Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-03002/USCOURTS-cand-5_06-cv-03002-14/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:2201 Declaratory Judgement (Insurance)

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 1 The holding of this court is limited to the facts and the particular circumstances

underlying the present motion.

ORDER, page 1

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

EMPLOYERS INSURANCE OF

WAUSAU,

Plaintiff,

v.

CALIFORNIA WATER SERVICE CO.,

Defendant. __________________________________

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Case No.: C- 06-3002 PVT

ORDER DENYING PLAINTIFF’S

MOTION TO COMPEL DISCOVERY

I. INTRODUCTION

This lawsuit involves the question of whether policies issued by Plaintiff Employers

Insurance of Wausau (“Wausau”) to Defendant California Water Service Co. (“Cal. Water”)

provide coverage for water contamination alleged in two underlying lawsuits that were filed in

the Eastern District of California.1

 On August 14, 2007, the parties appeared before Magistrate

Judge Patricia V. Trumbull for hearing on Wausau’s Motion to Compel Production of

Documents withheld by Cal. Water on claim of attorney client privilege. The issue before the

court is whether Cal. Water waived the attorney client privilege and the work product immunity

Case 5:06-cv-03002-RMW Document 239 Filed 10/09/07 Page 1 of 9
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ORDER, page 2

for communications involving itself, its counsel in the underlying litigation, and its counsel in

the current litigation. On August 15, 2007, the Court Ordered Supplemental Briefing on issues

inadequately covered in the original briefs filed. Based on all of the papers filed, and the

arguments of counsel at the hearing, the Court Denies Wausau’s Motion to Compel Production

of Documents.

II. LEGAL STANDARDS

A. Legal Standards

A federal court exercising diversity jurisdiction applies California law to issues relating

to the attorney-client privilege and federal law governs disposition of issues relating to work

product immunity. Fed. R. Evid. 501; First Pacific Networks, Inc. v. Atlantic Mut. Ins. Co, 163

F.R.D. 574, 577 (N. D. Cal. 1995). 

Under California law, 

‘confidential communication between client and lawyer’ means information

transmitted between a client and his or her lawyer in the course of that

relationship and in confidence by a means which, so far as the client is aware,

discloses the information to no third persons other than those who are present to

further the interest of the client in the consultation or those to whom disclosure is

reasonably necessary for the transmission of the information or the

accomplishment of the purpose for which the lawyer is consulted, and includes a

legal opinion formed and the advice given by the lawyer in the course of that

relationship. 

Cal. Evid. Code § 952. California defines waiver as follows:

Except as otherwise provided in this section, the right of any person to claim a

privilege provided by Section 954 (lawyer-client privilege) . . . is waived with

respect to a communication protected by the privilege if any holder of the

privilege, without coercion, has disclosed a significant part of the communication

or has consented to disclosure made by anyone. Consent to disclosure is

manifested by any statement or other conduct of the holder of the privilege

indicating consent to the disclosure, including failure to claim the privilege in any

proceeding in which the holder has the legal standing and opportunity to claim the

privilege.

Cal. Evid. Code § 912.

Additionally, California law guaranteed Cal. Water the right to independent counsel to be

paid for by Wausau, if coverage exists for the underlying litigation. The law provides: 

When independent counsel has been selected by the insured, it shall be the duty of

that counsel and the insured to disclose to the insurer all information concerning 

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ORDER, page 3

the action except privileged materials relevant to coverage disputes, and timely to

inform and consult with the insurer on all matters relating to the action. Any

claim of privilege asserted is subject to in camera review in the appropriate law

and motion department of the superior court. Any information disclosed by the

insured or by independent counsel is not a waiver of the privilege as to any other

party.

Cal. Civ. Code § 2860(d). 

The attorney-client privilege may be impliedly waived by placing the contents of the

privileged communications at issue in the case. However, “the party opposing the privilege

bears the burden of showing that there has been an implied waiver.” 2,022 Ranch, L.L.C. v.

Superior Court, 113 Cal. App.4th 1377, 1395 (2003), citing Evid. Code, § 917. And waiver can

only be shown by “demonstrating that the client has put the otherwise privileged communication

directly at issue” Id. Finally, the scope of an implied waiver must be “narrowly defined and the

information required to be disclosed must fit strictly within the confines of the waiver.” 

