Brandon v. West Bend Mut. Ins. Co.

• Decision Date: 16 June 2004
• Docket Number: No. 02-1880.,02-1880.
• Citation: 681 N.W.2d 633
• Parties: Beverly J. BRANDON, Appellee, v. WEST BEND MUTUAL INSURANCE COMPANY, Appellant.
• Court: Iowa Supreme Court

681 N.W.2d 633

Beverly J. BRANDON, Appellee, v. WEST BEND MUTUAL INSURANCE COMPANY, Appellant.

No. 02-1880.

Supreme Court of Iowa.

June 16, 2004.

Peter J. Thill and Lisa Taylor of Betty, Neuman & McMahon, L.L.P., Davenport, for appellant.

Michael J. Walton and Robert L. Cusack of Ottesen & Walton, Davenport, for appellee.

WIGGINS, Justice.

In this interlocutory appeal, the primary issue presented is whether an insured who has brought an action against an insurer for uninsured and underinsured motorist benefits may discover privileged communications between outside counsel employed by the insurer to pursue its subrogation interests against the underinsured driver and the insurer's claims adjuster and in-house counsel, made in the course of the prior litigation against the underinsured driver, on the basis of the joint-client exception to the attorney-client privilege and the work product doctrine. On our review, we affirm the decision of the district court to permit discovery by deposition but limit the scope of discovery to (1) communications between outside counsel and the insurer's claims adjuster during the period of joint representation; and (2) communications between outside counsel and the insurer's in-house counsel during the period of joint representation.

I. Background Facts and Proceedings.

The background facts of this case date back to May 23, 1999, when Beverly Brandon (Brandon) was injured as a result of a collision between an automobile driven by Juan Castillo (Castillo) and an automobile driven by Mark Schultz (Schultz). Brandon was a passenger in the Castillo vehicle. The accident occurred at an intersection of two roads in Edgington Township, Illinois. Castillo's vehicle was uninsured. Drivers Direct Auto Insurance (Drivers Direct) insured Schultz with an automobile insurance policy with limits of $20,000. West Bend Mutual Insurance Company (West Bend) provided Brandon with uninsured motorist coverage (UM) and underinsured motorist coverage (UIM) with limits of $300,000. The policy also provided Brandon with $5000 medical payment coverage.

Brandon made a claim against West Bend under the UM/UIM provisions of the policy for her injuries. West Bend paid Brandon $5000 under the medical payment provision of the policy and eventually offered to settle her UM/UIM claim for $120,000. On September 8, 2000, West Bend notified Drivers Direct of its subrogation interest.

Brandon subsequently obtained the services of an attorney, who rejected West Bend's offer. Instead, he demanded the policy limits. In a letter dated March 7, 2001, Brandon's counsel informed West Bend that Brandon did not intend to pursue a claim against Schultz, and indicated West Bend should bring the action against him "through its subrogation rights." He also indicated Brandon would cooperate with West Bend if it brought a subrogation claim against Schultz.

West Bend subsequently employed attorney Peter J. Thill (Thill) to file a subrogation action against Schultz. On May 19, 2001, Thill filed a petition against Schultz in Illinois for the injuries sustained by Brandon. Brandon was the named plaintiff. The petition recited in two separate places that Thill was Brandon's attorney. The prayer of the petition did not limit Brandon's damage claim to the $5000 medical payment made by West Bend to Brandon but prayed for damages in excess of $50,000. Thill sent a copy of the petition to Brandon's counsel, together with a cover letter indicating he filed the petition to protect West Bend's subrogation interests.

Brandon and West Bend were unable to settle the UM/UIM claim, and Brandon filed a petition against West Bend on May 22, 2001. Thill filed an answer on behalf of West Bend. In May 2002 the Illinois action filed against Schultz settled without the necessity of Thill having to have any contact with Brandon. Schultz's insurer, Drivers Direct, agreed to pay the policy limits of $20,000 upon the filing of a release signed by Brandon.

West Bend refused to give the $20,000 it collected in the Illinois suit to Brandon. Brandon filed a motion to adjudicate law points in this action alleging as a matter of law West Bend was not entitled to the $20,000. The district court concluded West Bend was not entitled to the $20,000 it collected in the Illinois suit until Brandon was fully compensated for her injuries. The district court indicated Brandon's damages appeared to be in excess of $50,000 and ordered West Bend to remit the settlement funds immediately to Brandon. The district court reserved the issue of whether West Bend was entitled to a credit for the $5000 medical payment it made and for the $20,000 Brandon received from Schultz until after the trial, when the total amount of Brandon's damages would finally be determined. After receiving this ruling, Brandon amended her petition to assert a claim against West Bend for bad faith for West Bend's refusal to pay her the $20,000 it received from Schultz. The district court severed this claim from the UM/UIM claim.

