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January 15, 2013

Bank of America, N.A. v. Superior Court (2013) 212 Cal.App.4th 1076

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The Fourth District holds that a tripartite attorney-client relationship exists between an insurer, an insured, and counsel when retained to prosecute an action to protect the interests of the insured.  Communications within the tripartite relationship are protected by privilege. 

Bank of America refinanced Helena Cho’s home mortgage.  The terms of the loan included repayment of the existing mortgage, and a first deed of trust in Bank of America’s favor.  Transnation Title Insurance Company (Transnation) issued a title insurance policy to Bank of America insuring the priority of Bank of America’s deed of trust over any other lien or encumbrance.  Under the Transnation Policy, it had the right to institute and prosecute any action to establish the lien of the insured mortgage or to prevent or reduce damage or loss to Bank of America.  Transnation was acquired by Lawyer’s Title, which in turn was acquired by Fidelity.

Cho had also encumbered her home to Pacific Capital Bank (PCB) to secure a business line of credit.  PCB’s deed of trust recorded shortly before Bank of America’s.  PCB notified Bank of America about actions it was taking to foreclose on its lean.  Bank of America tendered a claim under the Transnation Policy.  Fidelity accepted the claim and retained counsel to commence an action to subrogate Bank of America to the position of the prior lender, whose loan Bank of America had satisfied.  After the lawsuit was filed, Fidelity retained Gilbert, Kelly, Crowley & Jennett (“Gilbert”) to represent Bank of America.

Gilbert attorneys communicated extensively with Fidelity about the case and their communications with Bank of America.  Gilbert also transmitted research and other written work product to Fidelity.  Most of the Fidelity communications were with its in house counsel, and included her thoughts and impressions.  Gilbert believed there was a tripartite relationship between it, Bank of America, and Fidelity.  Gilbert also believed communications with Fidelity were protected by the attorney-client privilege and the attorney work product privilege.

PCB served subpoenas on Fidelity’s parent company for communications between Gilbert and Fidelity.  Bank of America moved to quash or modify the subpoenas for communications protected by the attorney-client privilege or attorney work product doctrine.  PCB argued the tripartite attorney-client relationship was destroyed, because Fidelity was providing coverage to Bank of America under a reservation of rights.

The trial court denied the motions to quash, reasoning there was no attorney-client relationship with Fidelity because Gilbert was retained to prosecute the action, rather than to defend a claim.

The Court of Appeal held that a tripartite relationship existed between Fidelity, Gilbert, and Bank of America.  An attorney retained by an insurance company to defend its insured represents and owes a fiduciary duty to both the insurer and insured.  Within the relationship communications are routinely exchanged relating to a joint and common purpose, the successful defense and resolution of the claim.

There is no distinction between the insurer-insured-attorney relationship based on the prosecution, as opposed to defense, of an action.  The Transnation Policy specifically permitted the insurer to prosecute actions to protect the insured.  Under some circumstances, prosecution of a case may be necessary to avoid a claim of bad faith.  To distinguish between defending an action and prosecuting one would deny a tripartite attorney-client relationship from ever forming when a title insurer takes action to protect its insured’s title.

Fidelity’s reservation of rights did not affect the tri-partite relationship.  A reservation of rights in itself does not create a disqualifying conflict requiring the appointment of independent counsel.  Fidelity’s reservation of rights was premised on Bank of America’s late notice of the claim, an issue unrelated to the issues in the PCB lawsuit.  There was nothing in the record to indicate Gilbert was acting as independent counsel for Bank of America.  Even if there were a conflict, the right to invoke it would belong solely to Bank of America.  Further, under Civil Code § 2860 (d), information disclosed by the insured or its independent counsel to an insurer is not a waiver of the privilege as to any other party

The Court disagreed Fidelity waived its right to object because it did not bring its own motion to quash.  Fidelity and Bank of America were joint clients, each holding the privilege, and one client may not waive the privilege without the consent of the other.  Thus, Bank of America’s actions were sufficient to preserve the issues.

Nor was the court persuaded that Bank of America waived the attorney-client or attorney work-product privileges.  Earlier in the litigation, the trial court ruled Bank of America had waived privilege objections with respect to interrogatories by failing to submit a privilege log as required by a case management order.  PCB argued it would be contradictory if Bank of America could obtain a protective order preventing disclosure of documents where the privilege was waived.  Bank of America’s writ petition challenging the earlier ruling had been summarily denied.  However, a summary denial of a petition for writ of mandate is not a denial on the merits, does not become law of the case, and does not bind the Court of Appeal.

Bank of America did not waive claims of attorney-client privilege and attorney work product by failing to submit a privilege log in response to the subpoenas.  The privilege log requirement was imposed by the trial court’s case management order mandating a privilege log for all discovery responses seeking to assert privilege.  The order deemed any privilege objection waived if the privilege log failed to specify documents to specifically numbered discovery requests.  At the time of the case management order and discovery motion, the Code of Civil Procedure did not require preparation of a privilege log to preserve objections based on privilege or attorney work product.  A court has no authority to issue court-room rules in conflict or inconsistent with statute.  Moreover, Bank of America did not file a response to the subpoenas but filed motions to quash which the trial court treated as motions for protective orders.  Thus, the case management order, even if valid, did not require Bank of America to submit a privilege log.  When the court ordered a log at the hearing on the motion, Bank of America complied.

Confidential communications between lawyer and client are broadly protected from disclosure.  The privilege protects communications be-tween legal professionals within the law firm representing the client; communications between a business entity and its in-house counsel; and communications made during preliminary consultation, regardless whether the attorney is ultimately retained

The party claiming the privilege has the burden of establishing the preliminary facts necessary to support its existence.  Once established, the communication is presumed to have been made in confidence, and the opponent of the claim of privilege has the burden to establish the communication was not confidential or that the privilege does not apply for other reasons.  Every communication on Bank of America’s log was between Fidelity, Bank of America, and Gilbert or some combination of the three.  There was no indication that any communication was disclosed to a third party.

The Court disagreed with PCB that an in camera inspection was either necessary or permitted.  Each entry in the privilege log indicated it was either a protected communication or included analysis and legal assessment.  Only if there was some indication that the privileged documents included unprivileged material would an in camera inspection be appropriate.

Comment: This case clarifies that the tripartite relationship, and the privileges that accompany it, exists when an insurer prosecutes an action to protect its insured.


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