American Zurich Insurance v. Montana Thirteenth Judicial District Court

March 13 2012
IN THE SUPREME COURT OF THE STATE OF MONTANA
OP 11-0526
2012 MT 61_________________
AMERICAN ZURICH INSURANCE COMPANY,
Petitioner,
v.
OPINION
AND
MONTANA THIRTEENTH JUDICIAL DISTRICT
ORDER
COURT, YELLOWSTONE COUNTY and
HONORABLE GREGORY R. TODD, District Court
Judge,
Respondents.
_________________
¶1 American Zurich Insurance Company (Zurich) seeks a writ of supervisory control,
arguing that the Thirteenth Judicial District Court is proceeding based on a mistake of
law in controlling discovery with respect to matters protected by the attorney-client
privilege and the work product doctrine. We accept review of the petition in this instance
because the case presents a purely legal issue for which, if the District Court erred, there
would be no adequate remedy on appeal. For the reasons that follow, we conclude the
District Court correctly applied the law of attorney-client privilege, but incorrectly
analyzed the work product doctrine. However, since the court reached the proper
conclusion, supervisory control is unnecessary and we dismiss the petition.
FACTUAL AND PROCEDURAL BACKGROUND
¶2 Phillip Peters suffered a serious injury on January 18, 1999, while working at
Roscoe Steel & Culvert Co. (Roscoe). He later filed a workers’ compensation claim.
Zurich, which insured Roscoe under Plan II of the Montana Workers’ Compensation Act,
accepted liability for Peters’s claim. Zurich contracted with Employee Benefit
1
Management Solutions (EBMS), a third-party adjuster, to provide services for Peters’s
claim. EBMS employee Jim Kimmel was responsible for adjusting Peters’s claim.
Kimmel stated in his deposition that he had the “absolute authority” to adjust Peters’s
workers’ compensation claim.
¶3 Over the course of several years, Peters and Zurich disagreed over elements of
Peters’s claim, including the level of his impairment and other issues. During this time,
attorney Joe Maynard of the Crowley Law Firm advised Zurich on various legal matters.
Maynard prepared an opinion and evaluation letter regarding Peters’s case, dated
October 7, 2003 (Maynard Letter). The letter was prepared in advance of a mediation
held October 10, 2003. Maynard sent the letter to Kimmel, who then wrote notes on the
letter reflecting his conversation with Maynard. Without Zurich’s or Maynard’s
knowledge or permission, Kimmel provided a copy of his annotated letter to Roscoe.
¶4 Although the case did not settle as a result of the 2003 mediation, the parties
eventually resolved Peters’s underlying disability benefits claim. Peters filed the present
action in May 2008 for unfair claims settlement practices, naming Zurich and Kimmel as
defendants. On May 6, 2011, Peters served Roscoe with a Subpoena Duces Tecum
requesting Roscoe’s “entire file and all documentation relating to Mr. Peters’s
employment, his injury of January 18, 1999, his workers’ compensation claim regarding
this injury, and any and all correspondence either written or electronic or in whatever
form, with Zurich, EBMS, and the Crowley Law Firm regarding Mr. Peters.” Roscoe,
represented by separate counsel, objected to the subpoena and filed an action to quash it,
citing attorney-client privilege and the work product doctrine. In its July 7th order, the
court denied Roscoe’s motion and ordered Roscoe to produce the Maynard Letter. The
court held that the letter was not protected by attorney-client privilege because Roscoe
was neither a party to the action nor had a shared legal interest with Zurich. The court
similarly found the letter was not protected by the work product doctrine since Roscoe
had no legal interest in the claim and was not acting as Zurich’s agent, attorney, or
consultant. Zurich then filed a motion for relief from the court’s order to produce. The
2
court denied Zurich’s motion, and Zurich petitioned this Court for a writ of supervisory
control.
DISCUSSION
¶5 1. Propriety of Supervisory Control.
¶6 Pursuant to Article VII, Section 2(2) of the Montana Constitution, this Court may
exercise supervisory control over other courts. The Court is justified in doing so when
“urgency or emergency factors exist, making the normal appeals process inadequate,
when the case involves purely legal questions, and when . . . the other court is proceeding
under a mistake of law and is causing a gross injustice.” M. R. App. P. 14(3). The grant
of a writ of supervisory control is an extraordinary remedy. Stokes v. Mont. Thirteenth
Jud. Dist. Ct., 2011 MT 182, ¶ 5, 361 Mont. 279, 259 P.3d 754. “We will assume
supervisory control over a district court to direct the course of litigation if the court is
proceeding based on a mistake of law, which if uncorrected, would cause significant
injustice for which appeal is an inadequate remedy.” Stokes, ¶ 5 (citing Simms v. Mont.
