October 22 2007
04-831
IN THE SUPREME COURT OF THE STATE OF MONTANA
2007 MT 264
BOBBIE and RON PETERSON,
Plaintiffs and Appellants,
v.
THE DOCTORS’ COMPANY, an Interinsurance Exchange,
Defendant, Appellee and Cross-Appellant.
APPEAL FROM: District Court of the Fourth Judicial District,
In and For the County of Missoula, Cause No. DV 02-491,
Honorable Ed McLean, Presiding Judge
COUNSEL OF RECORD:
For Appellants:
E. Craig Daue and Douglas A. Buxbaum, Buxbaum,
Daue & Fitzpatrick, PLLC, Missoula, Montana
For Appellee:
Shelton C. Williams and Susan Moriarity Miltko, Williams
Law Firm, P.C., Missoula, Montana
Submitted on Briefs: March 22, 2006
Decided: October 22, 2007
Filed:
__________________________________________
Clerk
Justice Jim Rice delivered the Opinion of the Court.
¶1 Appellants Bobbie and Ron Peterson (Petersons) appeal from evidentiary orders
entered by the Fourth Judicial District Court during the trial of Petersons’ claims under
the Montana Unfair Trade Practices Act (MUTPA) against Appellee The Doctors’
Company (TDC) precluding admission of certain letters and correspondence between
attorneys in the underlying malpractice case and allowing TDC to admit a disputed death
verdict chart. TDC cross-appeals the District Court’s evidentiary orders which precluded
its discovery of certain attorney files and excluded evidence of a prior relationship
between Petersons and TDC. We affirm in part, reverse in part, and remand for a new
trial.
¶2 We consider the following issues on appeal:
¶3 (1) Did the District Court abuse its discretion in excluding as hearsay letters and
correspondence written by counsel for the Petersons and received by The Doctors’
Company during settlement negotiations of the Petersons’ malpractice claims?
¶4 (2) Did the District Court abuse its discretion in admitting a minor death verdicts
chart?
¶5 (3) Did the District Court abuse its discretion in refusing to allow discovery of the
Petersons’ attorneys’ files in the underlying action?
¶6 (4) Did the District Court abuse its discretion in excluding all evidence of the
previous relationship between Petersons’ attorneys and The Doctors’ Company?
2
BACKGROUND
A Complicated Pregnancy
¶7 The Petersons, residents of Anaconda, wanted to have another baby. Bobbie had
previously lost a child in utero and was forty-five years old, so the Petersons knew there
were risks and no guarantees. Still, desiring a child, the Petersons faced the risks and
were delighted when they conceived in the fall of 1996.
¶8 The Petersons documented the pregnancy on videotape, and immersed themselves
in newborn fever—shopping for baby clothes and preparing a nursery. They also
entrusted their care to Butte Ob-Gyn, Dr. Robert St. John, a Butte physician to whom
Bobbie’s primary care physician had referred them. On November 25, 1996, Dr. St. John
informed the Petersons that they were not merely having a single child; they were
expecting twins.
¶9 Dr. St. John recognized that Bobbie’s twin gestation made the already risky
pregnancy even riskier, and he communicated those risks to the Petersons.
Unfortunately, precautions could not prevent a low-lying placenta, and a suspected total
previa, which St. John diagnosed in January 1997. Further, an ultrasound performed in
February 1997 revealed that one of the twin boys had a cyst on his chest. Located near
the twin’s heart, the cyst was not only life threatening for the boy, but also added a
further risk to Bobbie’s pregnancy. As a result of the cyst and the other complications,
Dr. St. John referred the Petersons to a physician in Salt Lake City, and arranged to have
the babies delivered there so that specialists could perform surgery on the imperiled twin
immediately after birth.
3
¶10 Bobbie continued regular appointments with Dr. St. John, including a single
appointment with St. John’s associate, Dr. Jamieson, throughout March and April of
1997. She appeared stable and in relatively good condition at an appointment with Dr.
St. John on May 7, 1997. However, at that appointment, given the inherent risks of
Bobbie’s pregnancy, Dr. St. John asked to see Bobbie again in two weeks, wanting her to
return within a day of May 21, 1997. Unexplainably, however, Dr. St. John’s staff
scheduled Bobbie’s next appointment for May 27, almost three weeks later.
¶11 Over the next couple weeks, Bobbie’s condition changed. As expected, her
abdomen was very large, but her feet and legs became severely swollen, she was plagued
with a chronic cough, experienced frequent nausea and vomiting, and was in significant
discomfort. On May 24, days after Dr. St. John had originally wanted to see her, Bobbie
experienced shortness of breath which caused her to call Dr. Jamieson, who was on call
for Dr. St. John, then on vacation. Dr. Jamieson had once examined Bobbie and had been
briefed about Bobbie by Dr. St. John before his departure. Despite Bobbie’s known risks,
her current symptoms and panicked demeanor, Dr. Jamieson did not believe Bobbie’s
condition warranted immediate attention that night. Instead, he merely gave Bobbie the
option of going to the hospital if she desired to do so. She stayed at home.
¶12 Bobbie awoke to extreme discomfort on May 27. Though she had an appointment
scheduled for 4:15 p.m. that day, she called Dr. St. John’s office that morning, and
requested to be seen earlier. However, her request to reschedule was not accommodated.
