges are creatures of statute, and courts are generally powerless to either create new ones or carve out exceptions to statutorily created ones. Neither federal common law nor the vast majority of states recognize any type of insurer-insured privilege. As a result, communications between an insurance company and its policyholder or with the insured’s defense counsel are not inherently protected from disclosure to third parties. For such communications to be protected, some other privilege must apply.
The attorney-client privilege has been described as the “oldest rule of privilege known to the common law.” The privilege is designed to allow clients to be candid with their attorneys without fear that the information might be discovered by others. The privilege recognizes that public policy is best served when an attorney provides sound legal advice and zealous representation, which depends on the attorney being fully informed by his or her client of the facts and circumstances surrounding the case.
However, the attorney-client relationship in the insurance setting is more complex than in other litigation scenarios because it involves the sharing of information by the lawyer or client with a third party (an insurance company) and protects only those communications between a client and an attorney for the purpose of obtaining legal advice. As noted below, some communications with an insurer fall outside this protection because they are not made for the purpose of obtaining legal advice. As a general rule, the privilege is waived when otherwise confidential information is shared with third parties outside the attorney-client relationship. The injection of an insurance company into this relationship complicates application of the privilege.