Source: https://casetext.com/case/aetna-casualty-surety-co-v-superior-court
Timestamp: 2019-04-22 08:24:34+00:00

Document:
Peter J. Thurston, Donald E. Sloan, Judith H. Pearce and Gibson, Dunn Crutcher for Petitioners.
Peter B. Brekhus, Scott A. Williams, Brekhus Williams, Ralph Arnsdorf and Richard A. Canatela for Real Parties in Interest.
This proceeding in mandamus arises out of a discovery matter in an action against an insurance company, the Aetna Casualty and Surety Company (Aetna). The underlying action is one for declaratory relief in which a counter claim for bad faith denial of insurance coverage has been filed.
Jan Pietrzak (Pietrzak), one of the real parties in interest herein, owned a home in Marin County which was insured under a fire and casualty insurance policy issued by Aetna. On January 4, 1982, a severe rainstorm touched off a mud slide which completely destroyed Pietrzak's home. Pietrzak subsequently filed a claim for compensation for the loss. Aetna retained the law firm of Thornton, Taylor Downs (Thornton) to assist in the investigation of this claim. In May of 1982 Aetna filed a declaratory relief action claiming that Pietrzak's insurance policy did not cover damages caused by "earth movement or flooding." Although Thornton apparently assisted Aetna in determining whether the insurance policy covered the damage to Pietrzak's home, because of a possible conflict of interest Thornton withdrew as counsel for Aetna prior to the time the declaratory relief action was commenced. The declaratory relief action was filed by Aetna's new counsel, Gibson, Dunn Crutcher.
In response to the declaratory relief action, Pietrzak filed a claim alleging bad faith denial of insurance coverage. Pietrzak then served a subpoena duces tecum on Thornton's custodian of records requiring the custodian to produce Thornton's files regarding its investigation of the Pietrzak claim. In addition, Pietrzak served notices of deposition on two Thornton attorneys who had been involved in investigating the Pietrzak claim.
Aetna, through its new counsel, resisted discovery by filing a motion to quash the subpoenas or for a protective order. Aetna argued below and reiterates here that much of the information in the files is protected by the attorney-client privilege. Aetna also maintains that some of the documents in the file are attorney work product and thus protected by the work product privilege. These claims were supported by the declaration of Thornton's custodian of records, which seeks to establish why the documents in question are privileged. Aetna also contended below and continues to contend here that any relevant information possessed by the two attorneys whom Pietrzak seeks to depose is protected by the attorney-client privilege. The judge denied Aetna's motions, but stayed his order until such time as we could rule on Aetna's petition for a writ.
This contention was supported below by the declarations of the two attorneys.
For reasons that shall be set forth, we conclude that the judge below erred in denying Aetna's motions, that the order should be vacated, and we therefore direct issuance of a peremptory writ of mandate.
The opposition to the motions below and to Aetna's petition for extraordinary relief indicate that Pietrzak impliedly admits that the attorney-client privilege would protect at least some of the information sought to be discovered, except that Aetna has either waived the privilege or that certain exceptions to the attorney-client privilege apply in this case. In other words, Pietrzak does not dispute that at least some of the information sought to be discovered was originally intended as a "confidential communication" between a lawyer and client. (Evid. Code, § 954.) Pietrzak asserts, however, that the usual protections of the attorney-client privilege do not apply in this case first, because he and Aetna were joint clients of Thornton; second, because Aetna is relying on "advice of counsel" as a defense to the action for bad faith denial of insurance coverage; third, because Thornton was retained by Aetna to "act in the capacity of an agent other than an attorney"; and finally, because Aetna's state of mind is at issue. These alleged "exceptions" are either inapplicable to the facts of this case or without foundation in law.
1. The Joint Client Exception.
(1) Pietrzak asserts that the attorney-client privilege does not here apply because of the joint client exception of Evidence Code section 962 This section provides that "Where two or more clients have retained or consulted a lawyer upon a matter of common interest, none of them, nor the successor in interest of any of them, may claim a privilege under this article as to a communication made in the course of that relationship when such communication is offered in a civil proceeding between one of such clients (or his successor in interest) and another of such clients (or his successor in interest)."
Although Pietrzak specifically cited section 962 in his opposition to the motions below, he does not explicitly rely upon this section in his response to the instant petition. In other respects, his argument below on this point is substantially the same as that advanced here. We assume, despite his silence, that Pietrzak is still relying on section 962, since without this section his conclusion (that the attorney-client privilege does not apply because Thornton was hired to represent both the insured and the insurer) would be reduced to a non sequitur.
In essence, Pietrzak argues that Aetna had a duty to conduct a neutral investigation of his claim, that any attorney hired to assist in such investigation was necessarily consulted upon a matter of common interest, and that therefore he and Aetna were in effect joint clients of the investigating attorney.
