Steel v. Phila. Indem. Ins. Co.

• Decision Date: 26 July 2016
• Docket Number: No. 46301–6–II,46301–6–II
• Citation: 195 Wash.App. 811,381 P.3d 111
• Court: Washington Court of Appeals
• Parties: Lisa Steel, individually and as GAL for J.T., a minor and Douglas Thompson, and Kristi Barbieri, individually and as GAL for S.R.B., Petitioners, Amanda Myrick, individually and as Guardian Ad Litem for S.A., a minor, and Natalie Bond, individually and as Guardian Ad Litem for A.K., a minor; Alicia Mendoza, individually and as Guardian Ad Litem for M.M., a minor, G.S.J., individually and as Guardian Ad Litem for J.J., a minor, Plaintiffs, v. Philadelphia Indemnity Insurance Co., Respondent/Intervenor, Olympia Early Learning Center; Steve Olsen, individually, and Rose Horgdahl, individually, Defendants.

195 Wash.App. 811

381 P.3d 111

Lisa Steel, individually and as GAL for J.T., a minor and Douglas Thompson, and Kristi Barbieri, individually and as GAL for S.R.B., Petitioners,Amanda Myrick, individually and as Guardian Ad Litem for S.A., a minor, and Natalie Bond, individually and as Guardian Ad Litem for A.K., a minor; Alicia Mendoza, individually and as Guardian Ad Litem for M.M., a minor, G.S.J., individually and as Guardian Ad Litem for J.J., a minor, Plaintiffs,

v.Philadelphia Indemnity Insurance Co., Respondent/Intervenor, Olympia Early Learning Center; Steve Olsen, individually, and Rose Horgdahl, individually, Defendants.

No. 46301–6–II

Court of Appeals of Washington, Division 2.

July 26, 2016

Darrell L. Cochran, Loren a Cochran Pfau, Kevin Michael Hastings, Christopher Eric Love, Pfau Cochran Vertetis Amala, PLLC, 911 Pacific Ave Ste 200, Tacoma, WA, 98402-4413, Harold D. Carr, Attorney at Law, 4239 Martin Way E, Olympia, WA, 98516-5335, Karen Marie Kay, Lockner & Crowley, Inc., P.S., 524 Tacoma Ave S Tacoma, WA, 98402-5416, for Plaintiffs.

Paul Mark Rosner, Steven Soha Soha & Lang PS 1325 4th Ave, Ste 2000, Seattle, WA, 98101-2570, for Respondent/Intervenor.

Johanson

, J.

¶ 1 Lisa Steel, Douglas Thompson, and Kristi Barbieri (collectively petitioners) appeal from a superior court discovery order that requires them to provide their attorney-client privileged communications and work product to a third party insurer, Philadelphia Indemnity Insurance Company (Philadelphia). The superior court concluded that the petitioners impliedly waived their attorney-client communications and work product privilege when they sought a reasonableness determination of a covenant judgment settlement under RCW 4.22.060

. The reasonableness hearing was necessary to enforce the covenant judgment settlement against Philadelphia. We hold that the implied waiver of attorney-client communications doctrine is not limited to legal malpractice actions. We further hold that implied waiver may occur in the covenant judgment settlement reasonableness determination context, but here, the superior court erred by applying an incorrect “relevancy” standard and by concluding that petitioners impliedly waived the attorney-client communication privilege and work product protection. We further conclude that under the proper standards, petitioners did not impliedly waive the attorney-client communication privilege nor was their work product discoverable. We reverse and remand to the superior court for proceedings consistent with this opinion.

FACTS

I. BACKGROUND AND SETTLEMENT

¶ 2 In 2011, an employee of Olympia Early Learning Center (OELC) was convicted of child rape and child molestation against two children at the day care.¹ Thereafter, sexual abuse victims who attended OELC and their parents (collectively plaintiffs) brought negligence claims against defendants OELC, OELC's executive director, and the program director (collectively the insureds). Philadelphia, OELC's liability insurer, retained defense counsel for the insureds.

¶ 3 In August 2012, plaintiffs proposed a nearly $4 million settlement to Philadelphia and the insureds and stated that the potential verdicts could exceed $20 million.² In response, the insureds requested that Philadelphia protect them and accept the settlement. Philadelphia declined, claiming that their policy limit was $1 million and stating that they believed interpleader was the best method to resolve the claims against the insureds.

¶ 4 Although trial was set for October 16, as of September 5, defense counsel hired by Philadelphia had conducted little discovery. In late September, the insureds entered a covenant judgment settlement with plaintiffs. The covenant judgment settlement protected the insureds from individual liability and assigned the insureds' bad faith claims against Philadelphia to plaintiffs. As part of the covenant judgment settlement, the insureds stipulated to a $25 million judgment and signed judgments by confession admitting that the sexual abuse occurred, that the insureds were negligent, and that the plaintiffs suffered damage as a result.