Eighteenth Jud. Dist. Ct., 2003 MT 89, ¶ 18, 315 Mont. 135, 68 P.3d 678).
¶7 We find it appropriate to review Zurich’s contentions. We requested supplemental
briefing and oral argument in this case because the question presented is one of first
impression and raises an issue of law: whether, in a claim for workers’ compensation
benefits, an attorney’s communication to its client insurer is privileged when the client
voluntarily discloses the communication to the non-client employer. Normal channels of
appeal would prove inadequate. We have recognized that compelled discovery of
potentially-privileged material presents unique issues that, under certain circumstances,
are “sufficient to invoke original jurisdiction.” Inter-Fluve v. Mont. Eighteenth Jud. Dist.
Ct., 2005 MT 103, ¶ 1, 327 Mont. 14, 112 P.3d 258 (quoting Winslow v. Mont. Rail Link,
Inc., 2001 MT 269, ¶ 2, 307 Mont. 269, 38 P.3d 148). If the District Court did err in
ordering production of the Maynard Letter, later appeal would provide no relief for
Zurich because the purportedly confidential contents of the letter would be exposed.
However, while we accept review of the petition, we decline to exercise supervisory
3
control in this case. As explained below, though the District Court erred in its analysis of
the work product doctrine, its analytical error does not affect the correctness of its
decision to require production of the letter. We take the opportunity to explain our
reasoning in order to promote judicial efficiency and to avoid a later appeal of the issue in
this case.
¶8 2. Whether Kimmel’s actions waived Zurich’s attorney-client privilege.
¶9 The attorney-client privilege protects communications between attorney and client
during the course of the professional relationship.
The fundamental purpose of the attorney-client privilege is to enable the
attorney to provide the best possible legal advice and encourage clients to
act within the law. The privilege furthers this purpose by freeing clients
from the consequences or the apprehension of disclosing confidential
information, thus encouraging them to be open and forthright with their
attorneys.
Inter-Fluve, ¶ 22. The privilege serves to ensure attorneys freely give accurate and
candid advice to their clients without the fear it later will be used against the client.
Inter-Fluve, ¶ 22 (citing Palmer by Diacon v. Farmers Ins. Exch., 261 Mont. 91, 107, 861
P.2d 895, 904-05 (1993)).
¶10 While serving these underlying policy goals, the privilege must be construed
narrowly because it obstructs the truth-finding process. Westinghouse Elec. Corp. v.
Republic of Philippines, 951 F.2d 1414, 1423 (3rd Cir. 1991). The privilege “protects
only those disclosures—necessary to obtain informed legal advice—which might not
have been made absent the privilege.” Fisher v. U.S., 425 U.S. 391, 403, 96 S. Ct. 1569,
1577 (1976). The purpose is to encourage full and frank communication, not as an end in
itself, but as a means to promote “broader public interests in the observance of law and
administration of justice.” Upjohn Co. v. U.S., 449 U.S. 383, 389, 101 S. Ct. 677, 682
(1981).
4
¶11 As a general rule, the privilege extends only to communications between an
attorney and a client. There are specific exceptions, however, which permit
communications involving third parties to receive the same protection. Westinghouse,
951 F.2d at 1424. Attorney-client communications may be protected if disclosed to
another party “where the parties undertake a joint effort with respect to a common legal
interest.” U.S. v. BDO Seidman, LLP, 492 F.3d 806, 816 (7th Cir. 2007). Such
disclosures may be privileged if communicating with the third party is “necessary for the
client to obtain informed legal advice.” Westinghouse, 951 F.2d at 1424 (emphasis
added). These third parties may be co-litigants, or other professionals assisting the
attorney in representing the client. Westinghouse, 951 F.2d at 1424; In re Rules of Prof’l
Conduct, 2000 MT 110, ¶ 60, 299 Mont. 321, 2 P.3d 806 (citing U.S. v. Mass. Inst. of
Tech., 129 F.3d 681, 684 (1st Cir. 1997)). The lawyer’s need to communicate with these
third parties must be “appropriate, even if not vital, to the consultation.” In re Rules, ¶ 60
(citing Mass. Inst. of Tech., 129 F.3d at 684). Known variously as “joint defense
agreements,” the “joint prosecution privilege,” or the “common interest doctrine,” the
shared privilege generally is limited to parties involved in litigation or impending
litigation, or where the third party has “a common legal interest for the purpose of
rendering legal advice to the client.” Hanover Ins. Co. v. Rapo & Jensen Ins. Servs., Inc.,
