No. 31115 - State of West Virginia ex rel. Nationwide Mutual Insurance Company and Ash Cowder, Jr. v. The Honorable Tod J. Kaufman, Judge of the Circuit Court of Kanawha County, and Deborah Falls, Administratrix of the Estate of Cledith Lee Falls
Davis, J., concurring:
In this case, the majority has concluded that, in a first-party bad faith action
against an insurer, the attorney-client privilege and work product rule attach to documents
contained in an insured claim file and litigation file. I concur in the decision reached by the
majority opinion. I have chosen to write separately to address a distinction that courts have
made involving first-party bad faith cases against insurers, and the implications of that
distinction to the majority's holding in this case.
“There are different types of first-party bad faith actions.” Palmer by Diacon
v. Farmers Ins. Exch., 861 P.2d 895, 905 (Mont. 1993). That is, a first-party bad faith action
against an insurer may arise in two contexts. First, the first-party bad faith action may arise
when an insurer fails to use good faith in resolving a “loss claim” filed by the insured. The
second type of first-party bad faith action may arise as a result of the insurer's failure to use
good faith in settling a lawsuit by a third-party the insured harmed, resulting in an “excess
judgment” against the insured.
(See footnote 1)
(1) Loss claim. “Generally, insurer and insured are in an adversary relationship
whenever there is any claim by an insured for loss under any insurance policy.” State ex rel.
Safeco Nat'l. Ins. Co. of America v. Rauch, 849 S.W.2d 632, 635 (Mo. App. 1993) (citation
omitted). In this situation, an insured files a claim for a loss he or she sustained and the insurer
either denies coverage, unjustifiably delays payment, or offers an amount the insured deems
insufficient to cover the loss. Whichever response an insurer makes places the parties in an
adversarial relationship. See Palmer v. Farmers Ins. Exch., 861 P.2d 895, 905 (Mont. 1993)
(“In this type of action, the claimant and the insurer are in adverse positions from the outset
of the underlying case.”). See also Squealer Feeds v. Pickering, 530 N.W.2d 678, 684 (Iowa
1995) (same).
As a result of the adversarial posture of a loss claim, most courts permit an
insurer to assert the attorney-client privilege and apply the work product rule to documents
contained in an insured's claim file and any litigation file that the insurer may have generated.
(See footnote 2)
See United Servs. Auto. Ass'n v. Werley, 526 P.2d 28 (Alaska 1974) (claim for a loss to
which attorney-client privilege applies); Brown v. Superior Court, 670 P.2d 725 (Ariz. 1983)
(claim for a loss to which work product rule applies); State Farm Fire & Cas. Co. v. Superior
Court, 265 Cal. Rptr. 372 (Cal. Ct. App. 1989) (claim for a loss to which attorney-client
privilege applies); Clausen v. National Grange Mut. Ins. Co., 730 A.2d 133 (Del. Super. Ct.
1997) (claim for a loss to which attorney-client privilege and work product rule apply);
Kujawa v. Manhattan Nat'l. Life Ins. Co., 541 So. 2d 1168 (Fla. 1989) (claim for a loss to
which attorney-client privilege and work product immunity apply); Hartford Fin. Servs.
Group, Inc. v. Lake County Park & Recreation Bd., 717 N.E.2d 1232 (Ind. Ct. App. 1999)
(claim for a loss to which attorney-client privilege applies); State ex rel. Safeco Nat'l. Ins. Co.
of America v. Rauch, 849 S.W.2d 632 (Mo. Ct. App. 1993) (claim for a loss to which
attorney-client privilege and work product rule apply); Palmer v. Farmers Ins. Exch., 861 P.2d
895 (Mont. 1993) (claim for a loss to which attorney-client privilege and work product
immunity apply); Hamdan v. New York Prop. Ins. Underwriting Ass'n, 456 N.Y.S.2d 305
(1982) (claim for a loss to which work product rule applied to certain interrogatories); Evans
v. United Servs. Auto. Ass'n, 541 S.E.2d 782 (N.C. Ct. App. 2001) (claim for a loss to which
attorney-client privilege and work product immunity apply); Boone v. Vanliner Ins. Co., 744
N.E.2d 154 (Ohio 2001) (claim for a loss to which attorney-client privilege applies); Sims v.
Travelers Ins. Co., 16 P.3d 468 (Okl. Civ. App. 2000) (claim for a loss to which
attorney-client privilege applies); In re Texas Farmers Ins. Exch., 990 S.W.2d 337 (Tex. App.
1999); (claim for a loss to which attorney-client privilege and work product immunity apply);
State ex rel. Dudek v. Circuit Court for Milwaukee County, 150 N.W.2d 387 (Wis. 1967)
(claim for a loss to which attorney-client privilege and work product rule apply).