She thus waited, arriving at Dr. St. John’s office at 4:15 p.m., in what Dr. St. John later
described as a serious condition. As noted by Dr. St. John at his deposition:
4
She was in moderate to severe preeclampsia. She was in early premature
labor. She was markedly uncomfortable. She was short of breath, dizzy.
At that point, she had gone into an extreme high-risk state for both she and
her babies.
¶13 Upon Bobbie’s arrival, Dr. St. John immediately performed an ultrasound in his
office, though he did not allow the Petersons to tape or watch the procedure as had been
their custom. The results seemed unclear. While Dr. St. John asserted at his deposition
that at least one of the twins was alive at the time of the office ultrasound, he also blamed
poor equipment and a failure of one of the nurses for the lack of information gleaned
from the procedure:
The nurse’s efforts to try to get the fetal tracing could have interfered with
her care of Bobbie, but she didn’t do it long enough to make a difference.
....
The ultrasound machine at the hospital was donated and was not adequate
for doing an ultrasound on a lady with twins who was in trouble.
¶14 After completing the ultrasound and evaluating Bobbie’s condition, Dr. St. John
ordered Bobbie immediately admitted to St. James Hospital. Thereafter, he contacted the
Salt Lake City facility to coordinate Bobbie’s transfer. Records indicate that the transport
team arrived in Butte at 10:10 p.m., after which Bobbie and Ron were transported to Salt
Lake City. At the time of their departure, the Petersons believed that both of their babies
were still alive.
¶15 After a difficult ride, during which Bobbie lost consciousness at least once, the
Petersons, haggard and tired, arrived in Salt Lake City. A post-arrival ultrasound
confirmed devastating news: the twin boys who would have been the Petersons’ fourth
5
and fifth children, had tragically died. Autopsies revealed death by fetal hypoxia stress.
The autopsies further revealed that one twin had died approximately two to three days
previous, while the other had died approximately one day earlier. At death, both twins
were estimated to be thirty-seven weeks of gestational age.
The Malpractice Claim
¶16 Pursuant to § 27-6-701, MCA, the Petersons filed a malpractice claim before the
Montana Medical Legal Panel (MMLP) on April 16, 1999, alleging that Drs. St. John and
Jamieson had mismanaged Bobbie’s pre-natal care and had caused the death of the twin
boys through negligent acts. At the panel proceedings, as well as during subsequent legal
proceedings, the doctors were represented by their malpractice carrier, TDC.
¶17 Almost immediately after initiating the representation, TDC hired Dr. Thomas
Benedetti (Benedetti), a board-certified Ob-Gyn and perinatologist from the University of
Washington Medical Center, to review the case and to opine on the care provided by Drs.
St. John and Jamieson. According to a TDC Claim Evaluation Report, Dr. Benedetti
“was highly critical of the care rendered by Dr. St. John.” In fact, Dr. Benedetti seriously
questioned Dr. St. John’s lack of antepartum testing and fetal monitoring, his decision to
transfer Bobbie to Salt Lake City without confirmation of a living fetus, and his failure to
admit Bobbie to the hospital earlier. According to TDC records, Dr. Benedetti noted that
“I really feel bad being so critical of somebody practicing in small towns but some of this
is just basic stuff.”
¶18 The MMLP proceedings concluded on July 22, 1999.
6
The Settlement Negotiations
¶19 Shortly after the MMLP rendered its decision, Petersons’ attorney, Craig Daue,
notified TDC of the Petersons’ desire to settle the case. The notification was by letter
dated August 12, 1999. Thereafter, on August 25, 1999, Daue wrote a second letter to
TDC, offering to settle the case for $350,000. The offer of $350,000 was the first offer
made by either side. Aside from the dollar amount, the letter detailed Daue’s theory of
the case and estimated the Petersons’ personal damages as well as the present value of the
twin boys’ lifetime earnings.
¶20 TDC attorney John Maynard received Daue’s letter of August 25, 1999, on August
27, 1999, and discussed its contents with a TDC claims adjuster. Thereafter, in an
internal memo dated September 29, 1999, the adjuster reviewed the facts of the case, and
noted that (1) the Petersons had offered to settle for $350,000, (2) Dr. Benedetti was not
supportive of Dr. St. John’s care of Bobbie Peterson, and (3) Dr. St. John was interested
in settling to protect Dr. Jamieson. Subsequently, the TDC adjuster prepared a Claim
Evaluation Report on October 22, 1999, which noted that:
Thomas J. Benedetti, M.D., a board-certified OB-GYN and perinatologist
practicing at the University of Washington Medical Center in Seattle, WA,
reviewed the records in this matter and was highly critical of the care
rendered by Dr. St. John.
(Emphasis added.) The adjuster also stated that:
This is a case that carries some liability exposure, and our best and possibly
only defense will be with regards to causation.
Despite identifying Dr. Benedetti’s critical opinion and but one viable defense, the report
characterized the doctors’ liability as “Remote” on TDC’s in-house Doctor Risk
7
Assessment Trigger, or “DRAT” code.1 The report estimated the Petersons’ damages to
be $150,000.