870 N.E.2d 1105, 1109-10 (Mass. 2007).
¶12 The intersection of workers’ compensation law and the attorney-client privilege
presents a unique issue. The Montana Workers’ Compensation Act provides the
employee’s exclusive remedy for workplace injury. By law, the employer’s role in
workers’ compensation cases is limited. With extremely narrow exceptions, the
employer is statutorily immune from suit for common law injury claims. Sections 39-71-
411, 413, MCA. Montana statutes require an employer to elect one of three plans for
insuring workers’ compensation liability. Pertinent here is Plan II, under which the
employer purchases coverage through an authorized insurance company. Section 39-71-
2201, MCA. The Plan II insurer is directly and primarily liable to the employee, and
5
must pay directly to the employee any compensation for which the employer is liable.
Section 39-71-2203(3), MCA.
¶13 Moreover, the insurer’s duty to compensate the employee cannot be delegated to
the employer, nor can the employer veto or influence any settlement between the insurer
and the employee. Hernandez v. Nat’l Union Fire Ins. Co. of Pittsburgh, 2003 MTWCC
5, ¶ 1, 2003 MT Wrk. Comp. LEXIS 4. The rules of the Workers’ Compensation Court,
promulgated after extensive participation by attorneys for claimants, insurers and
employers, make clear that the employer is not to be named as a party to an action for
benefits, except in cases involving the uninsured employers’ fund or involving a request
for relief against an employer. Admin. R. M. 24.5.301(4). With those limited
exceptions, the employer is not at risk in the action, though it retains a “duty to cooperate
and assist its insurer, including any duty to assist in responding to discovery.” Admin.
R. M. 24.5.301(4). It is thus improper for an insurer and an employer to collaborate on
settlement of a worker’s claim for benefits. Consistent with the Workers’ Compensation
Court rules, Roscoe was not named as a party in Peters’s compensation claim before that
Court.
¶14 To be sure, an employer and an insurer share legal interests in the workers’
compensation arena. The employer and insurer must work together to promote safety on
the job, to assist employees in prompt return to work after an injury, and to prevent
fraudulent claims. Sections 39-71-107(1), 39-71-316, 39-71-613(4), 45-6-301(5), MCA.
Even outside the workers’ compensation system, though, “the relationship between an
insurer and insured is permeated with potential conflicts.” In re Rules, ¶ 37. As we have
previously stated, the common interest in keeping litigation and premium costs down, by
itself, is not sufficient to extend the privilege beyond the attorney-client relationship. In
re Rules, ¶ 70.
¶15 Where two parties are engaged in a joint defensive effort against a claim, the
privilege may attach (In re Rules, ¶ 72), but that is not the case here. Despite their
common interests in some areas, an employer and an insurer do not share a common legal
6
interest in the adjustment of an employee’s claim for compensation for which the insurer
exclusively is liable. In evaluating and settling Peters’s benefits claim, Zurich bore direct
liability to Peters. Roscoe’s role as an employer during the adjustment process was
similar to that of a witness—it would be called upon to provide background information
to Zurich about the employee’s duties, history and facts about the injury. See Admin.
R. M. 24.5.301(4). While the employer supplies information to the insurer in its
evaluation of a compensation claim, the employer is not a co-litigant and bears no
liability. Indeed, the employer is not solely aligned with the insurer in an adversarial
position against the employee, but shares common interests with both the insurer and the
employee. The employer and employee share an interest in avoiding an insurer’s
unreasonable denial of liability or termination of benefits (§§ 39-71-611, 612, MCA), and
have a common interest in rehabilitation and speedy adjustment of the claim to facilitate
prompt medical treatment for the employee’s injuries and hasten the employee’s return to
work (§ 39-71-105(3), MCA).
¶16 In addition, Kimmel’s disclosure of the Maynard Letter to Roscoe was not
necessary for Zurich to obtain legal advice. Roscoe had a duty to provide Zurich with
information to facilitate Zurich’s evaluation of the claim, but the necessity for
information only flows in one direction in this context. In light of the law barring an
employer in Plan II cases from participating in the adjustment of the claim, it was not
necessary or appropriate for Zurich to communicate its settlement strategy with Roscoe.
