Title: Henry Enterprises, Inc. v. Smith

State: kansas

Issuer: Kansas Supreme Court

Document:

225 Kan. 615 (1979)
592 P.2d 915
HENRY ENTERPRISES, INC., Petitioner,
v.
HON. LEWIS C. SMITH, Administrative Judge, Div. 6, Tenth Judicial District Court of Kansas, DENTCO SUPPLY AND MANAGEMENT COMPANY, INC., BROOKRIDGE GOLF AND COUNTRY CLUB, INC., and DAN HARLESS, Respondents.
No. 50,791

Supreme Court of Kansas.
Opinion filed March 31, 1979.
David K. Fromme, of Weeks, Thomas, Lysaught, Bingham & Mustain, Chartered, of Overland Park, argued the cause and was on the brief for the petitioner.
Michael G. Norris, of Payne & Jones, Chartered, of Olathe, argued the cause and was on the brief for the respondent, Dentco Supply and Management Company, Inc.; Barton Brown, of Wallace, Saunders, Austin, Brown & Enochs, of Overland Park, argued the cause and was on the brief for the respondent, Brookridge Golf and Country Club, Inc.
The opinion of the court was delivered by
MILLER, J.:
Are statements of witnesses, taken routinely by adjusters or investigators for insurance carriers upon receipt of claims or knowledge of potential claims under the policy, discoverable under K.S.A. 60-226(b)(1), or are such statements "prepared in anticipation of litigation or for trial" and thus discoverable only upon a showing of "substantial need" or "undue hardship" under K.S.A. 60-226(b)(3)? That is the issue before us in this mandamus action. The factual background and the history of this litigation are necessary to an understanding of the problem.
Brookridge Golf and Country Club, Inc., entered into a contract with Dentco Supply and Management Company, Inc., on August 16, 1977, for extensive repairs to the clubhouse roof. Dentco allegedly subcontracted the work to Henry Enterprises, Inc., and Dan Harless.
Ultimately, some work was done on the roof pursuant to the *616 contract. A dispute arose as to whether the work was completed and whether it was done properly. At this stage of the affairs, Allstate Insurance Co., Inc., an insuror of Henry Enterprises, Inc., heard that Brookridge was claiming damage arising from roofing repair work in which its insured was said to be involved. An adjuster for Allstate took a written statement from Glen Henry, principal officer and owner of Henry Enterprises, Inc., on February 2, 1978.
Dentco commenced action against Brookridge on February 10, 1978, to collect $17,762.50, which Dentco claimed was due it under the roofing repair contract. Brookridge answered, set up numerous defenses, and by counterclaim alleging negligence, breach of contract, fraud, and misrepresentation, sought substantial damages. Dan Harless and Henry Enterprises were joined as third-party defendants on August 25, 1978, by Dentco, which seeks indemnification and judgment over against Harless and Henry for any judgment Brookridge may recover against Dentco.
Dentco next requested the third-party defendant, Henry Enterprises, Inc., to produce and make available for inspection the statement of Glen Henry taken by the Allstate adjuster on February 2. Henry refused the request, and Dentco filed a motion to compel under K.S.A. 60-237(a)(2).
A hearing on the motion was held before the Honorable Lewis C. Smith at Olathe on January 19, 1979, all parties appearing by counsel. Mr. David K. Fromme, appearing on behalf of Henry Enterprises, Inc., opposed the motion. He stated:
....
The trial court ruled as follows:
*617 "THE COURT: It is a good scrap....
A written order to produce the statement was filed.
Henry Enterprises then filed this action, seeking a peremptory writ of mandamus directing Judge Smith to set aside his order to produce and to overrule the motion to compel. Attached to the petition for mandamus is an affidavit of Rollie Sheldon, an Allstate employee who has personal knowledge of the facts leading up to and including the taking of the Henry statement. Mr. Sheldon says:
The matter was argued by counsel and briefs were submitted. On February 6, 1979, we denied the request for a writ of mandamus by an order then entered, and we stated that a formal opinion would follow.
