Lead Opinion
Opinion
The plaintiffs
The record reveals the following relevant facts and procedural history. Darcie C. Hutchinson (decedent), the plaintiffs’ twenty-one year old daughter, was killed on September 13, 1996, when a pickup truck driven by Robert A. Milefski, who was driving while under the influence of alcohol, collided with her car. Milefski had automobile liability insurance with a policy limit of $50,000. The decedent was an insured under an insurance policy issued by the defendant to the plaintiffs that provided for uninsured or underinsured motor vehicle coverage with a policy limit of $250,000 per person. In September and October, 1996, the plaintiffs and their attorney had a number of meetings and telephone conversations with the defendant’s district claims manager, Marlin J. Cook, concerning the defendant’s obligations under the policy. The plaintiffs allege that Cook stated that the defendant would pay the policy limit of the underinsured motorist policy as soon as Milefski’s insurer paid his policy limit of $50,000, and that the defendant would deduct only that $50,000 from its payment to the plaintiffs.
On October 21,1996, the plaintiffs brought a wrongful death action against Milefski. The plaintiffs allege that, in reliance on Cook’s representations that the defendant would not deduct from its payment to them the value of any assets recovered from Milefski, they rejected an offer by Milefski’s insurer to pay the policy limit in exchange for a release of all claims against Milefski and, instead, sought to recover his personal assets. Ultimately, the parties settled the suit for the policy limit of $50,000 and assets in the form of real property.
After the defendant failed to make payment, the plaintiffs brought an action in the Superior Court alleging breach of contract,
Throughout the legal proceedings against the defendant, the plaintiffs sought discovery of the defendant’s claims file relating to this matter. The defendant produced a redacted copy of the file, but refused to produce materials that it claimed were covered by the attorney-client privilege. The plaintiffs then brought this action for a bill of discovery seeking disclosure of the privileged materials. The trial court held a hearing on the matter on April 14 and May 19,2003, at which the parties made arguments but presented no evidence. The plaintiffs argued that relevant privileged materials are discoverable in an action in which an insured alleges bad faith against its insurer. The defendant countered that the central issue in the plaintiffs’ claim of bad faith was whether Cook had made the representations alleged by the plaintiffs, which ultimately was a credibility issue and had nothing to do with the defendant’s communications with its attorneys. It further argued that the privileged materials did not fall into any of the established exceptions to the attorney-client privilege. After conducting an in camera review of the claims file, the court determined that the privileged communications were “relevant in this bad faith action.” Accordingly, it concluded that “the [plaintiffs’] allegations of bad faith entitle them to have produced [the] defendant’s entire claims file including communications between [the] defendant and its attorneys” and granted the bill of discovery. This appeal followed.
On appeal, the defendant claims that the trial court’s determination that the materials were relevant to the plaintiffs’ claim of bad faith did not justify disclosure because the materials were subject to the attorney-client privilege and did not fall into any recognized exception to that privilege. The plaintiffs counter that the allegation of a claim of bad faith against an insurer for failure to pay a claim by its veiy nature requires the disclosure of privileged materials. Accordingly, they argue, the court did not abuse its discretion by ordering disclosure of the materials after it had determined, following an in camera review, that the privileged materials related to the alleged bad faith conduct. We conclude that the trial court improperly determined that the allegation of bad faith entitled the plaintiffs to an in camera review of the privileged materials and that its finding of relevance justified disclosure of the materials.
We begin by addressing the standard of review. Ordinarily, “[t]o sustain [a bill of discovery], the petitioner must demonstrate that what he seeks to discover is material and necessary for proof of, or is needed to aid in proof of or in defense of, another action already brought or about to be brought.” Berger v. Cuomo,
In Metropolitan Life Ins. Co. v. Aetna Casualty & Surety Co.,
We also recognized in Metropolitan Life Ins. Co. that the attorney-client privilege implicitly is waived when the holder of the privilege has placed the privileged communications in issue. Id., 52-53. “[B]ecause of the important public policy considerations that necessitated the creation of the attorney-client privilege [however], the ‘at issue,’ or implied waiver, exception is invoked only when the contents of the legal advice is integral to the outcome of the legal claims of the action. . . . Such is the case when a party specifically pleads reliance on an attorney’s advice as an element of a claim or defense, voluntarily testifies regarding portions of the attorney-client communication, or specifically places at issue, in some other manner, the attorney-client relationship. In those instances the party has waived the right to confidentiality by placing the content of the attorney’s advice directly at issue because the issue cannot be determined without an examination of that advice.” (Citation omitted.) Id.