(See footnote 3)
(2) Excess judgment. When an insured is sued for injury or harm by a third-
party, and an insurance company provides the insured with legal representation, courts have
held that the “the insurer initially employs the attorney to represent the interests of both the
insured and the insurer.” Jessen v. O'Daniel, 210 F. Supp. 317, 331- 32 (D. Mont. 1962).
See Longo v. American Policyholders' Ins. Co., 436 A.2d 577, 580 (N.J. Super. Ct.
Law Div. 1981) (“The attorney represented both the insurer and the insured. Counsel owed the
insured the same unqualified loyalty as he would had he been personally retained.”).
(See footnote 4)
In this
situation “an insured and his or her insurer share a common interest, that is, to limit liability
in a tort action to within the policy limits.” Flores v. Barretto, 54 P.3d 441, 451 (Haw. 2002)
(Moon, C.J., dissenting). However, it has been observed that “[f]irst-party bad faith cases
involving dual representation often arise after a third-party claimant obtains a judgment in
excess of policy limits and the insured later sues the insurance company for failure to settle
within policy limits.” Palmer v. Farmers Ins. Exch., 861 P.2d 895, 905 (Mont. 1993).
In first-party bad faith litigation arising out of a judgment against an insured in
excess of policy limits, most courts do not permit the attorney-client privilege or work
product rule to be used to prevent an insured from having access to his/her claim file and the
litigation file in the underlying action. See Fortune Ins. Co. v. Greene, 775 So. 2d 338
(Fla. Dist. Ct App. 2000) (attorney-client privilege and work product immunity do not apply);
Henke v. Iowa Home Mut. Cas. Co., 87 N.W.2d 920 (Iowa 1958) (attorney-client privilege
and work product rule do not apply); Hodges v. Southern Farm Bureau Cas. Ins. Co., 433
So.2d 125 (La. 1983) (work product rule does not apply); Dumas v. State Farm Mut. Auto.
Ins. Co., 274 A.2d 781 (N.H. 1971) (attorney-client privilege does not apply); Longo v.
American Policyholders' Ins. Co., 436 A.2d 577 (N.J. Super. Ct. Law Div. 1981) (attorney-
client privilege does not apply ); Colbert v. Home Indem. Co., 259 N.Y.S.2d 36 (1965) (work
product immunity does not apply); Schoffstall v. Nationwide Ins. Co., 38 Pa. D. & C. 4th 457,
1998 WL 1108681 (Pa. Ct. Com. Pl. 1998) (attorney-client privilege and work product rule
do not apply). See also Silva v. Fire Ins. Exch., 112 F.R.D. 699 (D. Mont. 1986)
(attorney-client privilege and work product immunity do not apply); LaRocca v. State Farm
Mut. Auto. Ins. Co., 47 F.R.D. 278 (W.D. Pa. 1969) (attorney-client privilege does not apply);
Chitty v. State Farm Mut. Auto. Ins. Co., 36 F.R.D. 37 (E.D. S.C. 1964) (attorney-client
privilege and work product rule do not apply).
The common interest doctrine is usually cited as the reason for not allowing the
attorney-client privilege and work product rule to apply in first-party bad faith litigation arising
from a prior mutual interest litigation. “[U]nder the common interest doctrine, when an
attorney acts for two different parties who each have a common interest, communications by
either party to the attorney are not necessarily privileged in a subsequent controversy between
the two parties.” Waste Mgmt., Inc. v. International Surplus Lines Ins. Co., 579 N.E.2d 322,
328 (Ill. 1991). See Henke v. Iowa Home Mut. Cas. Co., 87 N.W.2d 920, 923 (Iowa 1958)
(“[W]hen 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.”). “The common interest
doctrine has been recognized in the insured/insurer context when counsel has been retained
or paid for by the insurer, and allows either party to obtain attorney-client communications
related to the underlying facts giving rise to the claim, because the interests of the insured and
insurer in defeating the third-party claim against the insured are so close that 'no reasonable
expectations of confidentiality' is said to exist.” North River Ins. Co. v. Philadelphia
Reinsurance Corp., 797 F. Supp. 363, 366 (D.N.J. 1992) (citation omitted).
(3) The limitation of the majority's holding. The majority opinion
appropriately noted that this case “was a first-party bad faith . . . action wherein the interests
of the [insured] and the [insurer] were in conflict.” In other words, the first-party bad faith
action in this case came under the “loss claim” category of first-party bad faith actions, not the
“excess judgment” category.
(See footnote 5)
The majority's decision to extend the attorney-client privilege
and work product rule to the facts of this case was consistent with the rule followed by most
courts.
The majority decision did not discuss the “excess judgment” category of first-
party bad faith actions. Because of the critical distinction between a first-party bad faith “loss
claim” action and a first-party bad faith “excess judgment” action, I do not believe the majority
opinion should be interpreted as applying to an “excess judgment” action.
In view of the foregoing, I concur.