¶21 TDC offered to settle with the Petersons for $25,000 on November 11, 1999, the
settlement communicated vis-à-vis a letter written by a claims adjuster. As a basis for the
counter-offer, the adjuster stated:
This offer is, in part, based on our position that Mrs. Peterson substantially
contributed to any alleged loss of chance of survival of the fetuses through
her decision not to be seen in the emergency department the evening of
May 24, 1997. . . . I do not know how persuasive your client will be when
testifying “mother to mother” as to her reasons for choosing not to be seen
in the emergency department.
Aside from casting blame on Bobbie Peterson, the letter was also emphatic regarding the
final settlement amount, noting that any pre-litigation settlement would not approach the
1
TDC created the DRAT program in 1994 as a means of identifying physicians
who were causing a substantial share of TDC’s losses. TDC’s claims adjusters were to
opine on physician liability, quantifying their opinion with a number ranging from 1 to 7.
According to the DRAT Code, “1” stands for “No Liability,” “2” stands for “Remote
Liability,” “3” for “Questionable Liability,” “4” for “Undetermined,” “5” for “Possible
Liability,” “6” for “Probable Liability,” and “7” for “Liability.”
According to a TDC memo concerning the DRAT Code:
In essence, you’re making a judgment on a scale of 1 to 7 indicating from
lowest to highest what you think is the degree of liability. Number 4 is the
midpoint which would be used in all cases where we have not made any
determination. When in doubt, we should start with using the number 4 for
a mid-code. In order to pick a code above or below the midpoint, a review
should have been done. There may be a case with obvious facts that makes
it possible for us to determine in-house, without any outside reviews, that
liability does or does not exist. An example is a case where the physician
operated on the wrong body part—we do not need a review to tell us that
this would be a likely case of liability.
8
Petersons’ first offer of $350,000—“I can assure you that any amount offered prior to
litigation will not reach the six-figure range.”
¶22 The Petersons rejected TDC’s $25,000 offer, and filed suit in the District Court on
January 19, 2000. Thereafter, the parties prepared for statutorily mandated mediation.
See § 27-6-606(3), MCA. As part of their preparation, TDC arranged for review of the
case by a second expert, Dr. Van Kirke Nelson. This expert was also critical of the care
provided by Dr. St. John. In a memo written by claims adjuster Barbara Simmons and
addressed to TDC counsel John Maynard, Simmons summarized Dr. Nelson’s review as
follows:
[H]e feels Dr. St. John’s care is inexcusable—The nurses refute St. John’s
statements that he couldn’t get a good visualization of the twins because the
ultrasound equipment at the hospital was inferior—St. John could and
should have done more—Further, St. John knew but did not tell the parents
that their babies were died [sic] but had an obligation to do so. [Dr.
Nelson] is unable to support St. John.
Simmons upgraded the DRAT Code from Remote Liability to Liability six days before
Dr. Nelson’s critical review.
¶23 Although the parties were initially unable to agree on a settlement, the case
remained in the mediation process throughout the fall of 2000. The Petersons created a
settlement brochure and letter which they sent to TDC on or around November 11, 2000.
This package (1) outlined the Petersons’ theory of the case, citing admissions and
statements from various depositions regarding the doctors’ liability, (2) outlined the
damages suffered by the Petersons, and (3) responded to potential defenses. Further,
9
based on the information in the brochure, the Petersons withdrew their $350,000
settlement offer, their counsel stating as follows:
We had expected the proof of causation to be difficult. However, Dr. St.
John’s testimony that this sad outcome could “absolutely” have been
prevented with timely medical attention eliminates any credible causation
defense by retained experts.
....
We have always recognized that this case has strong jury appeal. What we
feared were technical defenses to the standard of care and causation
elements, especially causation. Those concerns are now effectively
eliminated through the most effective proof possible, the admissions of the
defendants. To the extent that I may have done a disservice to my clients
by failing to anticipate how well their case would come together, I will not
attempt to hide that mistake by advising that they now accept less than full
value for their case. . . . We will be prepared to make the first offer at the
mediation.
¶24 Notwithstanding the evidence and arguments set forth in the settlement brochure,
the December 15, 2000, mediation did not result in a settlement. The Petersons were
unwilling to accept TDC’s final offer of $80,000, when they sought in excess of
$400,000. Thereafter, Barbara Simmons prepared an updated Claim Evaluation Report
on January 8, 2001. The report, vis-à-vis the DRAT Code, indicated Simmons’ belief
that both doctors were liable. Furthermore, the report indicated that both Simmons and
defense counsel estimated that there was an 80 percent chance of a plaintiff verdict if the
case went to trial. TDC, however, did not increase its settlement offer, and litigation
continued for another year. During that year, Bobbie Peterson attempted suicide and
child pornography charges were levied against Dr. Jamieson.
10
¶25 The parties participated in a second mediation on January 17, 2002, approximately
two months before trial was set to begin. During this mediation, held about two and one-
half years after the Petersons initially requested a settlement, the parties settled for
$375,000. As part of the settlement, the Petersons expressly reserved the right to bring a
third party MUTPA action against TDC.
