Twin City Fire Ins. Co. v. Burke

• Decision Date: 18 February 2003
• Docket Number: No. CV-01-0262-PR.,CV-01-0262-PR.
• Citation: 204 Ariz. 251,63 P.3d 282
• Parties: TWIN CITY FIRE INSURANCE COMPANY, a foreign corporation, Petitioner, v. The Honorable Edward O. BURKE, Judge of the Superior Court of the State of Arizona, in and for the County of Maricopa, Respondent Judge, General Star Indemnity Company, a foreign corporation, General Star Management Company, a foreign corporation, Real Parties in Interest.
• Court: Arizona Supreme Court

63 P.3d 282

204 Ariz. 251

TWIN CITY FIRE INSURANCE COMPANY, a foreign corporation, Petitioner, v. The Honorable Edward O. BURKE, Judge of the Superior Court of the State of Arizona, in and for the County of Maricopa, Respondent Judge, General Star Indemnity Company, a foreign corporation, General Star Management Company, a foreign corporation, Real Parties in Interest.

No. CV-01-0262-PR.

Supreme Court of Arizona, En Banc.

February 18, 2003.

Law Offices of Neil Vincent Wake, by: Neil Vincent Wake, Linda D. Skon and Sanders & Parks, P.C. by: Garrick L. Gallagher, Steven D. Leach, Eileen Sigmund, Phoenix, Attorneys for Twin City Fire Insurance Company.

Jennings, Strouss & Salmon, P.L.C. by: John J. Egbert, W. Michael Flood, David B. Earl, Phoenix, Attorneys for General Star Indemnity Company and General Star Management Company.

OPINION

FELDMAN, Justice (retired).

¶ 1 This matter arises from a bad faith action brought by an excess liability insurer against the primary carrier for the latter's failure to settle a wrongful death case within the primary carrier's policy limit. Over objections as to the attorney-client privilege, the trial judge granted a motion to compel the excess insurer to produce certain documents and respond to interrogatories pertaining to monitoring and evaluation of the wrongful death claim by its lawyers. The court of appeals declined to accept jurisdiction of the excess carrier's petition for special action relief, and we granted its petition for review to clarify the application of the principles determining whether a party has impliedly waived the attorney-client privilege.

JURISDICTION

¶ 2 We have jurisdiction pursuant to article VI, § 5(3) of the Arizona Constitution and A.R.S. § 12-120.24. See also Rule 8(b), Ariz. R.P.Spec.Act., and Rule 23, Ariz.R.Civ. App.P.

¶ 3 Special action review of an order compelling discovery over the objection of a party asserting a privilege is appropriate because there is no equally plain, speedy, or adequate remedy by appeal. See, e.g., Arizona Dep't of Econ. Sec. v. O'Neil, 183 Ariz. 196, 901 P.2d 1226 (App.1995); Blazek v. Superior Court, 177 Ariz. 535, 869 P.2d 509 (App.1994); see also Rules 1 and 3, Ariz. R.P.Spec.Act. Further, this case presents a question of law with statewide significance, which further supports our acceptance of jurisdiction of this special action. See City of Tucson v. Superior Court, 167 Ariz. 513, 513, 809 P.2d 428, 428 (1991) (finding special action jurisdiction properly accepted when "issue presented is a pure issue of law that is of statewide significance").

FACTS AND PROCEDURAL BACKGROUND

¶ 4 The parents of an eleven-year-old boy filed a wrongful death action against the City of Scottsdale; Southwest Gas and its subcontractor, Arizona Pipeline; the intoxicated driver of a vehicle that struck and killed the child as he was walking with his father; and the establishment at which the driver had been drinking. The parents alleged that Arizona Pipeline negligently had barricaded a construction zone on a street improvement project, forcing pedestrians such as the decedent and his father to walk in the roadway. General Star Management Co. was Arizona Pipeline's primary liability insurer and provided it with $1 million coverage. Twin City Fire provided Arizona Pipeline with excess liability coverage of $9 million.¹ General Star's primary policy provided that it had the exclusive right and duty to defend, control, and settle all claims or lawsuits brought against Arizona Pipeline, and it assumed the defense of the wrongful death action.

¶ 5 Twin City hired its own counsel to monitor the defense and evaluate the case. At least twice during pretrial settlement negotiations, the parents offered to settle their claims against Arizona Pipeline for less than General Star's $1 million limit, but General Star refused. Twin City sent General Star two letters in this regard, acknowledging that it was aware the decedent's parents had been willing to settle for less than the limit of General Star's policy but that General Star had refused. Twin City demanded that General Star settle the claims.

¶ 6 After settling with the driver of the vehicle as well as other defendants, the parents proceeded to trial against Arizona Pipeline. The jury found the parents had sustained $8 million in damages and allocated twenty-five percent of the fault to the driver, who had been designated a non-party at fault, and the remaining seventy-five percent to Arizona Pipeline. The trial judge therefore entered a $6 million judgment against Arizona Pipeline.