To support his claim that Aetna had a duty to carry out a neutral investigation in such a manner as to safeguard his interests, Pietrzak relies upon the following language from Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809 [169 Cal.Rptr. 691, 620 P.2d 141]: "For the insurer to fulfill its obligation not to impair the right of the insured to receive the benefits of the agreement, it . . . must give at least as much consideration to the latter's interests as it does to its own. [¶] The insured in a contract like the one before us does not seek to obtain a commercial advantage by purchasing the policy — rather, he seeks protection against calamity. . . . The purchase of such insurance provides peace of mind and security. . . . To protect these interests it is essential that an insurer fully inquire into possible bases that might support the insured's claim." ( Id., at pp. 818-819 (italics added).) Pietrzak then states: "The Supreme Court made it clear in Egan that an insurance carrier has an obligation to conduct a neutral investigation in response to claims submitted by its insureds. . . . [¶] Thus, to the extent that an insurer finds it necessary to retain counsel to assist in the investigation of an insured's claim, counsel could only be hired on behalf of both the insurer and the insured to investigate a matter of common interest."
To bolster his position Pietrzak cites Glacier Gen. Assurance Co. v. Superior Court, supra, 95 Cal.App.3d 836. In Glacier, the appellate court determined that the joint client exception was applicable where an insurance company hired an attorney to represent the insured and the insurance company in defending a malpractice action. The court stated: "[W]hen an insurer, as required by its contract of insurance, employs counsel to defend its insured, any communication with the lawyer concerning the handling of the claim against the insured, is necessarily a matter of common interest to both the insured and the insurer." ( Id., at p. 842.) The court reasoned that since the attorney was consulted on a matter of "common interest," the joint client exception applied.
Egan and Glacier are, however, factually inapposite, because in neither of those cases was there any legal dispute on the basic issue of coverage, nor the hiring of counsel by the carrier with respect thereto. As Aetna points out, our more recent decision in Houston Gen. Ins. Co. v. Superior Court (1980) 108 Cal.App.3d 958 [ 166 Cal.Rptr. 904], is much more germane. In Houston, an insured brought suit against an insurance company (Houston) for bad faith failure to defend and sought discovery of the claims file. Houston apparently complied with the request to produce the claims file, but excised from the "file activity log" notes of three conversations between Houston's representative and a San Francisco lawyer (Arnold). The majority found that, as in this case, the attorney had been consulted by the insurer only to determine whether it had an obligation to defend the insured against a personal injury suit. The telephone conversations concerned the insurance company's legal obligation to defend. ( Id., at p. 961.) Accordingly, we held the insured was not entitled to production of the excised portions of the claims file.
In Houston, as in the present case, the insurance company argued that the material sought to be discovered was protected by the attorney-client privilege and that the joint client exception did not apply. In agreeing that that exception did not apply, the majority in Houston stated: "Our review of the record in the instant case convinces us that an essential prerequisite for the establishment of a joint client relationship, i.e., the employment of the attorney by the insurance company to defend the claim against the insured, has not been established." ( Houston, supra, 108 Cal.App.3d at p. 964, italics in original.) In the present case, Thornton was, of course, never employed to defend a claim made against real party. Rather, as in Houston, Thornton was merely consulted to assist Aetna in determining the extent of it's obligation to the insured.
We therefore conclude that the joint client exception to the attorney-client privilege does not apply to the facts before us.
(2a) Pietrzak next contends that Aetna is relying on "advice of counsel" as a defense to the action for bad faith denial of insurance coverage, and that by relying on this defense Aetna waives the attorney-client privilege with respect to all communications with counsel concerning the transactions for which the advice was sought.
(2b) In any event, we need not pursue this distinction between the federal and state rules because it appears that Aetna is not in fact relying on an "advice of counsel" defense. As set forth in its brief in support of the instant petition, "Aetna is not saying that their conduct was reasonable because their counsel opined so, but rather that their conduct was reasonable because the facts indicated that no valid claim existed." (Italics in original.) Stated differently, Aetna claims it acted as it did not because it was advised to do so, but because the advice was, in its view, correct; and it is prepared to defend itself on the basis of that asserted correctness rather than the mere fact of the advice. Such a defense does not waive the attorney-client privilege.
3. Thornton was employed by Aetna in its capacity as attorney.
(4) Pietrzak's next argument is that the attorney-client and work product privileges does not apply here because Thornton was employed "to act in the capacity of an agent other than an attorney"; more particularly, Pietrzak claims Thornton was hired to act as some form of outside claims adjuster, rather than to render legal advice. Pietrzak cites four cases to support this argument: Estate of Perkins (1925) 195 Cal. 699 [ 235 P. 45]; Hager v. Shindler (1865) 29 Cal. 47; Montebello Rose Co. v. Agricultural Labor Relations Bd. (1981) 119 Cal.App.3d 1 [ 173 Cal.Rptr. 856]; and Watt Industries, Inc. v. Superior Court (1981) 115 Cal.App.3d 802 [ 171 Cal.Rptr. 503].
