Lead Opinion
In this intеrlocutory 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 thе 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.
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 subro-gation 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 subro-gation 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 indiсated 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 thе production of documents. West Bend objected to some of the admissions and the production requests. It provided answers to some of
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 Sizеr 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,
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 оn this interlocutory appeal are limited to the grounds urged by the parties.
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,
V. Joint-Client Exception.
Only a 'few exceptions have been carved from the attorney-client privilege. See Hickman v. Taylor,
We recognize' this exception extends to situations where the same attorney represents two рarties, separately interested in a matter of common interest. City of Coralville,
■ On two prior occasions, we have permitted discovery of communications between an attorney and a client under the joint-client exception. In Henke, we held that communications between an automobile liability insurer and an attorney employed by the insurer to defend the insured in litigation resulting from an automobile accident were not privileged in a subsequent action by the insured against the insurer for bad faith and negligence in failing to settle the underlying litigation within the policy limits.
When an attorney enters an appearance in court on behalf of another, we presume an attorney-client relationship exists between the attorney and the person on whose behalf the attorney enters the appearance. See Henke,
A party may rebut the presumption of an attorney-client relationship by evidence that the client did not assent to the filing of the action. See Henke,
In a letter dated March 7, 2001, Brandon’s counsel informed West Bend that neither Brandon nor her counsel intended to рursue a claim against the tortfeasor and authorized West Bend to bring the action against the tortfeasor to protect its subrogation rights. West Bend and Thill knew under Illinois law that such an action had to be . brought in Brandon’s name. Instead of hiring other counsel, which would have preserved West Bend’s attorney-client privilege, West Bend hired Thill to file the subrogation action in Brandon’s name. On May 9, 2001, Thill informed Brandon’s attorney that West Bend- filed an action in Illinois naming Brandon as the plaintiff.
Not only did Brandon assent to the representation by Thill in her attorney’s letter of March 7, 2001, Brandon’s insurance policy contractually required Brandon to assent to the representation. Part F of the insurance policy issued by West Bend, to Brandon provided:.
Our right to recover payment
A. If we make a payment under this coverage form and the person to or for whom payment was made has a right to recover damages from another we shall be subrogated to that right. That person shall do:
*641 1. whatever is necessary to enable us to exercise our right.
The facts of the present case are not much different from the facts in City of Coralville,
In the present case, Brandon’s attorney acknowledged West Bend’s subrogation rights and authorized West Bend to pursue those rights. The insurance policy contractually obligated Brandon to assent to the representation. Thill undertook that representation by filing an action naming Brandon as plaintiff. These facts will not allow West Bend to rebut the attorney-client relationship presumed by Thill’s act of filing the subrogation claim in Brandon’s name.
It is equally clear from the record that Brandon and West Bend did maintain a “common interest” in the Illinois action. In Henke, we- noted a common interest exists where two or more parties consulted an attorney for the mutual benefit of the parties.
Iowa Code section 516A.4 gives West Bend the right of reimbursement from or subrogation to Brandon’s recovery from the underinsured tortfeasor. Iowa Code § 516A.4 (2001). The right of reimbursement is limited by the goal of under-insurance, which is to fully compensate the insured for his or her damages. McClure v. Northland Ins. Cos.,
At the time Thill filed the Illinois action, Brandon was entitled to receive Schultz’s $20,000 in addition to the $5000 medical payment she previously received from West Bend because she had not yet been fully compensated for her damages. If at a later time it is determined that Brandon’s damages exceed $325,000, Brandon would be entitled to the underinsured motorist limits ($300,000), the $5000 medical payment, and the $20,000 proceeds from the Illinois lawsuit under the full recovery rule. On the other hand, if at a later time
At the time Thill filed suit in Illinois, West Bend took the position Brandon’s damages were less than West Bend’s underinsured limits; therefore, it claimed it was entitled to any settlement proceeds recovered in the Illinois action. At that point in the controversy, Brandon claimed her damages exceeded West Bend’s UIM limits. West Bend’s argument overlooks that if it is ultimately determined Brandon’s damages exceeded $325,000, West Bend would not be entitled to any of the Illinois settlement proceeds. Until Brandon’s damages are finally determined in the UIM action, West Bend’s right of rеimbursement remains unknown. Because West Bend’s right of reimbursement was unknown at the time Thill filed the Illinois action, Thill’s representation of Brandon in the Illinois action was for the mutual benefit of Brandon and West Bend, who had a common interest in a recovery against Schultz. Therefore, communications with Thill during the period of joint representation are subject to the joint-client exception to the attorney-client privilege and the work product doctrine.