In addition to the “at issue” exception to the attorney-client privilege, this court has recognized a crime-fraud exception to the privilege that extends to civil fraud. See Olson v. Accessory Controls & Equipment Corp., supra,
The defendant contends that the trial court improperly ordered disclosure of the privileged materials because it has not placed the materials “at issue” and the plaintiffs have not alleged civil fraud. A number of courts have concluded, however, that the civil fraud exception should be extended to claims of bad faith against insurers. See State v. Recht,
The plaintiffs argue, however, that the need for disclosure of privileged materials in cases in which an insured has made an allegation of bad faith is sufficient, in and of itself, to justify the disclosure of relevant privileged materials without any additional threshold evidentiary requirement. See Brown v. Superior Court,
Indeed, the facts of this case illustrate the lack of practical application for a need-based exception. The plaintiffs’ claim of bad faith requires the resolution of two threshold issues: (1) whether, as a matter of general insurance law, the defendant is contractually entitled to reduce its payments to the plaintiffs by the amount that the plaintiffs recovered from Milefski personally;
On the estoppel issue, the defendant does not deny that it would have been grossly improper to promise the plaintiffs that it would not reduce its payments by more than the $50,000 recovered from the tortfeasor’s insurer and then, after intentionally inducing them to expend time and effort in an attempt to recover damages from the tortfeasor personally, to renege on that promise. The defendant simply denies that Cook made any such promise or had any such intention. Once the arbitrators have made a determination on that factual issue, they will be fully capable of resolving the question of whether the defendant’s conduct was sufficiently egregious to constitute bad faith without having access to the privileged materials.
The plaintiffs also argue that, because an insurer owes a fiduciary duty to its insured, “the insurer may not use the attorney-client . . . privilege as a shield to prevent disclosure which is relevant to the insured’s bad faith action.” Zurich Ins. Co. v. State Farm Mutual Automobile Ins. Co., 137 App. Div. 2d 401, 402,
When the relationship between the insured and the insurer is adversarial at the inception of a claim, however, there is no such fiduciary relationship and the attorney-client privilege protects the insurer from disclosure of privileged materials created after the claim was made. Id., citing Kujawa v. Manhattan National Life Ins. Co.,
We conclude that, in the present case, as in Kujawa, the relationship between the plaintiffs and the defendant was adversarial at the time that the claim was made. The defendant did not undertake any actions on behalf of the plaintiffs and they had no interests in common.
The judgment is reversed and the case is remanded with direction to render judgment denying the action for a bill of discovery.
In this opinion BORDEN and KATZ, Js., concurred.
Notes
The plaintiffs are Marie J. Hutchinson, individually and as administratrix of the estate of Darcie C. Hutchinson, and Carl Hutchinson.
The plaintiffs represented to the trial court that this property ultimately was sold and that the net proceeds were approximately $117,000.
The court in Admiral Ins. Co. stated that “ [t]he attorney-client privilege, like all other evidentiary privileges, may obstruct a party’s access to the truth. Although it may be inequitable that information contained in privileged materials is available to only one side in a dispute, a determination that communications or materials are privileged is simply a choice to protect the communication and relationship against claims of competing interests. Any inequity in terms of access to information is the price the system pays to maintain the integrity of the privilege. An unavailability exception is, therefore, inconsistent with the nature and purpose of the privilege.
“This conclusion is bolstered by the effect such an exception would necessarily have on the attorney-client privilege. An unavailability exception to the privilege would force counsel to warn their clients against communicating sensitive information for fear of subsequent forced disclosure. . . . [I]n terms of access to information, the operation of the attorney-client privilege puts the adversary in no worse position than if the communications had never taken place.” (Emphasis added; internal quotation marks omitted.) Admiral Ins. Co. v. United States District Court for the District of Arizona, supra,
In Buckman v. People Express, Inc.,
The dissent points out that the court in Brown also considered the discoverability of “the mental impressions of the insurer’s attorneys, which are usually absolutely privileged from disclosure.” See Brown v. Superior Court, supra,
In their brief to this court, the plaintiffs did not contest the defendant’s claim that, as a matter of general insurance law, the defendant is entitled to take a reduction for amounts recovered from a tortfeasor. Rather, the plaintiffs focused exclusively on their claim that the defendant had promised not to take such a reduction. We assume for the purposes of our analysis, however, that the plaintiffs have not conceded this issue.