Peters’s expression of interest in suing Roscoe (Dissent, ¶ 43) did not bring Roscoe’s
legal interests into the adjustment of the benefits claim. To the contrary, an employer’s
legal interests most likely would be at odds with those of its insurer were the employee to
seek exemption from workers’ compensation exclusivity by alleging intentional acts. See
§ 39-71-414, MCA. In any event, “[t]he litigation looming on the horizon” was only that
pending in the Workers’ Compensation Court, involving solely Zurich and Peters. FEC
v. Christian Coalition, 178 F.R.D. 61, 73 (E.D. Va. 1998). As the District Court
7
correctly concluded, Roscoe was neither a party to the action nor shared a common
interest with Zurich in the adjustment of Peters’s claim.
¶17 “[F]or the common interest doctrine to apply, the parties must share a common
legal interest, rather than a commercial or a financial interest.” FSP Stallion 1, LLC v.
Luce, 2010 U.S. Dist. LEXIS 110617, *58 (D. Nev. 2010). Extension of the shared
privilege to a non-party is based on the non-party’s legal interest in the matter, not on the
amorphous concept of its “expertise” or knowledge of matters involved in the case. See,
e.g., In re Grand Jury Subpoenas, 902 F.2d 244, 249 (4th Cir. 1990) (common interest
doctrine applied to related corporate entities pursuing a joint claim). The common
interest doctrine “‘does not extend [to] communications about a joint business strategy
that happens to include a concern about litigation.’” FSP Stallion 1, at **58-59 (quoting
Walsh v. Northrop Grumman Corp., 165 F.R.D. 16, 18 (E.D.N.Y. 1996)).
¶18 In FSP Stallion 1, the common interest doctrine was invoked by a number of
defendants sued for violation of federal and state securities laws. The plaintiffs claimed
the defendants—a group of individuals and their business entities—had conspired to
develop a scheme to fraudulently induce investors to purchase tenant-in-common
interests at an inflated price. They sought production of documents relating to the
drafting and preparation of the Private Placement Memorandum (PPM) used to solicit
investors, which the defendants claimed were protected by a shared privilege since all
had participated together in preparing the PPM. FSP Stallion 1, at **14-15. The court
refused to apply the privilege to the documents in question, ruling that “[t]he common
interest doctrine does not extend to communications about a joint business or financial
transaction, merely because the parties share an interest in seeing the transaction is
legally appropriate.” Additionally, the court noted, “[a] desire to comply with applicable
laws and to avoid litigation does not transform their common interest and enterprise into
a legal, as opposed to a commercial, matter.” FSP Stallion 1, at *67.
¶19 Like the defendants in FSP Stallion 1, although Roscoe and Zurich may have
shared a desire to avoid litigation and to comply with the workers’ compensation laws,
8
Roscoe did not share a common legal interest in the adjustment of Peters’s claim and thus
was not protected by Zurich’s privilege with its counsel.
¶20 Finally, we examine whether Zurich waived its attorney-client privilege in
transmitting the letter to Roscoe. The attorney-client privilege is held by the client and
may be waived by voluntary disclosure. M. R. Evid. 503; State v. Tadewalt, 2010 MT
177, ¶ 17, 357 Mont. 208, 237 P.3d 1273. “Voluntary disclosure to a third party of
purportedly privileged communications has long been considered inconsistent with an
assertion of the privilege.” Westinghouse, 951 F.2d at 1424. Disclosure to third parties
waives attorney-client privilege unless disclosure is necessary for the client to obtain
informed legal advice. Westinghouse, 951 F.2d at 1425. We already have concluded the
disclosure was unnecessary for Zurich to obtain legal services. However, Zurich
contends Kimmel was not authorized to waive the privilege.
¶21 Zurich cites Inter-Fluve for the principle that a corporate attorney-client privilege
is normally only exercised and waived by its officers and directors. ¶ 33. Since Kimmel
was merely a claims adjuster, Zurich contends he had no such authority. We disagree.
Section 39-71-107(2), MCA, details the extensive authority a Montana claims adjuster
must have when examining and managing workers’ compensation claims. Consistent
with the requirements of state law, Kimmel acknowledged he had “absolute authority”
over management of Peters’s claim. In Inter-Fluve, we quoted the United States
Supreme Court’s analysis of the attorney-client privilege in a corporate context, stating
all corporate action “must necessarily be undertaken by individuals empowered to act on
behalf of the corporation.” ¶ 33 (quoting Commodity Futures Trading Comm’n v.
Weintraub, 471 U.S. 343, 348, 105 S. Ct. 1986, 1991 (1985)). Not only was Kimmel
empowered to act on behalf of the corporation in this instance, Montana law requires his
authority in the adjustment process. Thus, Kimmel was authorized to waive Zurich’s
privilege.