Transamerica Title Ins. Co. v. Superior Court, 188 Cal.App.3d 1047, 1052 (1987).

 In order to resist discovery based on the work product immunity, a party must show

that the discovery sought is: 1) a document or tangible thing; 2) that was prepared in anticipation

of litigation; 3) by or for a party, or by or for its representative. Admiral Ins. Co. v. United States

District Court, 881 F. 2d 1486, 1494 (9th Cir. 1989). The work product immunity “is aimed at

protecting the effectiveness of a lawyer's trial preparations by immunizing such materials from

discovery.” Handgards, Inc. v. Johnson & Johnson, 413 F. Supp. 926 (N.D. Cal. 1976). The

work product immunity is also intended to “prevent exploitation of a party's efforts in preparing

for litigation.” Admiral Ins. Co. v. U.S. Dist. Court for Dist. of Arizona, 881 F.2d 1486, 1494 

(9th Cir. 1989).

III. DISCUSSION

In the legal briefs filed, Wausau argued that Cal. Water had waived the attorney client

privilege and work product immunity by placing the contents of the communications at issue. 

Wausau, however, originally argued only that the issues discussed in the communication were

relevant and did not support the argument that the contents of the communications were directly

at issue. (Mot. at 10:18-22). 

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ORDER, page 4

At the hearing, Wausau appeared to argue that communications between John Podesta 

(counsel in this insurance coverage case) and Patrick Riddle and Paul Sheldon (counsel in the

underlying environmental suits) as to when the contamination occurred are relevant and that

attorney Podesta’s opinion is relevant as an admission by Cal. Water. (Hearing Tr. at 19-22). 

Thus, Wausau argued, the substance of the communications is directly at issue in this lawsuit. 

Based on this new argument, the Court ordered supplemental briefing to allow Wausau to

present legal authority for the novel proposition that an attorney’s assessment of legal issues can

be used as a party admission and to support the argument that the contents of the

communications were directly at issue. Wausau was specifically directed to address the

following California case law:

The in issue doctrine creates an implied waiver of the privilege only when the

client tenders an issue involving the substance or content of a protected

communication, not where the privileged communication simply represents one

of several forms of indirect evidence in a particular case. ( Mitchell v. Superior

Court (1984) 37 Cal.3d 591, 606, 208 Cal.Rptr. 886, 691 P.2d 642.) For this

reason, the doctrine has no application in a coverage action between an insured

and its carrier where the issues turn on the underlying facts and the insured is not

relying on the advice of counsel for any purpose. 

Rockwell Int’l. Corp. v. Superior Court, 26 Cal.App.4th 1255, 1268(1994). 

A. Waiver By Placing Contents At Issue

Wausau argues that Cal. Water created a new theory of liability against itself, for the sole

purpose of triggering insurance coverage. Wausau asserts that the California Department of

Toxic Substances Control (“DTSC”) only claimed that Cal. Water was responsible for failing to

properly decommission certain contaminated wells, allowing those wells to act as a conduit for

PCE contaminated water to flow from shallow and intermediate aquifers into the deep aquifer

(the “Vertical Theory of Liability”). According to Wausau, this cross-contamination conduct all

occurred after 1984 at a time when the insurance policies precluded coverage. The argument

continues that Cal Water, solely in order to create coverage, introduced a new theory of liability:

that it was liable, starting before 1984, for increasing the PCE plume by pumping water (the

“Horizontal Contamination Theory”). 

Wausau claims that the only evidence that Cal. Water has in support of its contention is a

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 2Wausau originally paid for the defense, but ceased after a 1998 California case holding that

administrative claims did not trigger coverage. In 2002, Cal. Water was trying to settle

administrative claims for damages and no lawsuit had yet been filed. Wausau resumed providing

the defense in 2003 after Cal. Water was named as a defendant in the underlying lawsuits. 

ORDER, page 5

declaration from Paul Sheldon, counsel in the underlying litigation. Mr. Sheldon stated: “I

understood from reviewing the pleadings and discussing the case with counsel for DTSC that the

following were included in the claims presented against Cal Water as of December 2005.” Mr.