The 1970 amendments to the federal discovery rules may be traced directly to the case of Hickman v. Taylor, 329 U.S. 495, 91 L. Ed. 451, 67 S. Ct. 385 (1947) and the later cases which struggled with similar problems. Hickman dealt with the extent to which an opposing party might inquire into oral and written statements of witnesses which were secured by an adverse party's counsel in the course of preparation for possible litigation after a claim has arisen. The lawyer who took the statements in issue in Hickman was a member of a law firm which had been retained "to defend ... against potential suits ... and to sue the *618 railroad for damages ..." Hickman did not deal with materials prepared in the usual course of business by non-lawyer employees; it dealt only with statements taken by a lawyer retained in a specific matter. Concisely stated, the decision held that statements taken and other information secured by a lawyer in the preparation of a case are not subject to discovery by opposing parties, absent any showing of necessity or that denial of production would prejudice the preparation of the opponent's case or cause hardship or injustice.
Original Rule 34 of the Federal Rules of Civil Procedure and K.S.A. 60-234, its Kansas counterpart, required a showing of good cause by a party who sought discovery of any documents. The good cause requirement was indeed a gray area. Good cause was interpreted in some instances to mean simply that the document was relevant, and in others to mean that the party seeking the discovery could not obtain the information by other means. The 1970 amendments to the Federal Rules of Civil Procedure rearranged the order of Rules 26-37, inclusive, pertaining to discovery, and attempted to eliminate the troublesome areas. The good cause requirement of Rule 34 was eliminated. The changes in the federal rules were incorporated into the Kansas rules of civil procedure as of January 1, 1973. K.S.A. 60-226(b)(1), paralleling Rule 26 (b) (1), F.R. Civ. P., makes ordinary documents routinely discoverable. K.S.A. 60-226(b)(1) and (3) form the basis upon which the dispute before us is premised. These provide in applicable part as follows:
....
*619 Commenting on the changes in K.S.A. 60-226, Judge Gard, in his Kansas Code of Civil Procedure, 1977 Supp., says:
....
....
....
8 Wright & Miller, Federal Practice and Procedure: Civil, comments on the 1970 change in Federal Rule 26 as follows:
....
This latter part of the quoted material (as to statements obtained by investigators for the insurer) is not supported by any post-1970 case cited in Wright & Miller; to the contrary, all take an opposite view, at least as to documents originating before action is commenced. See 8 Wright & Miller, Federal Practice and Procedure: Civil, § 2024 (1978 pocket part) p. 62, n. 43. One of the cases there cited is particularly well reasoned and persuasive, though it deals with reports rather than statements of witnesses.
Thomas Organ Co. v. Jadranska Slobodna Plovidba, 54 F.R.D. 367 (N.D. Ill. 1972) involved a request for discovery of reports made by a marine surveyor hired by plaintiff's underwriter, Fireman's Fund. The reports were made some eleven months before suit was filed. The district judge ruled that the reports were prepared in the usual course of business and were discoverable. The memorandum opinion contains the following discussion which is germane to the issue before us:
....
McDougall v. Dunn, 468 F.2d 468 (4th Cir.1972) involves discovery of statements of witnesses taken by an insurance adjuster shortly after a collision and over two years before suit was filed. The circuit court held that the statements were secured by the claim adjuster in the regular course of his duties as an employee of the insurance company, and that they were relevant and discoverable. The McDougall court quoted and relied upon Thomas Organ Co. v. Jadranska Slobodna Plovidba, 54 F.R.D. 367 (N.D. Ill. 1972).
The United States District Court for the Northern District of Georgia arrived at a similar conclusion in an action by a policyholder against its insurer. Atlanta Coca-Cola Bottling Co. v. Transamerica Ins. Co., 61 F.R.D. 115 (N.D. Ga. 1972). That court said:
The majority of the cases hold that unless the investigation made by an insurance carrier has been at the request or under the guidance of counsel, the investigation is conclusively presumed to have been made in the ordinary course of business and not in anticipation of litigation or in preparation for trial. The cases cited above are illustrative of that view; see also Universal Vendors, Inc. v. Candimat Co. of America, 16 Fed. Rules Serv.2d 1329 (E.D. Pa. 1972); Hopkins v. Chesapeake Utilities Corporation, 300 A.2d 12 (Del. Super. 1972); Brandywine Shoppe, Inc. v. State Farm Fire & Cas. Co., 307 A.2d 806 (Del. Super. 1973); Conley v. Graybeal, 315 A.2d 609 (Del. Super. 1974); Fletcher v. *622 Meserve, 20 Fed. Rules Serv.2d 202 (D. Mass. 1975); Rakus v. Erie-Lackawanna R. Co., 76 F.R.D. 145 (W.D.N.Y. 1977); and Miles v. Bell Helicopter Co., 385 F. Supp. 1029 (N.D. Ga. 1974).
We have not overlooked those cases which hold that all statements and all information secured by an insurance carrier after the happening of a collision or occurrence which might give rise to a claim against it or its insured are "in anticipation of litigation" and thus discoverable only under Rule 26(b) (3), our K.S.A. 60-226(b)(3). For example, see Fireman's Fund Ins. Co. v. McAlpine, ___ R.I. ___, 391 A.2d 84 (1978); Almaguer v. Chicago, Rock Island & Pacific Railroad Co., 55 F.R.D. 147 (D. Neb. 1972); and for a criticism of both rule-of-thumb approaches, see Spaulding v. Denton, 68 F.R.D. 342 (D. Del. 1975).
There is no contention that evaluative materials are contained in the statement of Glen Henry, which is the subject of the case before us. We have, therefore, no issue as to the protection to be afforded a claim adjuster's or a lawyer's mental impressions, opinions, conclusions, legal theories, comments, or appraisal of the claim.
The facts surrounding the taking of Glen Henry's statement are spelled out in the Sheldon affidavit, quoted above. The plaintiff's insuror, Allstate, received notification in 1977 "of an occurrence ... involving claims by Brookridge ... of damage arising from roofing repair work in which the insured ... was claimed to have had some involvement." In other words, Allstate heard that Brookridge might have a claim against Henry Enterprises, Allstate's insured, arising out of some roofing repair work which might have been performed by Henry. Allstate proceeded to take a statement from the principal officer of the insured "to be used in reviewing and evaluating the claims and to be used by counsel employed to represent Mr. Henry in the event of litigation."
Obviously, Allstate took the statement for two reasons. First, Allstate did not know whether Henry Enterprises actually performed the work which gave rise to the damage claims; it did not know the details of the work; it did not know whether damage had in fact occurred. Presumably Allstate might have some exposure under its policy, depending upon the facts. Allstate needed information in order that it might properly review and evaluate any claims which might be made later by Brookridge or others. *623 Second, and in the event that suit was filed, the statement would be of use to counsel employed to defend the claim.
We are not unmindful that, insofar as insurance companies, and particularly those in the casualty field, are concerned, litigation is a very real potential; it is ever on the horizon. But the fact remains that the investigation of potential claims is an integral part of the insuror's business. Investigations are made regularly and in the ordinary course of business. They are necessary if the companies are to make intelligent dispositions of claims. They are necessary also if a carrier is to perform adequately the duties and obligations towards its insureds which are imposed upon it by law. Also, most claims are settled, one way or another, without resort to the courts.
It is apparent to us, and we hold, that the initial investigation of a potential claim, made by an insurance company prior to the commencement of litigation, and not requested by or made under the guidance of counsel, is made in the ordinary course of business of the insurance company, and not "in anticipation of litigation or for trial" as those terms are used in K.S.A. 60-226(b)(3). Statements of witnesses taken during the course of such initial investigations are therefore subject to discovery under K.S.A. 60-226(b)(1).
The writ of mandamus sought by the petitioner is denied.
FROMME and HERD, JJ., not participating.