¶22 In sum, we conclude the District Court properly applied the law in determining the
attorney-client privilege does not authorize Roscoe to withhold the Maynard Letter.
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Roscoe was not a party to the action, nor did it share a common legal interest in Zurich’s
adjustment of the workers’ compensation claim. Zurich’s disclosure of the letter via
Kimmel to Roscoe constitutes a waiver of its attorney-client privilege.
¶23 3. Whether the Maynard Letter is protected by the work product doctrine.
¶24 While the District Court properly concluded the attorney-client privilege did not
apply, it failed to conduct a separate analysis of the work product doctrine, stating only
that because Roscoe had no legal interest in the matter, waiver of the work-product
privilege necessarily followed. Zurich argues this approach was flawed, because Roscoe
was not its “adversary” in the workers’ compensation proceeding. Zurich is correct that
waiver of the attorney-client privilege by voluntary disclosure does not necessarily waive
confidentiality of attorney work product. U.S. v. Deloitte LLP, 610 F.3d 129, 139 (D.C.
Cir. 2010). The purpose of the two privileges differs. The attorney-client privilege
protects confidential communications, thereby promoting the attorney-client relationship
and the functioning of the legal system. Westinghouse, 951 F.2d at 1428. By contrast,
the work product doctrine serves the adversarial process directly “by enabling attorneys
to prepare cases without fear that their work product will be used against their clients.”
Westinghouse, 951 F.2d at 1428 (citing Hickman v. Taylor, 329 U.S. 495, 510-11, 67 S.
Ct. 385, 393-94 (1947)). Critical to the distinction is whether the disclosure “enable[s] an
adversary to gain access to the information.” Westinghouse, 951 F.2d at 1428; Charles
Alan Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice & Procedure
vol. 8, § 2024, 531-32 (3d ed., West 2010) (“[t]he purpose of the work-product rule ‘is
not to protect the evidence from disclosure to the outside world but rather to protect it
only from knowledge of opposing counsel and his client.’”). The mere disclosure itself,
therefore, does not trigger waiver of work product protection.
¶25 We discussed in Palmer the great protections to be afforded to opinion work
product, setting a high bar against compelled production. Our discussion concluded with
the observation that “materials that contain the mental impressions and opinions of
[counsel] are immune from discovery under the work-product doctrine, unless a waiver
10
occurred.” Palmer, 261 Mont. at 118, 861 P.2d at 912. We partially analyzed disclosure
in the insurer-insured context in In re Rules. There, we analyzed client confidentiality
obligations under Rule 1.6, M. R. Prof. Conduct, which is broader in both scope and
protection than the attorney-client privilege and the work product doctrine. In re Rules,
¶ 77. The case dealt with unauthorized disclosures by insured’s counsel to third-party
auditors, whom the Court found were not “needed in the representation” or “appropriate
. . . to a consultation.” In re Rules, ¶ 71. In fact, third-party auditors stood in potential
conflict with the interests of the insured, as their mission is partially to find fault with
legal charges. In re Rules, ¶ 75. The Court made clear it was not holding “that the
disclosure of detailed descriptions of professional services to a third-party auditor
necessarily violates any privilege that may attach to them. Resolution of that issue would
clearly entail findings of fact that we have not made in the present case.” In re Rules,
¶ 73. This case requires more exacting analysis of when disclosure to a third party
nullifies work product protection.
¶26 The purpose underlying the work product doctrine requires us to distinguish
between disclosures to adversaries and disclosures to non-adversaries. Westinghouse,
951 F.2d at 1428. Disclosure only waives work product protection if it is “inconsistent
with the maintenance of secrecy from the disclosing party’s adversary.” Deloitte, 610
F.3d at 140 (quoting Rockwell Int’l Corp. v. U.S. Dep’t of Justice, 235 F.3d 598, 605
(D.C. Cir. 2001)). Further, when determining if a party is or is not an adversary, “the
question is not whether [the employer] could be the [insurer]’s adversary in any
conceivable future litigation, but whether [the employer] could be [the insurer’s]
adversary in the sort of litigation the [documents in question] address.” Deloitte, 610
F.3d at 140; see also Kimberly-Clark Worldwide v. First Quality Baby Prods., LLC, 2011
U.S. Dist. LEXIS 133551, **7-8 (E.D. Wis. 2011).
