Do the New Rules Make Your File an Open Book?
By Jeffrey Thomas Llamas and Robert Duane Frizell
Three recent Texas courts of appeal cases appear to strip away any argument for maintaining the confidentiality of statements by insureds in the absence of an attorney client relationship. These holdings threaten to expose virtually any insured-carrier communication during pre-suit investigations, despite claims of privilege and work product. Two cases apply the new rules of discovery to uphold trial court orders compelling production of certain communications between an insured and carrier. See In re Team Transp., Inc., 996 S.W.2d 256 (Tex. App.–-Houston [14th Dist.] 1999, orig. proceeding); In re W&G Trucking, Inc., 990 S.W.2d 473 (Tex. App.–Beaumont 1999, orig. proceeding).
Another case (filed in 1999 after implementation of the new rules) also holds that witness statements, regardless of party status, are not subject to work product protection. See In re Jimenez, 4 S.W.3d 894 (Tex. App.–-Houston [1st Dist.] 1999, orig. proceeding). Although each case has a distinct factual and procedural context, all three hold for the disclosure of a "witness statement" made by a party. The cases also ignore or reject those provisions of the rules that support the application of work product protection to party communications.
When the Texas Supreme Court enacted the new rules of discovery on January 1, 1999, there was little doubt that the "statement of any person with knowledge of relevant facts" in a newly filed case would have no specific exemption from discovery. See Tex. R. Civ. P. 192.3(h); see also Tex. R. Civ. P. 192.5(c)(1) (excluding "witness statements" from work product protection). This was a significant change from the long-standing exemption for statements of "potential witnesses and parties" under the old Texas Rule of Civil Procedure 166b(3)(c). Nevertheless, the comments to the new rules also made it clear that elimination of the exemption did not make a statement automatically discoverable if statements were otherwise privileged (e.g., subject to the attorney client communication privilege under Texas Rule of Evidence 503). See Tex. R. Civ. P. 192 cmt.9.
The new rules also deleted any reference to the "party communications" privilege found in old Rule 166b(3)(d); however, the new rules broadened and more specifically defined "work product" exemptions to encompass some aspects of the party communications protection. See Tex. R. Civ. P. 192.5 (a)(2); Tex. R. Civ. P. 192 cmt.8. In an apparent conflict, these rules also prohibit the assertion of privilege on work product in response to a request for disclosure. See Tex. R. Civ. P. 194.5.
Despite the effect of comments 8 and 9 to Rule 192, which explicitly preserve and apply privileges to "witness statements," these recent appellate court cases raise serious questions about how an insured and carrier can effectively protect pre-suit communications, even in sure-to-be-litigated claims. In applying the new rule standard in the two cases filed before the new rules became effective in 1999, the courts held that retroactive application did not violate fairness and equity principles, because the old rules would have allowed discovery of statements or party communications upon a showing of substantial need and undue prejudice; therefore, the defendants were not deprived of a "substantive right." See Team Transp., 996 S.W.2d at 260; W&G Trucking, 990 S.W.2d at 475-76. Both courts failed to discuss or apply that same standard as to "other work product" under the new rules. See Tex. R. Civ. P. 192.5(b)(2). In effect, these decisions simply ignored the burden on the party seeking discovery to show need and hardship as to party communications.
In re W&G Trucking, Inc.: Attorney Client Privilege Not Established; Defendant "Witness Statement" Deemed Discoverable
While the cases filed prior to 1999 involved witness statements (which were clearly subject to the old substantial need exception), only W&G Trucking raised a claim of attorney client privilege. Unlike witness statements or party communications, attorney client privilege has never been subject to the "substantial need" and "undue hardship" exception.
W&G Trucking involved a wrongful death action arising from a truck accident. The plaintiff obtained a trial court order compelling the production of an insured defendant truck driver’s statement. The statement had been obtained from the defendant by an insurance investigator two days after the accident. The defendant sought to protect the statement under attorney client privilege but, apparently, without asserting party communications or work product objections.
The hearing record clearly established that the statement was taken after litigation was reasonably anticipated. See W&G Trucking, 990 S.W.2d at 474. Nevertheless, this fact had no bearing on the outcome, because the defendant had not raised a work product or party communications objection or, at least, the court noted none. Thus, protection of the statement hinged on the attorney client privilege alone.
Unfortunately for the insured defendant in W&G Trucking, the "record [did] not establish that [the driver] was a ‘client,’ that the agent represented [the driver], or that the agent took [the driver’s] statement to facilitate rendering him legal services." Id. at 475. On that basis, the appellate court upheld the trial court decision to compel production of the statement for failure to establish the elements of the privilege. See id. Here, the W&G Trucking case lays out some of the essential facts that any insurance carrier would need to establish in its file or in the substance of a recorded statement to begin to set the predicate for later raising the attorney client privilege.