Sheldon then listed both the Vertical and Horizontal theories of liability. (Sheldon Decl. iso Cal

Water’s Mtn for Summary Judgment, ¶ 13.). Accordingly, Wausau argues that Cal. Water’s

reliance upon its counsel’s understanding of the theories of liability puts the contents of every

document in which Mr. Sheldon discusses the topic of insurance coverage “directly at issue.” 

As Cal. Water argues, it has not relied upon the advice of its attorneys for any purpose. 

Instead, Cal. Water cites Mr. Sheldon as a percipient witness to the fact that the DTSC claimed

that Cal. Water was liable for causing horizontal migration. Whether Cal. Water is or was liable

under CERCLA will be proven by reference to the statute and the scientific reports. Thus, even

if counsel’s opinion is relevant, it is nothing more than indirect evidence. Additionally, Cal.

Water has produced other evidence of Mr. Sheldon’s belief that the DTSC was seeking to

impose liability based on Horizontal Liability. Cal. Water produced a letter dated April 25, 2002

from Mr. Sheldon to Mr. Taylor, Vice President of Operation of Cal. Water, in which he

references a conversation with Jim Tjosvold of the DTSC and that Mr. Tjosvold had asserted

potential liability because “Cal Water has ‘pumped from a well that increases the rate of flow

[sic] contaminated groundwater’” (Hutchinson Decl. Exh. A.) Similarly, two letters written by

Mr. Sheldon to Tim Sullivan of the Attorney General’s office also express concern of the

DTSC’s original statement that horizontal movement of water could lead to liability and attempts

to structure a settlement to exclude any such liability. (Id., Exhs. B and C.) 2

 

Moreover, Cal. Water has not relied upon “the substance or content of a protected

communication.” Instead, it has relied upon the contents of pleadings and a discussion between

Mr. Sheldon and opposing counsel. Thus, the contents of a privileged communication were not

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ORDER, page 6

relied upon by Cal. Water and Cal. Water has not put the substance of any privileged

communication directly at issue. 

B. Waiver by Selective Disclosure

Wausau next argues that Cal Water has waived the attorney client privilege by selective

disclosure of documents relating to coverage issues. The documents that Wausau assets as

selective disclosures of insurance coverage information, however, are simply not privileged. 

First, Wausau cites to handwritten notes stating ““Golden Eagle Coverage?” (Smith Decl. Exh.

E.) This sketchy reference to whether coverage is available or not does not amount to an unfair

selective disclosure. 

The next example is a memo about various litigation and settlement strategies. (Smith

Decl. Exh. F.) The memo does evaluate various strategies and whether insurance would be

available, for example winning litigation would yield insurance coverage and settling would not. 

However, these evaluations do not go to the heart of the coverage question. Instead, they are

more a summary of black letter law and not an unfair selective disclosure.

On July 18, Cal . Water made a supplemental production of privilege log numbers 3, 7,

and 9-13. On July 18, Cal . Water made a second supplemental production of privilege log

numbers 3, 7, and 9-13. Wausau claims that Cal. Water’s willingness to turn over some of the

documents previously withheld is proof of selective disclosure. Wausau, however, does not

assert any way in which Cal. Water received any tactical advantage from this allegedly selective

disclosure. The Court’s review of the documents produced reveals no tactical advantage; instead

Cal Water has merely produced those documents that do not substantively address insurance

coverage issues. For example, log number 7 merely asks attorney Sheldon to review a

document, keeping in mind whether future actions might effect Cal Water’s right to coverage. 

The answer to that question was not produced and the question itself is not an unfair selective

disclosure. Number 12 merely mentions that a stay of litigation will preserve insurance defense

dollars. Similarly, number 13 merely mentions that the attorneys need copies of the insurance 

policies. The other documents either do not obviously mention insurance coverage or contain

similar, innocuous references to the insurance company. Accordingly, there was no selective

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 3Moreover, even if any waiver had been effected, it would be limited to the documents

produced. California law jealously guards the attorney-client privilege and interprets all waivers

narrowly. See, e.g. Owens v. Palos Verdes Monaco, 142 Cal. App. 3d 855, 870-71,(1983)

(disapproved of on other grounds by, Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7

Cal. 4th 503 (1994) (“ a waiver under Evidence Code section 912 relates to the particular

communication which has been revealed and not to all communications concerning the subject

matter of the lawsuit.” ); Lohman v. Superior Court, 81 Cal.App.3d 90, 94 (1978); Sony

Computer Entertainment America, Inc. v. Great American Ins. Co., 229 F.R.D. 632, 635 (N.D.