¶ 7 Arizona Pipeline subsequently settled the parents' wrongful death claims for a total of $5.4 million. Twin City demanded that General Star pay the entire amount, but it refused, instead paying the policy limit of $1 million. Twin City paid the remaining $4.4 million and then filed this bad faith action against General Star based on its refusal to settle the parents' claims within policy limits.

¶ 8 General Star served Twin City with interrogatories and requests for production of documents seeking Twin City's files pertaining to the wrongful death action, including any communications between Twin City and counsel it had retained to evaluate the wrongful death action and monitor General Star's defense of the case. Twin City objected to General Star's discovery requests, claiming the information it had received from counsel was not discoverable because it was either irrelevant or protected by the attorney-client privilege. General Star filed a motion to compel Twin City to produce the requested information. The judge granted the motion, finding, inter alia, that the information sought "may be evidence that will establish or negate bad faith on the part of General Star." He concluded that the material was discoverable based on our decision in Clearwater v. State Farm Mutual Automobile Insurance Co., 164 Ariz. 256, 792 P.2d 719 (1990). Making no factual findings, the judge further stated he did "not believe that the attorney/client privilege applies to the motion to compel under" State Farm Mutual Automobile Insurance Co. v. Lee, 199 Ariz. 52, 13 P.3d 1169 (2000) (hereinafter referred to as Lee).

¶ 9 Twin City contends Lee does not support the conclusion that an excess insurer waives its attorney-client privilege simply by bringing an action against a primary insurer for bad faith when that action is based solely on the primary carrier's conduct. We agree and conclude that, based on the nature of Twin City's action against General Star and the principles we set forth in Lee, Twin City has not waived the attorney-client privilege.

STANDARD OF REVIEW

¶ 10 Generally, a trial judge's ruling on a discovery-related issue will not be disturbed absent an abuse of discretion. Blazek, 177 Ariz. at 537,869 P.2d at 511. Similarly, in reviewing a trial judge's order within the context of a special action, ordinarily we must find the judge abused his discretion or exceeded his jurisdiction or legal authority before we may grant relief. Rule 3, Ariz. R.P.Spec.Act. We defer to the judge with respect to any factual findings explicitly or implicitly made, affirming them so long as they are supported by reasonable evidence. See Horton v. Mitchell, 200 Ariz. 523, 526 ¶ 13, 29 P.3d 870, 873 ¶ 13 (App.2001). But when a judge commits an "error of law ... in the process of reaching [a] discretionary conclusion," he may be regarded as having abused his discretion. Grant v. Arizona Pub. Serv. Co., 133 Ariz. 434, 456, 652 P.2d 507, 529 (1982); see also State v. Chapple, 135 Ariz. 281, 297 n. 18, 660 P.2d 1208, 1224 n. 18 (1983). Whether a privilege exists is largely a question of law, which we therefore review de novo. Blazek, 177 Ariz. at 537,869 P.2d at 511. Likewise, "[w]hether a party has waived the attorney-client privilege is a mixed question of law and fact which we review de novo." Home Indem. Co. v. Lane Powell Moss & Miller, 43 F.3d 1322, 1326 (9th Cir.1995). So, too, is the question whether the trial judge properly applied our decision in Lee and whether his implicit conclusion that Twin City waived its attorney-client privilege is correct. See Brink Elec. Constr. Co. v. Arizona Dep't of Revenue, 184 Ariz. 354, 358, 909 P.2d 421, 425 (App.1995).

DISCUSSION

¶ 11 The trial judge concluded the attorney-client privilege did not apply to the information General Star sought. But the motion to compel was aimed at forcing disclosure of communications between Twin City and its counsel about a matter for which Twin City sought legal advice. Clearly the privilege applies. See A.R.S. § 12-2234. Given the record and the judge's reference to Lee, the judge apparently believed that, in light of our holding in Lee, Twin City had waived the privilege. Because the record indicates there was no express waiver, the judge must have found an implied waiver, and we examine his ruling in that context. To determine the propriety of the judge's implicit finding that Twin City waived the attorney-client privilege, we must first review our decision in Lee.

¶ 12 Like the present case, Lee was a special action arising out of a bad faith claim. There, we established the standard for deciding whether the attorney-client "privilege has been waived in cases in which the mental state of a litigant is at issue." 199 Ariz. at 54 ¶ 1, 13 P.3d at 1171 ¶ 1. At issue in Lee was whether, given the state of the law at the time, State Farm acted in bad faith when it refused to pay policyholders' underinsured and uninsured motorist claims based on State Farm's interpretation of the "anti-stacking" provisions of its policies. In their class action against State Farm, the policyholders asserted there was no legal justification for State Farm's interpretation and resultant denial of their claims. The policyholders sought discovery of communications between State Farm and its counsel relating to State Farm's rejection of the claims. State Farm...