Henke v. Iowa Home Mut. Cas. Co.

• Decision Date: 11 February 1958
• Docket Number: No. 49386,49386
• Citation: 87 N.W.2d 920,249 Iowa 614
• Parties: E. W. HENKE, Administrator of the Estate of Richard Allen Townsend, Deceased, Plaintiff-Appellee, v. IOWA HOME MUTUAL CASUALTY COMPANY, Defendant-Appellant.
• Court: Iowa Supreme Court

Page 920

87 N.W.2d 920

249 Iowa 614

E. W. HENKE, Administrator of the Estate of Richard Allen Townsend, Deceased, Plaintiff-Appellee, v. IOWA HOME MUTUAL CASUALTY COMPANY, Defendant-Appellant.

No. 49386.

Supreme Court of Iowa.

Feb. 11, 1958.

Larson & Carr, Charles City, for appellant.

Keith S. Noah, Charles City, for appellee.

LARSON, Justice.

The principal issue involved in this appeal is whether correspondence, reports and communications are confidential and privileged between an insurer and the attorney employed by it to defend an insured in litigation resulting from an automobile accident insofar as it pertains to that litigation.

Plaintiff brought an action at law asking damages against the defendant, an automobile liability insurance company, referred to herein as the insurer, for bad faith and negligence in failing to settle two cases against plaintiff within the limits of the policy and in which judgment was rendered against him in an amount greatly in excess of the limits of the policy. After the issues were resolved, plaintiff filed an application asking for an order directing the defendant company to produce for plaintiff's inspection, copying, or photostating 'all letters, correspondence, reports, communications and copies of the same,' concerning the two previously tried cases in Floyd County, Iowa. Defendant's resistance was on the sole ground that each and every item which plaintiff asked an order to produce 'is privileged' under the laws of the State of Iowa, and is therefore not available to plaintiff for his use in the trial of this cause.

In its ruling the court found that the insurer employed a Mason City law firm in accordance with its obligation under an insurance contract with plaintiff's decedent, to defendant in any action for damages resulting from such an accident; that said firm did defend the administrator in the trial of the two cases, and further that said firm 'did defend and represent both parties, that is E. W. Henke, Administrator, and Iowa Home Mutual Casualty Company in the two cases against * * * E. W. Henke, Administrator.'

The trial court then said: 'The Court finds that this being true, the letters and documents which the plaintiff in this cause wishes to inspect, copy or photostat, are not privileged,' and it entered an order for the defendant to deposit within fifteen days with the clerk, for inspection, copying or photostating by plaintiff, all letters, correspondence, reports, communications and copies of same, concerning the causes of action heretofore mentioned, sent by the defendant company to the Mason City attorneys who tried the cases, and received by the company from said attorneys, as it concerned the two causes of action already tried.

Permission having been first obtained from this court, the Iowa Home Mutual Casualty Company has appealed from that ruling.

Plaintiff contends that the ruling was correct and that under the circumstances appearing herein there is no privilege as between plaintiff and defendant. We agree. The district court, as disclosed by the pleadings, was presented with an alleged factual situation wherein the insured had a judgment against him in two personal injury actions far in excess of the limits of an insurance policy of the insurer. Under the terms of the insurance contract the insurer had its attorney appear and defend the insured in both actions, a point conceded. The insurer had refused and failed to compromise these two personal injury actions within the limits of the policy when requested to do so by the insured and when it had the opportunity to do so before each trial. In addition, the plaintiff filed with this application an affidavit to the effect that the company's attorney did represent both parties, the insurance company and the defendant insured, and that an attorney-client relationship existed between the attorney and the insured.

I. Defendant denies there is any attorney-client relationship between a lawyer, hired by an insurer and who defends the insured under the terms of the insurance policy, and the insured. The contention is without merit. The fact that another selects and pays an attorney does not control the relationship of attorney-client. It may be a factor to be considered in proving that such relationship exists, but there are many other more important factors, such as the undertaking by the attorney, and the acceptance of his services by the other. When with due knowledge one assents to the appearance in court of an attorney in his behalf, an attorney-client relationship must be presumed. It is no answer that under the contract the insured agrees to cooperate and aid the insurer's attorney. Nothing in the policy compels the insured or his representative to accept the attorney selected by the insurer. He may reject such attorney and thus relieve the insurer from the obligation. On the other hand, if he consults and communicates with the furnished attorney, as contemplated by all parties, on the matter involved, and permits that attorney to enter his appearance in court for him, these actions tend to establish a clear personal relationship between himself and the attorney which is entitled to the usual confidences of client and attorney. There is no question here but what such a relationship did exist, and we hold that the district court was correct in its finding that the attorney hired by the insurer who tried the two cases did legally represent both parties in those transactions.