The defendant relies on Lumbermens Mutual Casualty Co. v. Huntley,
The plaintiffs argue that insurance companies should not “be able to seek opinions until they receive one that they like and then prohibit disclosure of their bad faith actions through the fiction of not putting the rejected advice ‘at issue.’ ” We see nothing improper per se, however, about seeking multiple opinions on a legal question. The issue is not how many attorneys an insurer has consulted, but whether the legal position ultimately taken by the insurer is objectively reasonable. The trial court, or, in the present case, arbitrators who are experts in insurance law, will be fully capable of making that determination without knowing what took place between the insurer and its attorneys.
Indeed, it is difficult to imagine how the communications between the defendant and its attorneys could shed any light on this question. It hardly seems likely that the defendant would seek a legal opinion as to whether Cook could misrepresent the defendant’s intentions to the plaintiffs in order to induce them to seek recovery from the tortfeasor.
The dissent argues that we have “ignore[d] [the] fact” that proof of the plaintiffs’ claim “seems to lie in the privileged materials . . . .” We have not “ignored” that purported fact, however. Rather, we have concluded that: (1) it is unlikely that the claims file will disclose materials relevant, much less necessary, to the resolution of the plaintiffs’ estoppel claim; and (2) even if we believed otherwise, need does not abrogate the attorney-client privilege. Moreover, the dissent relies on the "trial court’s determination of . . . necessity.” We are unable to locate any such determination in the record.
The appellant in Zurich Ins. Co., an excess insurer, sought to recover damages from the primary insurer. The court concluded that “the primary carrier owes the same fiduciary obligation to the excess insurer which the primary insurer owes to its insured.” Zurich Ins. Co. v. State Farm, Mutual Automobile Ins. Co., supra, 137 App. Div. 2d 402.
The defendant did, of course, undertake contractual obligations to the plaintiffs when it issued the uninsured motorist policy. We previously have recognized, however, that “[t]he fact that one . . . person trusts another [entity] and relies on [the entity] to perform [its obligations] does not rise to the level of a confidential relationship for purposes of establishing a fiduciary duty.” (Internal quotation marks omitted.) Hi-Ho Tower, Inc. v. Com-Tronics, Inc.,
We recognize, as the dissent argues, that an insurer may have heightened responsibilities to its insured in light of its position of greater power. The dissent has cited no authority, however, for the proposition that the special relationship between an insurer and its insured somehow abrogates the attorney-client privilege even in cases where the relationship between the insurer and the insured is adversarial and the insurer has not communicated with its attorneys for an illegal purpose.
Counsel for the plaintiffs represented to the trial court at the April 14, 2003 hearing that the defendant “went shopping for lawyers, because oddly enough when the first lawyer told [it] one thing, [it] went to a different lawyer to see if [it could] get a different answer from somebody else. Then [it went] to a third lawyer to see if [it could] get an answer [it] wanted to hear.” Counsel did not state the basis for this belief, however, nor did he indicate the basis for his belief that the advice that the defendant allegedly received from the first attorney that it consulted was sound.
We have also concluded that, although such evidence might be relevant, it is not critical because, if the arbitrators were to determine that no reasonable person could take the defendant’s legal position, then they could reasonably infer that the defendant had acted in bad faith on that basis alone.
Dissenting Opinion
joins, dissenting. I disagree with the majority’s conclusion that the plaintiff insureds should not have obtained a bill of discovery from the trial court because they failed to meet the prongs of the civil fraud exception. Because I conclude that the precautions employed by the trial court in the present case were sufficient to safeguard the attorney-client privilege, but also to allow the plaintiffs to make a claim of bad faith against the defendant insurer that otherwise would be foreclosed to them, I respectfully dissent.