In all of the foregoing cases the client's dominant purpose in retaining the attorney was something other than the request for a legal opinion or advice. However, as Pietrzak states in his own brief, in the case before us "Aetna retained Thornton to investigate Pietrzak's claim and make a coverage determination under the policy." This is a classic example of a client seeking legal advice from an attorney. The attorney was given a legal document (the insurance policy) and was asked to interpret the policy and to investigate the events that resulted in damage to determine whether Aetna was legally bound to provide coverage for such damage.
(5a) In the instant case it appears that the judge did not conduct an in camera examination of the written or verbal communications which Pietrzak seeks to discover. Instead, despite Aetna's prima facie showing via declaration that at least some of the communications were privileged, the judge, without inspecting those communications, refused to issue an order limiting Pietrzak's access to Thornton's files or the testimony of the attorneys. In these circumstances, it was error for the judge to give Pietrzak carte blanche access to the files and testimony, as he did.
Since there is no reporter's transcript of the hearing on the motion to quash and for protective order in the record before us, we cannot say for certain that an in camera inspection was not conducted. However, the judge's order states that his decision was made after "having read and considered the moving papers, and having heard oral argument of counsel. . . ." The order does not refer to an in camera inspection of the communications. In addition, neither Aetna's petition nor Pietrzak's response refers to any in camera inspection. Thus, on the record before us we assume that no in camera inspection was conducted.
(6) Pietrzak finally contends that by filing his bad faith action he has put Aetna's state of mind at issue and, because of this, the attorney-client privilege is not applicable. This argument is palpably untenable. If we were to adopt such a rule the attorney-client privilege would have no application in a myriad of actions where state of mind is an issue or could easily be made one.
In the present case, Aetna did not put the state of mind of its former attorney (Thornton) in issue by bringing the declaratory relief action. Rather, it was Pietrzak (the party seeking discovery) who put Aetna's state of mind at issue by filing a counter claim for bad faith denial of insurance coverage. If Pietrzak could in this manner waive the privilege on behalf of Aetna Merrit would be turned on its head and bad faith claims would surely proliferate as a new device for obtaining discovery.
In short, the argument that the attorney-client privilege does not apply in this case because Aetna's state of mind is an issue is entirely without merit.
B. The Work Product Privilege.
In his opposition to the motion below, Pietrzak argued that the work product privilege does not apply to the files in this case for two reasons. The first is that the work product privilege assertedly only applies to materials "prepared in anticipation of litigation." This is incorrect. (8) As recently stated in Rumac, Inc. v. Bottomley (1983) 143 Cal.App.3d 810 [ 192 Cal.Rptr. 104], the work product privilege is not limited to documents prepared in anticipation of litigation but also applies to the work product of an attorney generated in his role as counselor. ( Id., at pp. 815-816.) It is clear in this case that Thornton was hired to provide legal counsel regarding the Pietrzak claim — thus, writings which reflect Thornton's impressions, conclusions, opinions or legal research or theories are absolutely privileged under the work product doctrine.
In his response to the petition Pietrzak fails to clearly distinguish between arguments regarding the attorney-client privilege and those aimed at the work product privilege. In so doing, he ignores fundamental distinctions between the two privileges. The attorney-client privilege protects confidential communications between an attorney and his client (Evid. Code, §§ 950-954), whereas the work product privilege protects an attorney's work product regardless whether it has been communicated to the client. (Code Civ. Proc., § 2016, subd. (b).) To the extent Pietrzak's arguments considered earlier in this opinion may have been directed towards the work product privilege, we find them meritless.
Pietrzak also argued below that the work product privilege is not absolute, since the work product of an attorney is discoverable when a party establishes a compelling need to gain access to the material (such as when the attorney's work product is the only evidence on an issue). It is true that the California work product privilege is not absolute with respect to some documents; however as earlier pointed out, certain writings (those containing an attorney's impressions, conclusions, opinions, or legal research or theories) are absolutely protected by this privilege. (5b) As was also indicated earlier, Aetna presented affidavits to the court establishing a prima facie case that some of the documents contained in the files are absolutely privileged. However, instead of conducting an in camera inspection to determine whether and, if so, which documents were privileged, the court apparently rejected out of hand Aetna's request for a protective order. This was error.
In sum, we find that the court below erred in denying Aetna's motions to quash the subpoenas or, in the alternative, for a protective order.
Let a peremptory writ of mandate issue directing the San Francisco County Superior Court to vacate its order of August 12, 1983, denying Aetna's motions and commanding said court to hold such further proceedings as are consistent with the views expressed in this opinion.
Rouse, J., and Smith, J., concurred.

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