Cal. 2005) (limiting waiver under California law to single email and any follow -up emails.) 

ORDER, page 7

waiver and the Court will not punish Cal Water for cooperating in the discovery process.3

C. Attorney Opinion as Admission

At the hearing, the Court asked Wausau if Mr. Podesta’s opinion as to when the

contamination occurred was relevant and Wausau responded: “It’s certainly relevant. He’s Cal

Water, and in a case in which we are going against Cal Water in this courtroom for insurance

coverage, he is Cal Water and his admissions are going to be as damning from [sic] as anyone

from Cal Water themselves.” (Hearing Tr. at 21-22). The Court specifically required Wausau to 

provide authority for its assertion that statements made by Cal. Water’s counsel could be

considered admissions by Cal. Water. In response, Wausau merely asserts that Cal. Water has

placed Mr. Sheldon’s understanding at issue and that an in camera inspection is warranted

because some of the withheld documents may be shielding statements concerning facts from

discovery. (Supp. Br. at 6-7). 

Thus, Wausau has provided no legal authority for the astonishing proposition that an

attorney’s private assessment of liability to his client can be an admission of the client. 

Accordingly, the Court finds no basis for finding waiver of the attorney client privilege or work

product immunity based on attorney statements being discoverable as admissions of their clients.

D. Work Product Immunity

Wausau argued that the work product immunity does not apply to any documents created

by underlying counsel because they were not created in anticipation of this litigation. “Litigation

need not have already commenced in order for the work product doctrine to be operative,

however, there must be more than a remote possibility of litigation.” Conner Peripherals, Inc. v.

Western Digital Corp., 1993 WL 726815 at *4 (N.D. Cal. June 8, 1993). The privilege applies

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ORDER, page 8

“if the prospect of litigation is identifiable because of specific claims that have already arisen.” 

Id. The test is whether “ the documents can fairly be said to have been prepared or obtained

because of the prospect of the litigation.” Id.

In this case, the instant coverage litigation was more than a “remote possibility.” Wausau

only tendered defense of the underlying litigation pursuant to a reservation of rights. 

Accordingly, the specific claim that the damage at issue in the underlying lawsuits was not

covered by the relevant insurance policies and that Wausau might seek to reclaim defense costs

had already arisen prior to issuance of these documents. Finally, underlying counsel only

prepared documents relating to insurance coverage because the possibility had already arisen

that coverage would be denied by Wausau. 

Wausau next argues that the work product immunity is only a qualified protection and

that they have met the showing to overcome the immunity. Federal Rule of Civil Procedure

26(b)(3), provides: 

[A] party may obtain discovery of documents and tangible things otherwise

discoverable under subdivision (b)(1) of this rule and prepared in anticipation of

litigation or for trial by or for another party or by or for that other party's

representative . . . only upon a showing that the party seeking discovery has

substantial need of the materials in the preparation of the party's case and that the

party is unable without undue hardship to obtain the substantial equivalent of the

materials by other means. In ordering discovery of such materials when the

required showing has been made, the court shall protect against disclosure of the

mental impressions, conclusions, opinions, or legal theories of an attorney or

other representative of a party concerning the litigation.

Fed. R. Civ. P. 26(b)(3); see also McKenzie v. McCormick, 27 F.3d 1415, 1420 (9th Cir. 1994) 

(A “far greater showing of necessity and unavailability by other means [is] required for 'opinion'

work product.”)

Wausau baldly asserts that the “good cause” requirement has been met “for the reasons

described above”. (Mot. at 12.) Wausau, however, merely argued in its motion that the issues

discussed in the documents sought were central to the litigation. Thus, Wausau has not 

established a “substantial need” for the documents in question. 

//

//

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ORDER, page 9

IV. CONCLUSION

For the foregoing reasons, It Is Hereby Ordered that Wausau’s Motion to Compel

Production of Documents is DENIED.

IT IS SO ORDERED.

Dated: October 9, 2007

____________________________

PATRICIA V. TRUMBULL

United States Magistrate Judge

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