II. PROCEDURE REGARDING SCOPE OF DISCOVERY

¶ 5 In October 2012, Philadelphia moved to intervene to conduct “focused discovery” related to the reasonableness of the covenant judgment settlements the insureds agreed to and to participate in any reasonableness hearing. The trial court allowed Philadelphia's intervention and ordered plaintiffs to produce all discovery exchanged by the parties and all attorney work product related to the settlement. What followed was a series of motions by Philadelphia trying to expand the scope of discovery and by plaintiffs trying to limit the discovery of their attorney's work product and privileged communications. These motions and orders are the crux of this appeal.

¶ 6 In late October, plaintiffs produced nearly 200,000 pages of discovery, including all records given to them by the insured's defense attorney. In April 2013, the superior court ruled that plaintiffs' attorney's nonmental impression and nonopinion work product were discoverable because Philadelphia showed substantial need under CR 26(b)(4)

in order to explore the reasonableness of the settlement under the Glover factors.³ Plaintiffs produced to Philadelphia all of the nonprivileged documents generated, maintained, or obtained in this case including medical records, public records request responses, witness communications, expert communications, subpoenas, pleadings, and documents received in discovery. Plaintiffs also created a privilege log of e-mails that they believed were privileged as opinion and mental impression work product and attorney-client communications and moved to protect the e-mails.

¶ 7 Philadelphia then moved to compel plaintiffs to submit a more detailed privilege log and to release withheld attorney-client communications, arguing that privilege with respect to those materials had been “impliedly” waived. Plaintiffs submitted a more detailed privilege log and claimed that of the documents listed, 350 were protected under attorney-client privilege and 106 were protected as attorney work product administrative e-mails.

¶ 8 Philadelphia claimed that plaintiffs should disclose their e-mails because many of them were sent the day before or the same day that the settlements and the factual confessions were signed. Philadelphia also sought to depose plaintiffs' counsel and to subpoena plaintiffs' counsel's notes, correspondence, and documents related to the case and particularly those reflecting the basis for the defendant insureds' judgments by confession and for the dollar amount of each settlement. Plaintiffs moved for a protective order quashing the subpoena and prohibiting their counsel from being deposed. Philadelphia deposed both OELC and OELC's executive director's personal defense attorneys.

III. SPECIAL DISCOVERY MASTER RECOMMENDATION AND PROCEDURE

¶ 9 On August 27, the superior court appointed a special discovery master to review in camera the records plaintiffs designated as protected. The superior court ordered that the special discovery master review the records using the standard declared by the superior court in April 2013. Specifically, the special discovery master was directed to (1) review whether plaintiffs' documents contained privileged attorney work product opinions and mental impressions and/or attorney-client communications and then (2) even if he found a document to be privileged or protected, he could recommend discovery of the document based on the application of an “exception” to the privilege that if the record is “directly related” to one of the Glover

factors, the privilege was waived “for the purposes of a reasonableness hearing.” Clerk's Papers (CP) at 2827.

¶ 10 The special discovery master reviewed the materials in camera in three batches. The first batch included 106 records that plaintiffs' attorney had characterized as protected work product. The second batch included e-mails that plaintiffs' attorney characterized as privileged attorney-client communications. And the third batch included e-mails plaintiffs' attorney characterized as administrative attorney work product.

¶ 11 The special discovery master found that the first batch of records contained, in part, “photos or third party records” that he recommended be produced and some e-mails representing work product, but not opinion or mental impression work product, that he also recommended be produced. CP at 2899. The special discovery master's log of these materials shows that they were all attorney notes or intra-office e-mails between attorneys and staff at plaintiffs' attorney's firm.

¶ 12 The second batch of records contained 350 records that the special discovery master stated were mostly e-mail communications between and among plaintiffs' attorney, fellow attorneys, and firm staff and the plaintiff clients. The special discovery master found the majority of these correspondences were attorney-client communications and work product. The special discovery master recommended that the work product and attorney-client communications relevant to a reasonableness determination be produced.

¶ 13 The third batch contained all of the records created between September 17 and September 19 that Philadelphia advocated may be relevant to the reasonableness evaluation.

The special discovery master found these e-mails to be protected interoffice administrative e-mails not relevant to the reasonableness evaluation. However, the special discovery master recommended production of a few attachments in this batch that were attorney work product but contained settlement documents different than the final settlement documents.

¶ 14 At the November 22, 2013 hearing to review the special discovery master's recommendations, Philadelphia argued that the only way it could determine how the settlement amounts were reached was to obtain plaintiffs' attorney's opinion and mental impression ...