During the course of the litigation between Brandon and West Bend, Brandon propounded interrogatories, requests for admissions, and sought the production of documents. West Bend objected to some of the admissions and the production requests. It provided answers to some of the interrogatories, and indicated Julie Schocker (Schocker), a claims adjuster for West Bend, compiled the answers. Therese Sizer (Sizer), in-house counsel for West Bend, signed the verification to the interrogatories.

The parties resolved most of their discovery disputes generated by the requests for admissions, interrogatories, and production requests. Brandon then sought to depose Schocker and Sizer and made other requests for discovery. West Bend objected to the depositions, claiming any relevant information it possessed was not subject to discovery under the attorney-client privilege and the work product doctrine. In particular, West Bend asserted that Schocker's investigation of the claim by Brandon was protected as work product, and Brandon had made no assertion of substantial need or undue hardship for the information. It claimed all information acquired by Sizer about the case was not only protected as work product, but fell within the attorney-client privilege.

Brandon argued that any information shared between Thill and the two West Bend employees was not privileged as to her because Thill also represented her in the Illinois lawsuit. Consequently, she asserted that she was entitled to the information provided by Schocker and Sizer to Thill prior to and during the course of the Illinois litigation. She argued they gathered such information on her behalf, as well as on behalf of West Bend. Brandon also argued that West Bend waived any privilege by having Schocker and Sizer verify and answer the interrogatories.

The district court denied protective relief sought by West Bend, granted the discovery request, and ordered the depositions to be taken prior to trial. West Bend sought permission to appeal prior to a final judgment. We granted the request.

II. Scope of Review.

We review a discovery ruling for an abuse of discretion. Ashmead v. Harris, 336 N.W.2d 197, 199 (Iowa 1983). The district court ruling will be upheld unless it is clearly unreasonable or untenable. Id. A discovery order "is untenable when it is not supported by substantial evidence...." Graber v. City of Ankeny, 616 N.W.2d 633, 638 (Iowa 2000). A ruling based on an erroneous interpretation of a rule of discovery may constitute an abuse of discretion. See Schaffer v. Rogers, 362 N.W.2d 552, 555 (Iowa 1985)

.

III. Issues Presented.

West Bend limits its challenge to the discovery order by the district court by only asking that the order compelling the depositions of Schocker and Sizer be reversed. Brandon acknowledges the existence of the attorney-client privilege and the work product doctrine, but claims these doctrines do not apply in a controversy between two parties who were jointly represented by the same attorney in a prior action with respect to communications with that attorney. She also claims the adjuster and in-house counsel waived any attorney-client privilege by verifying and answering the interrogatories. Thus, the issues we address on this interlocutory appeal are limited to the grounds urged by the parties.¹

IV. Attorney-Client Privilege.

The attorney-client privilege protects against the disclosure of "`[a]ny confidential communication between an attorney and the attorney's client ... against the will of the client.'" Squealer Feeds v. Pickering, 530 N.W.2d 678, 684 (Iowa 1995) (citation omitted). Under common law we recognized the privilege, and it is codified in Iowa Code section 622.10 (2001). See Squealer Feeds, 530 N.W.2d at 684

. It is recognized that in-house counsel who consult with outside counsel fall within the privilege. 1 Paul R. Rice, Attorney-Client Privilege in United States § 4.4, at 24-25 (2d ed.1999).

V. Joint-Client Exception.

Only a few exceptions have been carved from the attorney-client privilege. See Hickman v. Taylor, 329 U.S. 495, 511, 67 S.Ct. 385, 393-94, 91 L.Ed. 451, 462 (1947)

(recognizing that exceptions tend to have a detrimental effect on attorney advocacy). One such exception exists where two or more persons jointly consult with the same attorney to act for them in a matter of common interest. See City of Coralville v. Iowa Dist. Ct., 634 N.W.2d 675, 677-78 (Iowa 2001). This exception is known as the "joint-client" exception. Actual consultation by both clients with the attorney is not a prerequisite to the application of the joint-client exception. Id. at 677-78. The attorney is duty-bound to divulge such communications by one joint client to the other joint client. Id. Thus, when the same attorney acts for two parties, the communications are privileged from third persons in the controversy, but not in a subsequent controversy between the two parties. 1 John W....