An Oregon District Court in Thompson v. Dennis Widmer Construction, Inc., 2021 WL 5235974 (D. Or., November 10, 2021) limited the insurance company’s ability to access defense counsel’s complete defense file through the tri-partite relationship. The case involved the insurance company failing to settle a lawsuit brought against its insurer because of a lowball settlement offer. The claimants offered to settle the suit against the insured for $250,000, which was then reduced to $198,000. Defense counsel advised the insurance company that the insured faced liability in a range between $190,000 and $280,000 if the case went to trial. The highest settlement offer made by the insurance company was $60,000. Thereafter, the insured and the claimant entered into a stipulated settlement agreement resulting in a $225,000 judgment. The claimants then became judgment creditors and issued a writ of garnishment against the insurance company.
In the garnishment action, the insurance company sought to discover privileged documents from defense counsel’s file, including a complete unredacted version of defense counsel’s file. The focus of the discovery was upon correspondence between the insured and assigned defense counsel, as well as documents to and from defense counsel related to the litigation. When this document request was objected to, the insurer argued that it had a right to defense counsel’s file under the tri-partite relationship.
The District Court, applying Oregon law, denied the insurer’s discovery request, finding that the insured did not have a right to all correspondence between the insured and its appointed defense counsel. According to the Court, once the interests of the insurance company and the insured became adverse, the attorney-client privilege then protected from discovery any information that could be used against the insured drawn from the defense counsel file.
The Court rejected the insurer’s argument that the insurer had a common interest in the underlying tort litigation. The Court rejected this argument, noting that the insurer from the beginning of the litigation took the position that there was little coverage for claims. Additionally, the insured and the insurance company had different interest regarding the settlement and, therefore, the “common interest” exception to the attorney-client privilege under Oregon law did not apply.