¶27 If the disclosure is to a non-adversary, but the recipient is a “conduit” to an
adversary, the court examines whether the disclosing party had a reasonable basis for
believing the recipient would keep the disclosed material confidential. Deloitte, 610 F.3d
11at 141. A reasonable expectation of confidentiality may derive from “common litigation
interests between the disclosing party and the recipient” or “may be rooted in a
confidentiality agreement or similar arrangement between the disclosing party and the
recipient.” Deloitte, 610 F.3d at 141. Absent common interests, we inquire as to whether
a confidentiality agreement or other assurance gave the disclosing party a reasonable
expectation that the recipient would keep its work product confidential. Deloitte, 610
F.3d at 142. In Deloitte, the court concluded the disclosing party had a reasonable
expectation the recipient would keep the information confidential because the recipient
was bound by rules of professional conduct governing accountants, which include
confidentiality requirements. 610 F.3d at 142.
¶28 We conclude that Roscoe was neither an adversary of Zurich nor necessarily a
conduit to Peters. As recognized by the District Court, Roscoe had no legal interest in the
adjustment of Peters’s claim. While Roscoe was not adversarial to Zurich, its
overlapping relationship with both Peters and Zurich makes Zurich’s expectations of
confidentiality in Roscoe during the claims adjustment process unreasonable. Given the
law expressly excluding Roscoe from participation in and liability for the claim, there
could be no basis for either a confidentiality agreement or assurances of confidentiality.
“Common sense suggests that there can be no joint defense agreement when there is no
joint defense to pursue.” In re Grand Jury Subpoena, 274 F.3d 563, 575 (1st Cir. 2001).
¶29 The District Court did not apply the correct legal standard to the work product
analysis, but it reached the proper conclusion. Relying on the standards announced in
Deloitte, we conclude that Roscoe’s effective status as a disinterested third party, and its
preclusion by law from participating in the adjustment of the compensation claim, could
not support a reasonable expectation that Zurich’s work product would be kept
confidential. Zurich’s disclosure of the letter therefore waives work product protection.
Our holding here does not impact work product protection where an insurer and insured
have a common legal interest in the underlying litigation.
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¶30 IT IS THEREFORE ORDERED that Zurich’s petition for a writ of supervisory
control is dismissed.
DATED this 13th day of March, 2012.
/S/ BETH BAKER
We concur:
/S/ MIKE McGRATH
/S/ JAMES C. NELSON
/S/ PATRICIA COTTER
/S/ MICHAEL E WHEAT
/S/ BRIAN MORRIS
Justice James C. Nelson, concurring.
¶31 I join the Court’s Opinion. Aside from the Court’s finely-tuned legal analysis,
with which I agree, I suggest there is another fundamental point in this case that needs to
be emphasized.
¶32 It needs no citation to authority that in the typical workers’ compensation case, the
employer enjoys immunity from suit by the injured worker.1 The “quid pro quo” for this
immunity from suit is that the injured worker is entitled to receive benefits under the
Workers’ Compensation Act (WCA), Title 39, chapter 71, MCA, without having to prove
fault—and, theoretically at least, without (or with minimal assistance of) an attorney.
1
One could say that in every workers’ compensation case, the employer is
immune from suit given that the “exclusivity” statutes, §§ 39-71-411 and -413, MCA,
effectively make it impossible for the employee to ever sue the employer for injury in the
workplace. See Wise v. CNH Am., LLC, 2006 MT 194, ¶¶ 14-18, 333 Mont. 181, 142
P.3d 774 (Nelson, J., concurring).
13
¶33 It makes obvious sense that the employer is required to cooperate with its WCA
insurer to the limited extent of providing some basic background information regarding
the injured worker and the claim. However, whether we presume—or not—that the
WCA insurer’s approach will be to try to avoid entirely or to limit the payment of
benefits to the injured worker, it is patently unfair for the WCA insurer to involve the
employer in adjusting, mediating, and settling the injured worker’s claim.
¶34 When that happens, the employer gets the best of both worlds. Not only does the
employer enjoy immunity from suit, the employer also gets to shoot down (or help shoot
down) the injured worker’s claim—thereby preserving its (the employer’s) claims record
for premium determination purposes, not to mention its WCA insurer’s funds.
¶35 Concomitantly, the injured worker gets the worst of both worlds. The injured
worker cannot sue the employer2 because of statutory exclusivity; and the injured worker
cannot obtain the benefits, or the full measure of benefits, to which he or she may well be
entitled due to the employer’s poisoning the well.