II. We have consistently held that when two or more parties consult an attorney for their mutual benefit, the testimony as to the communications between the parties or the attorney as to that transaction is not privileged in a later action between such parties or their representatives. In our latest reference to this matter in England v. England, 243 Iowa 274, 282, 51 N.W.2d 437, 442, we said:

'Notwithstanding section 622.10, Code 1950 (now 1954), I.C.A., prohibiting testimony as to confidential communications, (the attorney's) testimony would have been admissible since, as (he) testifies, he acted as adviser to both plaintiff and defendant who went together to his office, if indeed he was more than primarily a scrivener of the deeds.'

Also see Luthy v. Seaburn, 242 Iowa 184, 188, 46 N.W.2d 44, 46, and citations; Crawford v. Raible, 206 Iowa 732, 739, 740, 221 N.W. 474, 478, and citations; annotation, 141 A.L.R. 553, 554; annotation, 22 A.L.R.2d 662-664; 58 Am.Jur., Witnesses, § 496, and page 34 in 1957 supplement for late cases on this subject.

The rule is quite clear that to constitute a privileged communication to an attorney there must be some element of confidence imposed in the attorney himself, and for him to accept that relationship it must be apparent that the transaction or his action in relation thereto is for the mutual benefit of the parties, knowingly and willingly seeking his professional services.

It is true that in most, if not in all, of our previously-decided cases, both parties went together to the attorney for advice and guidance. Defendant vigorously contends that even if insurer and insured were both clients of one attorney in regard to the actions, the confidential nature of their respective communications with the attorney must be respected and be held privileged unless (1) they are made in the presence of the other, or (2) are made with the intent that they be communicated. Such exceptions to the confidential nature of attorney-client communications, if adopted, might be justified as waivers. Section 622.10, Code 1954, I.C.A., specifically provides as follows:

'No practicing attorney, counselor * * * or the stenographer or confidential clerk of any such person, who obtains such information by reason of his employment, * * * shall be allowed, in giving testimony, to disclose any confidential communication properly entrusted to him in his professional capacity, and necessary and proper to enable him to discharge the functions of his office according to the usual course of practice or discipline. Such prohibition shall not apply to cases where the party in whose favor the same is made waives the rights conferred.' (Emphasis supplied.)

While there is respectable authority holding that communications between joint clients and their attorney are not privileged on the basis of waiver, Allen v. Ross, 199 Wis. 162, 225 N.W. 831, 64 A.L.R. 180; State v. Rogers, 226 Wis. 39, 51, 275 N.W. 910, and other cases cited in annotation 22 A.L.R.2d 662-664, we are convinced there is a more compelling reason the general rule prohibiting disclosures of information received in confidence by one of two or more joint clients in regard to a transaction for their mutual benefit, is not privileged. It is simply that if it appears the secret or imparted communication is such that the attorney is under a duty to divulge it for the protection of the others he has undertaken to represent in the involved transaction, then the communication is not privileged. It would be shocking indeed to require an attorney who had assumed such a duty to act for the mutual benefit of both or several parties to be permitted or compelled to withhold vital information affecting the rights of others because it involves the informant. In facing this situation the courts of Wisconsin held in State v. Rogers, supra, that an attorney may properly act as attorney for both parties to a transaction with the full knowledge and consent of both, but when a conflict of interests arises in the matter, he must make full disclosures to both or terminate the relation of attorney and client as to both. The court said [226 Wis. 39, 275 N.W. 914]: 'It was very difficult if not impossible for the defendant (attorney) to remain loyal and faithful to both clients under the circumstances of this case', and it held the paramount duty of the joint attorney was to disclose. We agree.

Although it is true all cases of this nature decided in Iowa...