The MUTPA Action
¶26 The Petersons filed the present action against TDC on May 20, 2002, wherein they
alleged that TDC violated MUTPA by (1) failing to undertake a prompt and thorough
investigation, (2) failing to attempt to effectuate a fair settlement after liability became
reasonably clear, and (3) failing to conduct themselves in good faith. Specifically, the
Petersons alleged that TDC knew or should have known that Drs. St. John and Jamieson
were negligent and liable for the death of the Petersons’ twin boys, yet refused to settle
for a fair amount.
¶27 TDC answered the complaint on August 6, 2002, asserting nine affirmative
defenses, including that the Petersons did not want to settle and they and their attorneys
had created delays which had hindered settlement, that Petersons’ attorneys had not
provided necessary damage information, and that TDC had relied on the advice of
counsel, precluding liability under the MUTPA.
¶28 At trial, the Petersons gave notice that they intended to admit as evidence their
settlement demand letters and brochures to refute TDC’s defense that the Petersons did
not want to settle and did not give TDC information demonstrating their damages. TDC
objected on hearsay grounds. In response, the Petersons asserted that the letters and
11
settlement brochures were admissible under § 26-1-103, MCA, known as the transaction
rule. The court, however, rejected this basis for admission of the documents, sustaining
TDC’s objection. As a result, during the trial, defense witnesses and counsel made
statements suggesting that the Petersons did not want or try to settle and further, argued
to the jury that the Petersons did not give specific information regarding certain damages.
For instance, TDC’s Vice President of Claims testified that:
Yes, I mean, I think if the plaintiff’s attorney wants to settle a case, they
have the burden of proof to prove to us that they’ve got the damages, and
it’s their obligation to provide us with the information, and the only
information we can get pre-litigation . . . would be from them.
In its closing argument, TDC argued that:
The Plaintiffs wouldn’t negotiate. [TDC] offered eighty thousand dollars.
The Plaintiffs walked out of the mediation.
Barbara Simmons called up, and said she wanted to negotiate. She gave
them an open door. They wouldn’t negotiate.
Plaintiffs had a different agenda. They were not—obviously, not interested
in settlement.
¶29 The District Court also ruled that the Petersons’ attorneys’ files from the
underlying malpractice action were after-acquired evidence and not discoverable, and
excluded evidence regarding the past relationship between counsel for the Petersons and
counsel for TDC. Finally, the court admitted a minor death verdicts chart offered by
TDC to illustrate its use of this verdict information in the process of negotiating the
claim.
¶30 The jury returned a verdict in favor of TDC, indicating on the special verdict form
that TDC did not violate the MUTPA because it did not “(A) misrepresent pertinent facts
12
relating to coverages at issue; (B) [r]efuse to pay the Petersons’ claim without conducting
a reasonable investigation based upon all available information; [and] (C) [n]eglect to
attempt in good faith to make prompt, fair, and equitable settlements of the Petersons’
claim if liability had become reasonably clear.” The Petersons appeal, and TDC cross-
appeals, from the District Court’s evidentiary rulings.
STANDARD OF REVIEW
¶31 “A district court has broad discretion in determining whether evidence is relevant
and admissible . . . .” Glacier Tennis Club v. Treweek Construction Co., 2004 MT 70, ¶
47, 320 Mont. 351, ¶ 47, 87 P.3d 431, ¶ 47. Accordingly, we review a district court’s
evidentiary rulings for abuse of discretion. Glacier Tennis Club, ¶ 47; see also Payne v.
Knutson, 2004 MT 271, ¶ 20, 323 Mont. 165, ¶ 20, 99 P.3d 200, ¶ 20. “A district court
abuses its discretion when it acts arbitrarily without employment of conscientious
judgment or exceeds the bounds of reason, resulting in substantial injustice.” State v.
Riggs, 2005 MT 124, ¶ 18, 327 Mont. 196, ¶ 18, 113 P.3d 281, ¶ 18; see also Citizen
Advocates For a Livable Missoula v. City Council, 2006 MT 47, ¶ 18, 331 Mont. 269, ¶
18, 130 P.3d 1259, ¶ 18.
DISCUSSION
1. Did the District Court err in excluding as hearsay letters and correspondence
written by counsel for the Petersons and received by The Doctors’ Company during
settlement negotiations of the Petersons’ malpractice claims?
¶32 The Petersons claimed that TDC violated § 33-18-201, MCA, by (1) not
considering all available information before attempting settlement, and (2) not effecting a
good faith settlement after liability became reasonably clear. In pursuit of those claims,
13
the Petersons offered the settlement letters and brochures dated August 12, 1999, August
26, 1999, and November 11, 2000, to show that TDC knew that the Petersons had wanted
to settle their claim, that TDC possessed the Petersons’ detailed settlement demands and
theory of the case, from at least November 11, 2000, and that liability was reasonably
clear long before the final settlement. The District Court, however, sustained TDC’s
hearsay objection to this evidence, rejecting the Petersons’ argument that the letters and
brochures were admissible under § 26-1-103, MCA. We conclude that the District Court
abused its discretion in not admitting these letters.
¶33 Included within Petersons’ suit was the assertion that TDC had violated § 33-18-
201(4), MCA, which prohibits a refusal to pay claims without conducting a “reasonable
investigation based upon all available information,” and § 33-18-201(6), MCA, which
prohibits neglecting to attempt in good faith to effectuate a prompt, fair and equitable
settlement of a claim “in which liability has become reasonably clear.” Both of these
claims thus test the propriety of the actions taken or not taken by the insurer in light of
the information possessed by the insurer at the time it adjusted the underlying claim.