In re Team Transport, Inc.: Corporate Executive’s Letter to Insurance Carrier Deemed Discoverable "Witness Statement"
The Team Transport case involved a warehouse accident. An executive of the insured defendant premise owner sent a letter to its carrier six days after the accident occurred. The letter included (Part 1) a description of the accident as given by the insured’s allegedly negligent employee, and (Part 2) a discussion of applicable safety procedures and policies used by the company. See In re Team Transp., 996 S.W.2d at 258.
The defendant had raised a work product objection pursuant to the new rules in response to the plaintiff’s motion to compel production of "all investigative reports." Id. As in W&G Trucking, the trial court found "‘anticipation of litigation,’" but nevertheless ordered production of the document as a witness statement. See id. Relying on Rule 192.3(h), the trial court found that Part 1 of the letter was discoverable as a witness statement.1 See id. (The defendant had "essentially conceded" as much. Id. at 258).
The defendant then argued that Part 2 of the letter was protected work product under the Rule, which covers "‘materials prepared or mental impressions developed in anticipation of litigation or for trial by or for a party or a party’s representative.’" Id. at 259 (quoting Tex. R. Civ. P. 192.5(a)(1)). The defendant also relied on the definition of work product as it pertains to communications among party representatives, including insurers and others.2 See id.
In upholding the trial court, the appellate opinion analyzed the new work product rule, and focused on the specific exclusion of "witness statements" from work product. The Court of Appeals noted the defendant’s argument that Part 2 of the letter "is a privileged communication between its agent and insurer." Id. Nevertheless, the Team Transport Court never actually reached the issue whether work product protected Part 2 of the letter. Noting that the defendant-movant failed to provide a reporter’s record of the hearing below, the Court denied relief from a production order, because the defendant failed to carry its "burden of providing this court with a sufficient record to establish its right to mandamus relief." Id.
In the absence of a record to support the party communications argument, the Court was left to conclude that Part 2 of the letter was "part and parcel of" the witness statement and was, therefore, discoverable. Id. In reaching its conclusion, the Court specifically noted that a discoverable witness statement is not limited to those persons with direct personal knowledge, e.g., an eyewitness. See id.
In re Jimenez: Defendant Automobile Driver’s Statement to Insurance Carrier Not Covered by Work Product Privilege
In re Jimenez involved an automobile accident between a plaintiff and a defendant. The plaintiff filed a motion to compel disclosure of a statement provided by the defendant to his insurance carrier, which was taken in anticipation of litigation. The plaintiff argued that the defendant improperly withheld his own statement under the work product privilege. The defendant argued that because comments to the new discovery rules indicated that privileges still applied to witness statements, the work product privilege protected his statement from disclosure. The appellate court disagreed, holding that when the only privilege asserted is "work product," a witness statement is not protected from discovery. See In re Jimenez, 4 S.W.3d at 896. Unlike Team Transport and W&G Trucking, this case squarely rejects an assertion of work product protection for a party’s own statement; however, the appellate court does not provide a detailed analysis of party-communication issues. If Jimenez correctly states the law, then only the attorney client privilege can normally be expected to protect a pre-suit statement by a party to his carrier or employer.
Conclusions
Although these cases will undoubtedly be used aggressively by those seeking insurance carrier files and investigation materials, they also lay out the bases for limiting their own effect. Discovery exposure can be minimized (if not entirely avoided) by following the guidelines below:
In certain cases with obvious high exposure, you may want to hire counsel to handle critical pre-suit communication in order to maximize the duration and scope of privilege.3
In our opinion, an open question remains about the application of work product protection to party statements. Careful file handling and legal foresight may help resolve this question in favor of insureds.
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1. The rules define the term "witness statement" as "(1) a written statement signed or otherwise adopted or approved in writing by the person making it, or (2) a stenographic, mechanical, electrical, or other type of recording of a witness’s oral statement, or any substantially verbatim transcription of such a recording." TEX. R. CIV. P. 192.3(h). [back to text...]
2. Rule 192.5, which defines "work product" in two parts, includes in the definition "a communication made in anticipation of litigation or for trial between a party and the party’s representatives or among a party’s representatives, including . . . attorneys, consultants, sureties, indemnitors, insurers, employees, or agents." TEX. R. CIV. P. 192.5(a)(2). [back to text...]
3. Keep in mind that the simple act of hiring an attorney does not, of itself, impart privilege status to all communications. See In re Texas Farmers Ins. Exch., 990 S.W.2d 337, 340-42 (Tex. App.—Texarkana 1999, orig. proceeding [leave filed]) (holding that the work product protection is limited and that the attorney client privilege is inapplicable to the extent a lawyer is acting as an investigator, rather than an attorney, in pre-suit examinations under oath and investigation activity). [back to text...]