¶36 The rule in Hernandez v. Natl. Union Fire Ins. Co., 2003 MTWCC 5, ¶ 1, 2003
MT Wrk. Comp. LEXIS 4 (see Opinion, ¶ 13) is correct and ensures basic fairness and
the viability of the quid pro quo. The employer must not be involved in adjusting,
mediating, or settling the injured worker’s claim. The employer must not be involved in
the sorts of decisions that would militate in favor of the employer’s being privy to
materials, documents, and information protected by the attorney-client privilege between
the employer’s WCA insurer and its counsel. In short, if the quid pro quo is to remain a
viable concept, the employer cannot be part of the “magic circle,” the “community of
interest,” or whatever one wants to call it.
¶37 I concur in the Court’s well-reasoned Opinion.
/S/ JAMES C. NELSON
2
Of course, as here, the injured worker can sue the employer’s WCA insurer for
bad faith and UTPA violations.
14
Justice Jim Rice, dissenting.
¶38 We recognized in In re Rules that “‘information may be shared without loss of the
privilege”’ to parties who were outside the attorney-client relationship but nonetheless
“within the ‘magic circle’ or community of interest” by virtue of shared legal interests.
In re Rules of Prof’l Conduct, 2000 MT 110, ¶¶ 60, 70, 299 Mont. 321, 2 P.3d 806(citation omitted). I believe the Court has understated the interests shared by American
Zurich and Roscoe. I would hold that these parties have the necessary “community of
interest” which permitted information to be shared in this matter without loss of the
privilege. In re Rules, ¶ 70.
¶39 Although acknowledging that the parties share some general interests as employer
and insurer, the Court concludes that Roscoe’s role in the matter is “similar to that of a
witness” in which Roscoe is “called upon to provide background information to Zurich
about the employee’s duties, history and facts about the injury.” Opinion, ¶ 15. The
Court’s reasoning is premised upon the statutes which provide that the employer is not to
be named as a party in an action for benefits, and that, under Plan II, the insurer is
primarily liable to the employee. Opinion, ¶ 12. However, the fact that the employer is
not the named party and the insurer holds exclusive authority to adjust a claim should not
end the inquiry concerning their shared interests. As we explained in In re Rules, “‘the
underlying concern is functional: that the lawyer be able to consult with others needed in
the representation and that the client be allowed to bring closely related persons who are
appropriate, even if not vital, to a consultation.’” In re Rules, ¶ 60 (emphasis added)
(quoting U.S. v. Mass. Inst. of Tech., 129 F.3d 681, 684 (1st Cir. 1997)). After
15
considering the function of the relationship, I would conclude that Roscoe’s role is
significantly greater than that of a witness.
¶40 In Householder v. Republic Indem. Co. of Cal., 2001 MTWCC 61, 2001 MT Wrk.
Comp. LEXIS 82, the Workers’ Compensation Court addressed a discovery dispute
involving a claimant’s attorney who contacted the employer directly to obtain
information. While noting the distinctions between a workers’ compensation case and
other liability cases, the Workers’ Compensation Court held that significant legal
interests were nonetheless shared by the employer and the insurer. Householder, ¶ 9.
Although employers are no longer named in workers’ compensation cases, the Workers’
Compensation Court’s discussion of shared interests, even when the insurer is the liable
party, is instructive:
[W]hile a workers’ compensation insurer is directly liable to the claimant,
the employer’s interests are affected . . . . At minimum, the employer is
required to cooperate with the insurer in the litigation. The employer’s
interests will often dovetail with those of the insurer since its premiums
may be affected by its loss experience.
Householder, ¶ 9. We noted this “dovetailing” of interests in the context of liability
insurers at issue in In re Rules as well. See In re Rules, ¶ 37 (quoting Kent D. Syverud,
What Professional Responsibility Scholars Should Know About Insurance, 4 Conn. Ins.
L.J. 17, 23-24 (1997)) (“‘[b]oth insurance companies and insureds have important and
meaningful stakes in the outcome [of] a lawsuit against the insureds, stakes that include
not just the money that the insurance company must pay in defense and settlement, but
also the uninsured liabilities of the insured, which include not just any judgment in excess
of liability limits, but also the insured’s reputation and other non-economic stakes’”).