VI. Waiver.
Brandon claims West Bend waived the attorney-client privilege because Sizer verified the answers to the interrogatories and because Sizer and Schocker provided the information for the answers to the interrogatories. “[T]he attorney-client рrivilege may be waived.” Squealer Feeds,
We reject the notion that a person waives a privilege by verifying the accuracy of answers to interrogatories or by participating in framing the answers. See Travelers Ins. Cos. v. Superior Ct.,
Brandon has not identified any answers to the interrogatories that would constitute attorney-client communications so as to justify further discovery. We find nothing in the answers to interrogatories to support waiver of the attorney-client privilege. Therefore, Brandon’s inquiry at the depo
VII. Scope of Allowable Discovery.
The waiver of the attorney-client privilege under the joint-client exception applies only to the' period when the attorney is representing both parties. Coralville,
VIII. Conclusion.
The district court did not abuse its discretion in ordering the depositions to take place. However, the district court did abuse its discretion by not limiting the inquiry by Brandon to (1) communications between Thill and Schocker during the period of joint representation; and (2) communications between Thill and Sizer during the period of joint representation. We remand the case for further proceedings consistent with this opinion.
AFFIRMED AS MODIFIED AND CASE REMANDED.
Notes
. The positions taken by the parties narrow our consideration of the discovery dispute. We do not consider whether any nonprivi-leged information known by the in-house counsel or the claims adjuster would be discoverable upon a showing of substantial need and inability to obtain the information by other means under Iowa Rule of Civil Procedure 1.503(3), or by any other theory. Additionally, we do not address the procedure employed by West Bend to raise the issue presented in this interlocutory appeal since it
. Under the terms of West Bend's policy, if it is determined that West Bend does in fact have a right of reimbursement, West Bend would reduce the amount it was required to pay Brandon under the UIM coverage in an amount equal to the reimbursement Brandon owed to West Bend.
Dissenting Opinion
(dissenting).
I respectfully dissent. The legal 'theories that should control the resolution of the critical and delicate issue presented in this case are absent from the analysis adopted by the majority. Consequently, many dangerous traps are set by the majority opinion that will snare unsuspecting attorneys and clients — as done in this case — and unnecessarily erode one of thе most noble and venerable principles of our legal system.
The attorney-client privilege is -recognized as one of the pillars of our system of justice. Over the centuries, only a few carefully crafted exceptions have surfaced. See Hickman,
One exception, now widely recognized, exists when two or more persons jointly consult with the same attorney to act for them in a matter of common interest. See City of Coralville,
It is clear the joint client exception is sensitive to the rights and interests of all of the parties in the mix, including the other client who has his or her privilege invaded by the exception. For this reason, the exception only applies when a clear justification exists, and when all clients should understand that disclosure would occur because of the multi-party relationship. Disclosure is based primarily on the rights of clients who have entered into an attorney-client relationship.
On the two prior occasions we havе permitted discovery of communications between an attorney and a client under the joint client exception, we have followed an analysis that considers all the surrounding circumstances to determine the existence of the essential relationship between an attorney and a client. In Henke, the attorney hired by the insurer actually defended the insured in litigation that included a trial.
