I agree with you, but I actually understand the issue they're raising. Counsel sends a draft demand letter to client and says "Please review and let me know of any issues with my description of the underlying claims." Client responds with an inline note stating that she feels the claim is overstated but that she wants to leave it in for leverage. The draft is, transparently and without notice, processed through the user's O365 Copilot integration in both Word and Outlook. Hell, let's assume the attorney is a sole practitioner using a regular O365 account, and the outbound request to the client is silently run through Copilot. What is the status of privilege in this situation? Both seem to fail the confidentiality test. Does that mean that privilege exists only for big law firms that negotiate enterprise O365 licenses with no training clauses? There's definitely tension here.

But both your scenario and the OOP behavior of the client are not particularly hard ones to resolve.