The issue of whether we should recognize an exception to the attorney-client privilege for claims of bad faith against first party insurers, under the limited circumstances of the present case, wherein there was both an in camera review of the disputed documents and a finding of necessity and relevancy, is one of first impression for this court. The majority correctly notes that the attorney-client privilege “was created to encourage full and frank communication between attorneys and their clients ... [so that] [e]xceptions . . . should be made only when the reason for disclosure outweighs the potential chilling of essential communications.” (Citation omitted; internal quotation marks omitted.) Metropolitan Life Ins. Co. v. Aetna Casualty & Surety Co.,
As the majority points out, this court previously has held in Metropolitan Life Ins. Co. v. Aetna Casualty & Surety Co., supra,
The majority states that a fiduciary relationship did not exist between the parties in the present case because, as a result of the inherent nature of uninsured and underinsured motor vehicle coverage, their relationship was adversarial from the inception of the claim. It concludes, therefore, that the plaintiffs were not entitied to the privileged materials as they would have been had their interests not been adverse. For this conclusion, the majority relies on Kujawa v. Manhattan National Life Ins. Co.,
American jurisprudence, however, has long recognized that “an insurer and its insured have a ‘special relationship’ Vu v. Prudential Property & Casualty Ins. Co.,
Moreover, although the majority fails to mention them, there are many jurisdictions outside of Florida that recognize a fiduciary-like duty of insurers to insureds even in the context of adversarial first party relationships. See Manhattan Fire Ins. Co. v. Weill & Ullman,
This principle is consistent with the advertising of the insurance industry itself, which assures customers that they are “in good hands or dealing with a good neighbor.” (Internal quotation marks omitted.) White v. Unigard Mutual Ins. Co., supra,
Additionally, the states of Ohio and Arizona similarly have recognized exceptions to the attorney-client privilege and the privilege accorded to attorneys’ mental impressions, respectively, for claims of bad faith against insurers. In Boone v. Vanliner Ins. Co.,
I am simply not persuaded that such a limited exception to the privilege will have a chilling effect on attorney-client communications. An in camera review of the otherwise privileged communications provides an independent review of the disputed materials and ensures that they are relevant to the claim of bad faith in particular. This is consistent with the standard applied by this court to bills of discovery. In order for a trial court to grant a bill of discovery, “[a] plaintiff must be able to demonstrate good faith as well as probable cause that the information sought is both material and necessary to his action.” Berger v. Cuomo,
I, therefore, conclude that the three part analysis that the trial court employed in the present case provides a sensible limited exception to the attorney-client privilege. On the one hand, it recognizes the overwhelming need for claims information in the context of claims of bad faith by insureds against their first party insurers, as well as the fiduciary-like nature of the relationship between them. On the other, it limits this greater availability of otherwise privileged communications to those specifically necessary and relevant to the claim of bad faith by means of an in camera review. This is the same benchmark already utilized in decisions regarding bills of discovery. Accordingly, it is very narrow and, at the same time, consistent with the principles of fairness and justice underlying the quasi-fiduciary nature of insurance contracts and the attorney-client privilege itself.
I conclude that the trial court did not abuse its discretion by ordering disclosure of the privileged communications in this matter. I would therefore affirm the trial court’s judgment. Accordingly, I respectfully dissent.
The majority reasons that a new, albeit limited, exception to the attorney-client, privilege is unnecessary because either: (1) insurers will waive the privilege by asserting a routine handling defense, which puts the privileged materials at issue; or (2) a fact finder will determine that an insurer had no reasonable basis to act as it did in a particular situation. This, however, does not resolve the issue in the present case because although the defendant concedes that misleading insureds about coverage is grossly improper, there is a fundamental factual dispute over whether that was in fact done, proof of which seems to lie in the privileged materials, according to the trial court’s determination of relevancy and necessity. The majority ignores this fact and places upon the insured the often impossible burden of proving probable cause to suspect bad faith from facts already obtained. I question whether, without access to the claim file, insureds realistically will be able to provide evidence that the insurer sought legal advice “in order to conceal or facilitate its bad faith conduct,” as the majority requires.
I note that Metropolitan Life Ins. Co. did not concern a claim of bad faith; therefore, it is not controlling on the issue of whether we should recognize a new exception in the present case other than to warn against doing it on the basis of need alone.
The majority states that the information sought in Brown v. Superior Court, supra,