The important point in Henke and City of Coralville is that an attorney-client relationship is not built on appearances, but substance. It is built on what an attorney-client relationship is and has always been, a close relationship of trust and confidence as shown by the circumstances. See Henke,
The majority acknowledges that an attorney-client relationship requires the at
First, Brandon clearly acknowledged that West Bend sought to pursue a subro-gation claim. A subrogation claim, in the context of insurance law, is a claim by the insurer against the tortfeasor responsible for the loss to the insured. Allied Mut. Ins. Co. v. Heiken,
The same is true with the majority’s claim that the cooperation clause of the insurance policy required Brandоn to assent to the representation. I think insurance defense attorneys in this state will be shocked to learn that the contractual duty of an insured to cooperate with the insurer when the insurer pursues its subrogation rights means the insured agrees to enter into an attorney-client relationship with the insurer’s attorney. None of these events establishes assent to an attorney-client relationship.
Second, Thill never undertook to represent Brandon by pursuing West Bend’s subrogation claim against the tortfeasor in the name of the insured. Under Illinois law, a subrogation claim based on an insurance policy may be brought in the name of the insured if the insured has at least a de minimis interest in the lawsuit. Orejel v. York Int’l Corp.,
It is abundantly clear that the facts of the case show Thill never undertook to represent Brandon. Brandon never agreed to have Thill • represent her and there were no other indicia of an attorney-client relationship. Brandon and Thill never communicated with each other personally and Brandon was at all relevant times represented by another attorney, who eschewed any thought of having Brandon pursue a claim against the tortfeasor. Moreover, neither Brandon nor Thill maintained a subjective belief that an attorney-client relationship had been established. See 1 Rice § 4:31, at 159-60 (listing relevant factors to determine the existence of an attorney-client relationship in the joint client context). Only when Brandon later sought discovery from West Bend did she claim the existence. of an attorney-client relationship with West Bend’s attorney. Until that time, the existence of an attorney-client relationship between Thill and Brandon was never contemplated or imagined.
The majority looks beyond the reality of the circumstances of this case and transforms the joint client exception from a fact-based analysis of a relationship into a blunt inquiry into the existence оf a legal interest a person may have in a lawsuit brought by an attorney on behalf of another. It declares the existence of an attorney-client relationship based on the manner in which the lawsuit was brought and the nature of the lawsuit itself. It relies on what could have been, not on what actually occurred. This is a grand departure from our prior cases, as well as the approach followed in other jurisdictions. See Henke,
The majority has also twisted the presumption we established in Henke relating to the filing of an appearance by an attorney, and utilizes this new presumption to bypass any serious consideration of the facts of the case that clearly dispel any notion of an attorney-client relationship between Thill and Brandon. In Henke, we said an attorney-client relationship is presumed to exist when a person knowingly assents to the appearance in court of an attorney on his or her behalf- Henke,
This case is not about filing an appearance on behalf of Brandon. It is about an attorney filing a subrogation claim against the responsible tortfeasor on behalf of an insurance company, using the insured’s name as the plaintiff as authorized by law. It is not about the creation of an attorney-client relationship. An attorney-cliеnt relationship is not artificial and detached, but is derived from conduct and intention signifying a relationship of trust, confidence, and devoted service. It requires an attorney to understand the representation has been undertaken, and for the client to accept receipt of services. See id. at 617-18,
. I acknowledge that an attorney-client relationship between the insurer’s attorney and the insured could develop in a subrogation action. However, it would develop based upon the facts of the relationship and the extent of the actual claim asserted, not the mere existence of a subrogation claim naming the insured as the plaintiff.
Concurrence Opinion
(concurring specially).
This is a discovery dispute involving Iowa Rule of Civil Procedure 1.503(3). I concur with the majority’s conclusion that Beverly Brandon’s request for discovery should have been allowed but not for the reasons set forth in the opinion of the court. I agree with Justice Cady that Betty, Neuman & McMann, L.L.P. had no reason to believe that that firm or any member thereof had an attorney-client relationship with Beverly Brandon with regard to their pursuit of the subrogation action. Her lack of interest in that action had been expressly confirmed by another attorney who was representing her interests.
I am satisfied, however, that the protection against discovery of work product contained in rule 1.503(3) should not be applied in the present case where the actions of the parties in creating the work product are among the issues in the litigation.