Rule 408 and analogous state law rules are intended to protect a good faith settlement offer from being used at trial to prove liability. See generally “Of “Purposes Not Prohibited”: New Federal Rule of Evidence 408(B), 40 Creighton L. Rev. 679 (2007). Insurers (and others), however, have perverted the principles of Rule 408 to try to shield their “bad faith” (really, failure to act good faith) conduct from any scrutiny. For example, insurers fail to make up front, timely good faith settlement offers to insureds (or the victim of an insured’s negligence), and seek to delay, deny, defend on any possible ground. Meanwhile, the insured may well become cash strapped and desperate for any money, leading to an unfair “settlement” extorted by the insurer by failing to honor its obligations. Consider, for example, the plight of an asbestos defendant facing dozens or hundreds of personal injury claims, but an insurer or its TPA resolutely refuses to pay for anything, citing some real or imagined issue about long-term apportionment of financial responsibility between multiple insurers.
At about that moment, insurers may demand that the insured sign a document containing a waiver of the right to offer evidence – for any purpose – of subsequent acts by the insurer. For example, in California, the insurer may demand a “White Waiver” as a prerequisite to having settlement talks. The point of the White Waiver is to block the insured from using any part of the remaining settlement dance to prove the insurer’s failure to act in good faith.
Courts need to block forced waivers when demanded by insurers, TPAs or others – one party to a contract does not have a right to withhold performance until the other waives contract rights. The proper name for withholding performance is breach of contract. And Rule 408(B) makes it plain that the rule never was intended to protect insurers or others against claims for failure to act in good faith, and the rule was never intended to throw a privilege shield around all communications between insureds and insurers, or all communications between multiple insurers. For example, Rule 408 does not block discovery of and trial use of communications between third-party claim adjusters and insurers involved in wrongful conduct, even if the “adjuster” is a lawyer. For cites to that effect, see this February 14, 2014 post from Presnell on Privilege and other posts linked in that post. Or see this recent NY opinion, among others cited by Mr. Presnell. Nonetheless, more and more insurers are hiring law school graduates to act as adjusters, and then are asserting blanket claims of privilege for any and all communications, as described in a March 1, 2013 article by Joe Cahill in the ABA Journal.