Court Opinion

ID: 9712839
Source: CourtListenerOpinion
Date Created: 2023-08-26 05:01:12.706647+00
Date Added: 2024-06-11T18:23:14.793094
License: Public Domain

PRESIDING JUSTICE COOK, dissenting: Can an insurance company employ its own attorney to advise it regarding its duty in a particular case to defend, to settle in good faith, and its exposure to damages in excess of its policy limits? The basic rule is that where an insurer retains an attorney to defend its insured, that attorney represents both the insured and the insurer and communications by either party to the attorney are not necessarily privileged in a subsequent controversy between the two parties. Waste Management, 144 Ill. 2d at 194, 579 N.E.2d at 328-29 (common-interest doctrine). Waste Management extended the doctrine somewhat, allowing disclosure to the insurer under an indemnity policy although the insureds retained the counsel and defended and settled the lawsuit without the participation of the insurer. The insurer, however, was ultimately liable for defense and settlement costs. Waste Management, 144 Ill. 2d at 194-95, 579 N.E.2d at 329. Waste Management does not hold that the insurer or insured may not hire independent counsel. The present case does not involve combined representation, disclosure from an attorney whom the insurer retained to defend a lawsuit for the insured but disclosure from the insurer’s separate attorney. In fact, the O’Haras, during oral argument, suggested that Western States’ communications with in-house general counsel would be equally discoverable with the discovery of the Tressler firm ordered here. Waste Management recognized that the attorney who represented the common interests of the insurer and the insured eventually represented only the insured: “Our holding here does not, in any event, abrogate the privileged nature of communications concerning the present declaratory action.” Waste Management, 144 Ill. 2d at 195, 579 N.E.2d at 329. “[W]ork product generated in preparation for the pending declaratory action is entitled to protection.” Waste Management, 144 Ill. 2d at 198, 579 N.E.2d at 330. It seems clear, under Waste Management, that the insured could have employed independent counsel, immediately after the claim arose, to prepare for the declaratory-judgment action as long as the insurer was not liable for those defense costs. The insurer in that case actually had retained its own counsel well in advance of the declaratory-judgment action; there was no suggestion that the work of that attorney was not privileged. The same should be true here, where it was immediately apparent there would be claims in excess of the policy limits. Western States should have been allowed to employ an attorney to prepare for the declaratory-judgment action immediately after the accident, so long as that attorney was not the attorney retained by it to represent the insureds. We should not allow the “at issue” exception to the work-product rule to be expanded beyond the situation where the sought-after material is either the basis of the lawsuit or the defense thereof. See People v. O’Banner, 215 Ill. App. 3d 778, 793, 575 N.E.2d 1261, 1270 (1991) (communications with an attorney are put in issue when a criminal defendant asserts ineffective assistance of counsel). It is fair to ask a settling attorney why he settled. It is not fair to ask an insurer’s general counsel what problems she sees with a case. In every case the theories, mental impressions, and litigation plans of the party’s attorney will be valuable to the opponent. “Mere convenience, however, should not justify waiver of the attorney-client privilege.” Fischel & Kahn, 189 Ill. 2d at 590, 727 N.E.2d at 246. The fact that the materials will be helpful, even dispositive, is not enough to avoid the work-product rule. An expansive holding of the “basis of the lawsuit” exception will result in the complete destruction of the work-product privilege. When a doctor is sued for malpractice and his attorney advises him on the strengths and weaknesses of the case, that advice goes to the basis of the lawsuit. The same is true in all litigation. No one will have a right to an attorney if the exception is carried that far. Murphy did not hold that an insurer loses its right to separate counsel when it files a declaratory-judgment action. Murphy held only that a noninsured injured party, who normally has no standing to question the manner in which the insurer discharged its obligations to its insured, has standing to raise the issue of good faith when it is named as a defendant in a declaratory-judgment action filed by the insurer. Murphy, 38 Ill. App. 3d at 712, 348 N.E.2d at 494. The insurer in Murphy hired separate counsel, and no suggestion was made that the attorney-client and work-product privileges did not apply. There is an argument that the only instance permitting disclosure of opinion work product is when the party seeking disclosure “demonstrates the absolute impossibility of securing similar information from other sources.” Consolidation Coal Co., 89 Ill. 2d at 111. 432 N.E.2d at 253. It was unnecessary for Waste Management to consider that argument because of its holding that the work-product rule did not apply in the combined-representation case before it. Waste Management, 144 Ill. 2d at 200, 579 N.E.2d at 331. This is not a combined-representation case, and discovery of separate counsel’s file here should not be the first option. Nothing here appears to justify the extraordinary discovery employed. No indications of bad faith jump out in this case. The insurer paid the policy limits and obtained a release from the most seriously injured party for a settlement that appears to be favorable to the insured. Defendants initiated their discovery by immediately going after the opposing attorney’s file. We should not allow such an approach. It is not enough to justify discovery of an opposing attorney’s file that a party has been unable to come up with any support for its case. The O’Haras argue that Western States should not have settled the claim with Lovelace, that it should have filed an interpleader and deposited the policy limits in court. However, an insurer cannot discharge its duty to defend by unilaterally tendering its policy limits to the court or a claimant. On the other hand, an insurer that has exhausted its policy limits by payment of a judgment or settlement is no longer obligated to defend the insured. Douglas v. Allied American Insurance, 312 Ill. App. 3d 535, 540-41, 727 N.E.2d 376, 380-81 (2000). The individual(s) who settled the Lovelace claim should be required to submit to discovery. Perhaps Western States’ adjuster did not settle the claim with Lovelace as it says he did. Perhaps the Tressler firm’s involvement in the Lovelace settlement was greater than Western States says it was and the Tressler firm was actually representing both Western States and its insured. Defendants should begin their discovery, however, with the depositions of the Western States employees. If that discovery indicates involvement of the Tressler firm in the Lovelace settlement, further discovery may be sought. Western States’ right to counsel should not be summarily destroyed.