¶34 The Petersons’ letters and brochure, offered to establish that TDC possessed these
documents when it adjusted the Petersons’ claim, were not, within this MUTPA trial,
“testimonial” evidence subject to a hearsay objection in the absence of the author.
Within a MUTPA trial, these documents intrinsically speak for themselves, and thus,
upon a foundation that the documents were, in fact, within TDC’s possession when
adjusting the Petersons’ claim, an issue apparently not contested here, the documents
were admissible. Of course, the parties are free to dispute the truthfulness of the
14
statements made within the documents or the significance of the documents—TDC
would be free to attempt to dismiss them as inaccurate, inadequate or inconsequential—
but it cannot block, on hearsay grounds, the admission of documents it held when
adjusting the underlying claim. The failure to admit the documents was an abuse of
discretion.
¶35 Having concluded that the documents were admissible in a MUTPA trial and that
TDC’s hearsay objection was ineffectual, we need not take up Petersons’ argument that
the documents were admissible pursuant to the transaction rule. Further, we conclude
that this error, which prevented the Petersons from establishing the full extent of the
information possessed by TDC at the time it adjusted their claim, and from answering
defenses raised by TDC, was prejudicial to the Petersons, requiring reversal and a remand
for a new trial.
2. Did the District Court err in admitting a minor death verdicts chart?
¶36 On numerous occasions during the MUTPA trial, TDC made reference to and
presented to the jury Exhibit J-2, a chart summarizing child death verdicts in Montana
and referred to by the parties as the “Montana Law Week Minor Death Verdicts Chart”
(Verdicts Chart). One of TDC’s primary arguments within the trial was that Montana
juries have not generally ruled in favor of plaintiffs who seek damages for the death of
their children, and that this information was of consequence to TDC’s settlement posture.
That information was illustrated on the Verdicts Chart. Over the objection of Petersons,
the District Court admitted the chart as a demonstrative exhibit, but excluded evidence
about the underlying cases from which the verdict information was drawn. On appeal,
15
the Petersons argue that the Verdicts Chart is irrelevant, prejudicial, and inadmissible
hearsay. TDC counters that the information presented in the exhibit represents an
important tool utilized by both adjusters and lawyers in settlement negotiations, and
therefore, argues that the chart was highly relevant evidence for a MUTPA trial.
¶37 TDC presented the Verdicts Chart to assist juror understanding of the malpractice
settlement procedures and values it utilized in adjusting the Petersons’ claim. TDC used
the past minor death verdicts and awards in calculating its settlement offers; indeed, the
more defense verdicts it uncovered, the more unwilling it was to settle for the Petersons’
desired price. Accordingly, it was relevant as a demonstration of the information used by
TDC when adjusting Petersons’ claim, which could tend to prove that TDC negotiated
with the Petersons in good faith.
¶38 Relevant evidence is generally admissible. State v. Vandersloot, 2003 MT 179,
¶ 16, 316 Mont. 405, ¶ 16, 73 P.3d 174, ¶ 16; see also M. R. Evid. 402. However, the
Petersons argue that the Verdicts Chart, if relevant, was nevertheless so prejudicial as to
make it inadmissible. M. R. Evid. 403 provides:
Although relevant, evidence may be excluded if its probative value is
substantially outweighed by the danger of unfair prejudice, confusion of the
issues, or misleading the jury, or by considerations of undue delay, waste of
time, or needless presentation of cumulative evidence.
¶39 Evidence was offered at the trial to demonstrate that knowledge of past verdicts
and settlements is critical to an insurer when evaluating malpractice claims, and that such
information provides a basis on which to generate settlement offers and counter-offers.
The information contained in the Verdicts Chart simply reflected what past juries have
16
decided in child death cases. While potentially helpful to TDC and thus prejudicial to
Petersons’ claims, it was a truthful representation of the information used in the process
at issue, and we cannot conclude that either the information or the manner it was
presented within the Verdicts Chart was so prejudicial as to substantially outweigh the
exhibit’s probative value. Ultimately, this MUTPA action was not about the amount of
the settlement which TDC paid to the Petersons, but, rather, about the process used by
TDC before entering the settlement. The District Court limited somewhat the use of the
verdict information and gave the Petersons ample opportunity to cross-examine witnesses
and challenge the exhibit on its veracity and the comparability of its contents to the
present case. We conclude that the admission of the chart was not an abuse of discretion
by the District Court.
3. Did the District Court err in refusing to allow discovery of the Petersons’ attorneys’
files?
¶40 TDC moved to compel production of Petersons’ attorneys’ files from the
underlying malpractice case against the doctors. The District Court struggled with the
motion, originally granting the request, but ultimately, upon Petersons’ request for
rehearing, denying the motion. In the end, the court found the information contained in
the Petersons’ attorneys’ files irrelevant to the question of whether TDC negotiated in
good faith pursuant to MUTPA.