¶41 An employer has no authority to influence the adjustment of a claim, see
Hernandez v. Nat’l Union Fire Ins. Co. of Pittsburgh, 2003 MTWCC 5, ¶ 1, 2003 MT
Wrk. Comp. LEXIS 4, but as recognized in Householder, the employer must still actively
cooperate with the insurer in the defense of the claim. Householder, ¶ 9. The insurance
contract between Zurich and Roscoe not only required Roscoe to provide Zurich with
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documentation, the names and addresses of witnesses, and “other information [Zurich]
may need,” but also required Roscoe to “[c]ooperate with [Zurich] and assist [Zurich], as
[Zurich] may request, in the investigation, settlement or defense of any claim, proceeding
or suit.” (Emphasis added.) This duty is consistent with the administrative rule imposing
upon Roscoe a “duty to cooperate and assist” Zurich. Admin. R. M. 24.5.301(4). Thus,
while Zurich held the ultimate authority for adjusting or defending the claim, Roscoe was
nonetheless bound by rule and by contract to provide assistance to Zurich on the claim,
from beginning to end, including the investigation phase, the settlement phase and, if
necessary, the trial phase, in which it was obligated to assist Zurich in establishing a
defense to the claim. This simply makes common sense, as an employer could possess a
wealth of resources for the insurer, not the least of which may be expertise concerning the
mechanism or causation of an accident, a potential liability issue. I thus disagree with the
District Court’s reasoning that Roscoe’s “legal obligations in Peters’ workers
compensation case ceased after Zurich accepted liability over the claim.”
¶42 Further, the employer will rightly be concerned about the future, particularly the
potential for future liability exposure which may well be dependent upon the outcome of
the claim. This concern is inherent within our legal system, which relies upon case
precedent to establish liability in future cases. While this concern does not take away the
ultimate responsibility for the claim from the insurer, it nonetheless is a legal concern
also shared by the insurer, who must consider the precedent that may be created by way
of a settlement or judgment, which in turn, may affect the viability of future claims and
the underwriting which may be necessary for those claims. Even though the employer
may exert no influence on the claim, the insurer’s actions will potentially affect both the
insurer and the employer, and that possibility will provide incentive for the employer to
assist the insurer to the best of the employer’s ability. The District Court reasoned that
“Roscoe did not need to understand the legal analysis or legal implications of Peters’
claim,” but I disagree that such ignorance is or should be the order of the day.
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¶43 Here, there were additional future liability concerns held by Zurich and Roscoe.
During the pendency of his claim for workers’ compensation benefits, Peters threatened
to initiate further litigation against both Zurich and Roscoe on multiple occasions. In its
discussion of factual background, Maynard’s letter mentions this very possibility, stating
that Peters “was clearly shopping his Sherner claim against Roscoe Steel.”1 Peters
ultimately commenced this bad faith action against Zurich. Regardless of the ultimate
litigation decisions Peters made, the fact remains that both Zurich and Roscoe were made
aware of potential future litigation and both held an interest in resolving Peters’ workers’
compensation claim in a way which would not unnecessarily expose them to increased
future liability. These interests are similar to those we identified in the liability context in
In re Rules when we noted that “‘the uninsured liabilities of the insured’” was a shared
interest of the insurer and insured. In re Rules, ¶ 37 (citation omitted). We should
encourage communication about such issues between the insurer and the employer—who
may then encourage a prompt and fair settlement so that future bad faith litigation can be
avoided—as incentive for good claim resolutions.
¶44 The Court states broadly that “it was not necessary or appropriate for Zurich to
communicate its settlement strategy with Roscoe.” Opinion, ¶ 16. However, while
Roscoe had no authority to influence Zurich’s litigation strategy, that should not bar
Zurich from soliciting Roscoe’s expertise in order to form the strategy. Indeed, it is by
that very process of communication—the insurer discussing with the employer what
options may be available to the insurer for adjusting or defending the claim, depending
upon the information which is available—whereby the employer can be educated about
the legal issues and better understand the nature of the information the insurer is seeking,
so that it may fully satisfy its duties to support the insurer. It is unrealistic to think that
communication between the insurer and employer can be reduced to a Webb-esque
witness interview calling for “Just the facts, ma’am.” As the Court notes, the purpose of
1
The Maynard letter has been filed under seal, but will be disclosed as a result of the Court’s
decision.
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the privilege is to promote such “full and frank communication.” Opinion, ¶ 10. We
should encourage such communication.
¶45 Nothing similar to these duties exists between the employer and the claimant. The
Court notes that employers and employees also share common interests, and reasons that
such interests align an employer with employees in a manner similar to the employer’s
alignment with the insurer. However, I believe this to be an unrealistic view of the
litigation process, even within the workers’ compensation context. While the employer
and employee surely have numerous shared interests, the precise question here is the
shared interests and the shared obligations of the employer and insurer in resolving the
pending litigation.
¶46 For these reasons, I believe that, under Montana law, Roscoe shared a “community
of interest” with Zurich in the resolution of this claim. In re Rules, ¶ 70. I would grant
supervisory control and would reverse the District Court.
/S/ JIM RICE
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