If I understand the problem correctly, the generated passwords are being saved in the vault that is set as a default vault for new items. It is possible to change it to a different vault and 1Password 7 uses the private vault in the beginning. Still, this is certainly not ideal.

This feature is based on something that was in the app from version 1.0. It was important for the app to save all generated passwords so that you never lose them by accident.

We had a chance to rethink it in 1Password 8 and build it from scratch. The history of generated passwords is implemented version 8 in a better way.

— Roustem

1Password Founder