¶41 In its cross-appeal, as it did in the District Court, TDC argues that much of the
information contained in the Petersons’ attorneys’ files was highly relevant to its defense
of the MUTPA action. Specifically, TDC argues that information about how the
17
Petersons’ valued their own case is relevant to whether TDC complied with MUTPA, and
that the Petersons’ file may contain information regarding Petersons’ delay or an
unwillingness to settle. The Petersons argue that their attorneys’ files are irrelevant to the
question of whether TDC negotiated in good faith, since that question is based on what
TDC knew at the time it adjusted the claim.
¶42 M. R. Civ. P. 26(b)(1) provides:
Parties may obtain discovery regarding any matter, not privileged, which is
relevant to the subject matter involved in the pending action, whether it
relates to the claim or defense of the party seeking discovery or to the claim
or defense of any other party. . . . It is not ground for objection that the
information sought will be inadmissible at the trial if the information
sought appears reasonably calculated to lead to the discovery of admissible
evidence.
Thus, when deciding whether to allow discovery, the question is whether the sought-after
files could reasonably lead to discovery of admissible evidence. Here, the District Court
ruled that the Petersons’ attorneys’ files from the underlying action were irrelevant in the
pending MUTPA matter and were therefore undiscoverable.
¶43 The essence of a claim under § 33-18-201, MCA, is that an insurer, given
information available to it, has acted unreasonably in adjusting a claim, perhaps by
failing to investigate, failing to communicate or failing to negotiate in good faith. Section
33-18-201, MCA, seeks to protect parties from such acts, and the relevant issue is almost
universally how the insurer acted given the information available to it. See EOTT Energy
Operating Ltd. Partnership v. Certain Underwriters at Lloyd’s of London, 59 F.Supp.2d
1072, 1075-76 (D. Mont. 1999); Twin City Fire Ins. Co. v. Burke, 63 P.3d 282, 286-87
(Ariz. 2003). In most cases, the conduct of the claimant or how the claimant evaluated its
18
own case is simply irrelevant. In a MUTPA case, the claimant’s attorney’s file from the
underlying claim is generally undiscoverable under M. R. Civ. P. 26(b).
¶44 Despite this general rule, however, this Court has previously noted that a
claimant’s conduct in the underlying matter can be relevant for purposes of a later
MUTPA case, if the claimant acts in such a way which delays or impairs the ability of the
insurer to settle. See Spadaro v. Midland Claims, Inc., 227 Mont. 445, 450-51, 740 P.2d
1105, 1108-09 (1987); Juedeman v. National Farmers Union Prop., 253 Mont. 278, 281-
82, 833 P.2d 191, 193 (1992), overruled on other grounds, Shilhanek v. D-2 Trucking,
2003 MT 122, ¶ 32, 315 Mont. 519, ¶ 32, 70 P.3d 721, ¶ 32. Where such actions by the
claimant are proven, the insurer may defeat the claimant’s claims under § 33-18-201,
MCA. Spadaro, 227 Mont. at 450-51, 740 P.2d at 1108-09; Juedeman, 253 Mont. at 282,
833 P.2d at 193. Accordingly, we cannot conclude that an attorney’s file from an
underlying case is per se undiscoverable in a subsequent MUTPA case. Depending upon
the claims asserted by the plaintiff, the attorney’s file may contain information
reasonably calculated to lead to discoverable evidence about actions of a claimant
supporting an insurer’s defense. Such discovery requests by an insurer, however, cannot
be “fishing expeditions.” The requests must be narrowly tailored to lead to discoverable
information, and the district courts may well need to prohibit discovery requests which
are too broad, given the particular claims and defenses of each case.2
2
Of course, such discovery requests must also comply with the law which protects
attorney work product. An attorney’s ordinary work product may be discovered upon a
showing that it is relevant and not privileged. M. R. Civ. P. 26(b)(1). An attorney’s
opinion work product may be discovered only upon a showing that the attorney’s mental
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¶45 Here, Petersons claimed that TDC had failed to act promptly, failed to effectuate a
fair settlement and failed to act in good faith. TDC defended by asserting that the
Petersons did not want to settle and had failed to provide information on damages in the
underlying case, thus delaying and impairing TDC’s ability to settle. As such, TDC
argues it was entitled the opportunity to discover such information from the Petersons’
attorneys’ files which would support its defenses to the claims the Petersons had raised.
¶46 The District Court ruled that Petersons’ attorneys’ files were per se irrelevant and
undiscoverable, which we conclude was an overbroad basis on which to deny the request,
in light of our foregoing discussion. However, we further conclude that TDC’s discovery
requests were not narrowly tailored to lead to discoverable information. Rather, TDC
sought
all of the files, records and documents of any sort, including time, expense,
and billings [sic] records maintained by your attorney Craig Daue, his law
firm, partners and associates relating to your representation in connection
with your underlying claims against Robert St. John and Andrew Jamieson,
together with the files of all investigators, consultants or experts retained by
your attorneys relating to those claims.
TDC also requested “all of [Petersons’] files, records and documents of any sort relating
to or referring to the occurrence in question, the injuries and damages allegedly flowing
impressions are “directly at issue in the case and the need for the material is compelling.”
Palmer by Diacon v. Farmers Ins. Exchange, 261 Mont. 91, 117, 861 P.2d 895, 911
(1993). “To meet the ‘compelling need’ requirement, the party seeking discovery must
demonstrate that weighty considerations of public policy and the administration of justice
outweigh the need to protect the mental impressions of the opposing party’s attorneys or
its representatives.” Palmer by Diacon, 261 Mont. at 117, 861 P.2d at 911. See also
Prindel v. Ravalli County, 2006 MT 62, ¶ 63, 331 Mont. 338, ¶ 63, 133 P.3d 165, ¶ 63.
The District Court cited “attorney-client and/or work product protections” as a reason for
denial of the discovery request.
20
from the occurrence, or to your claims against Defendant.” Clearly, TDC’s requests were
not limited in scope and tailored to its defenses to Petersons’ claims, such as a request for
those documents created during the period of settlement negotiations it believed
Petersons had engaged in delay tactics. The information sought was far broader than that
necessary to discover information regarding Petersons’ alleged delay and impairment of
TDC’s ability to settle.
¶47 The District Court had broad discretion with regard to discovery matters in this
case. We cannot say that it abused its discretion by denying TDC’s overly broad requests
for all of Petersons’ and their attorneys’ files in the underlying action. Accordingly, we
affirm.
4. Did the District Court err in excluding all evidence of the previous relationship
between Petersons’ attorneys and The Doctors’ Company?
¶48 In support of its defenses, TDC sought to introduce evidence of Petersons’
attorneys’ relationship and role, in recent past, with TDC. Petersons’ attorneys had
previously been employed by TDC and represented the insurer in medical malpractice
litigation. In answer to Petersons’ claim that its settlement offers to the Petersons were
unfair and “lowball,” TDC sought to introduce recommendations made by Petersons’
counsel in similar cases when they were employed by TDC. Further, in support of
TDC’s assertion that Petersons and their attorneys were responsible for the delay in
settlement, TDC sought to introduce evidence that Daue’s recent departure from TDC
had left TDC’s other counsel in a time bind. Finally, TDC sought to demonstrate that its
21
relationship with Petersons’ attorneys affected the manner in which they negotiated on
Petersons’ claims.
¶49 The District Court concluded that this evidence was both irrelevant and highly
prejudicial, and prohibited TDC from introducing evidence of these past relationships,
reasoning that:
Mention of Craig Daue’s or Douglas Buxbaum’s prior representations and
communications with other Insureds are irrelevant and further it is highly
prejudicial to the Plaintiffs, Bobbie and Ron Peterson. Mr. Bob Phillips is
being called as an expert for the Defendants in this case to cover what the
defense intends to bring out in this request. It has the appearance of being
an attack on the credibility of Mr. Daue and the Court will not allow it.
¶50 Although we agree with TDC that some of the evidence about these past
relationships may have been relevant to the extent that it may have explained how TDC
formulated its negotiation strategy and why TDC acted in certain ways, we agree with the
District Court that any probative value of this evidence was substantially outweighed by
the danger of unfair prejudice to the Petersons. Further, the District Court afforded TDC
a limited opportunity to explain how knowing Petersons’ counsel affected TDC’s
settlement strategy. As stated by the court:
Mr. Maynard [counsel for TDC] can explain his friendship with Mr. Daue
[counsel for the Petersons] and his knowledge of Mr. Daue in forming his
strategy of “step offers.” However, there will be no mention of prior
representation of Mr. Daue or his firm [at] The Doctors’ Company.
Given that opportunity and the significant potential for prejudice, we conclude that the
District Court did not abuse its discretion in substantially precluding the introduction of
this evidence in the trial, and this cross-appeal issue is affirmed.
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CONCLUSION
¶51 Issues two, three and four are affirmed. On the basis of our resolution of Issue
one, this matter is reversed and remanded for proceedings consistent with this opinion.
/S/ JIM RICE
We concur:
/S/ KARLA M. GRAY
/S/ W. WILLIAM LEAPHART
/S/ JAMES C. NELSON
/S/ PATRICIA COTTER
/S/ BRIAN MORRIS
Justice John Warner dissents.
¶52 I respectfully dissent. The case was fairly tried in the District Court and the
judgment should be affirmed. The District Court’s evidentiary rulings were well
considered and well within its discretion.
¶53 The underlying medical negligence case is not nearly as simple as the Court
describes it. Petersons’ claims arose out of a later-in-life pregnancy involving a
constellation of dangerous complications. The result, the death of the twins Mrs.
Peterson was carrying, was sad, even tragic. However, notwithstanding the Court’s one-
sided statement of the facts, the record shows that TDC has a viable argument that the
underlying claims might have been successfully defended.
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¶54 As noted by the Court at ¶ 32, the Petersons offered into evidence in this MUTPA
action demand letters and a settlement brochure prepared by their counsel and sent to
counsel for TDC. The Court states that the relevance of these documents was to prove
that plaintiffs did indeed want to settle, that TDC possessed plaintiffs’ theory of the case,
that plaintiffs made a demand for money, and that liability was reasonably clear.
¶55 There was no contest during the trial that the Petersons made offers to settle, and
that they made a demand for money damages. The facts concerning offers that were
made, when, and for what amounts, were in evidence. The jury duly considered the
course of the settlement negotiations in the underlying case.
¶56 Petersons suffered no unfair prejudice by the exclusion of these documents. There
was no contest that they were received. The testimony of the TDC vice-president of
claims, quoted by the Court at ¶ 28, is taken out of context. His testimony was to the
effect that he could not recall that TDC received plaintiffs’ medical bills, and it was
plaintiffs’ obligation to provide this information. The letters and settlement brochure
were not necessary to prove whether TDC received plaintiffs’ medical bills.
¶57 The closing argument of TDC’s counsel, quoted by the Court at ¶ 28, was a
comment on the evidence in the case. That argument acknowledged that offers to settle
were made, and rejected, by both sides. And, because the evidence included the
particulars of each offer, there was nothing of substance hidden from the jury by the
District Court’s order excluding the letters written by plaintiffs’ counsel and the
settlement brochure, which naturally tout Petersons’ version of the underlying case.
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¶58 The letters and brochure this Court now orders into evidence are testimonial
evidence. They were indeed received by TDC, but they most certainly do not
intrinsically speak for themselves—they speak for Petersons and their lawyer. They are,
understandably, rife with hyperbole advanced in support of Petersons’ cause. The real
purpose of offering these documents into evidence, which the District Court recognized
and this Court misses entirely, was to allow Petersons’ counsel to testify as to his opinion
that the underlying case was a sure winner, and that the damage award would be large.
The effect of admitting them into evidence is to allow a plaintiff’s lawyer to testify as an
expert, without subjecting himself to cross-examination. And, of course, the very reason
for the hearsay rule is to exclude evidence that is not subject to cross-examination. State
v. Mizenko, 2006 MT 11, ¶ 170, 330 Mont. 299, ¶ 170, 127 P.3d 458, ¶ 170; see Bean v.
Montana Bd. of Labor Appeals, 1998 MT 222, ¶ 34, 290 Mont. 496, ¶ 34, 965 P.2d 256, ¶
34.
¶59 The question tried to the jury was whether TDC acted in bad faith in its dealings
with Petersons as defined by MUPTA. The letters from their counsel and the settlement
brochure are only tangentially related to this question. However, as this mostly irrelevant
and cumulative evidence is now ordered to be admitted into evidence on re-trial, TDC
must be allowed to include in its defense its in-house evaluation of plaintiffs’ counsel, as
recognized by the Court at ¶ 50. TDC is entitled to defend its decision in the underlying
case that liability was not reasonably clear. Since Petersons’ lawyer’s opinion on this
issue will be admitted into evidence on re-trial, TDC must be allowed to present evidence
25
on why it questioned this opinion. TDC’s past relationship with Petersons’ counsel has
now become highly relevant.
¶60 The demand letters contain numerous statements of fact that are disputable. Both
the demand letters and the settlement brochure are literally filled with the opinions of
Petersons’ counsel. If their lawyer is to be allowed to testify as to facts and to give his
opinion as an expert, via documents he prepared, his files must now be discoverable to
examine the basis of such opinions, as well as to find out if the information contained in
these files leads to admissible evidence which could aid the defense. This is not only
required by M. R. Evid. 705, it is necessary if TDC is to be “free to dispute the
truthfulness of the statements made within the documents” and “free to attempt to dismiss
them as inaccurate, inadequate or inconsequential” as stated by the Court at ¶ 34. And,
TDC might wish to call Petersons’ lawyer as a witness concerning the purpose, content,
and veracity of the demand letters and settlement brochure. This could easily raise
problems with present counsel’s continuing representation under Rule of Professional
Conduct 3.7, which prohibits a lawyer from acting as an advocate at a trial in which he is
likely to be a necessary witness, except under certain circumstances.
¶61 As noted by the Court at ¶ 31, a district court has broad discretion to determine the
admissibility of evidence, and this Court reviews a district court’s evidentiary rulings for
an abuse of discretion. To reverse a district court’s evidentiary ruling for abuse of
discretion, this Court must determine that the district court either “‘act[ed] arbitrarily
without employment of conscientious judgment or exceed[ed] the bounds of reason[,]
resulting in substantial injustice.’” Riggs, ¶ 18; Kiely Constr., L.L.C. v. City of Red
26
Lodge, 2002 MT 241, ¶ 92, 312 Mont. 52, ¶ 92, 57 P.3d 836, ¶ 92 (quoting Jarvenpaa v.
Glacier Elec. Co-op., Inc., 1998 MT 306, ¶ 13, 292 Mont. 118, ¶ 13, 970 P.2d 84, ¶ 13).
The letters and settlement brochure are literally full of hearsay and properly excluded
under M. R. Evid. 802.
¶62 The experienced trial judge not only recognized the true purpose of the letters and
settlement brochure, his ruling excluding them caused no prejudice to plaintiffs as no
material facts were kept from the jury. It was the exclusion of the letters and settlement
brochure which made discovery and introduction into evidence of Petersons’ counsel’s
file unnecessary. As they will be admitted into evidence on re-trial, all of the underlying
facts or data which forms the basis of these opinions become relevant and also
discoverable. M. R. Evid. 705.
¶63 In my view, the evidentiary rulings of the trial judge were made in the exercise of
sound judgment and they did not exceed the bounds of reason resulting in substantial
injustice. I would affirm the judgment and dissent from the Court’s decision to remand
this case for another trial.
/S/ JOHN WARNER
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