Aetna Casualty & Surety Co. v. Superior Court

• Decision Date: 21 February 1984
• Citation: 153 Cal.App.3d 467,200 Cal.Rptr. 471
• Court: California Court of Appeals Court of Appeals
• Parties: The AETNA CASUALTY & SURETY COMPANY, et al., Petitioners, v. SUPERIOR COURT of the State of California For the City and County of San Francisco, Respondent, Jan PIETRZAK, et al., Real Parties in Interest. AO23867.

Page 471

200 Cal.Rptr. 471

153 Cal.App.3d 467

The AETNA CASUALTY & SURETY COMPANY, et al., Petitioners, v. SUPERIOR COURT of the State of California For the City and County of San Francisco, Respondent, Jan PIETRZAK, et al., Real Parties in Interest.

AO23867.

Court of Appeal, First District, Division 2, California.

Feb. 21, 1984.

As Modified March 22, 1984.

[153 Cal.App.3d 470] Peter J. Thurston, Donald E. Sloan, Judith H. Pearce, Gibson, Dunn & Crutcher, San Jose, for petitioners.

Peter B. Brekhus, Brekhus & Williams, San Rafael, Ralph Arnsdorf, San Francisco, Richard A. Canatela, San Carlos, for real parties in interest.

KLINE, Presiding Justice.

This proceeding in mandamus arises out of a discovery matter in an action against an insurance company, The Aetna Casualty & 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.

Because the issues raised in Aetna's petition for writ of prohibition or mandamus involve a highly protected privilege, we granted Aetna's petition and issued the alternative writ. (Sav-On Drugs, Inc. v. Superior Court (1975) 15 Cal.3d 1, 5, 123 Cal.Rptr. 283, 538 P.2d 739; Glacier Gen. Assurance Co. v. Superior Court (1979) 95 Cal.App.3d 836, 838, 157 Cal.Rptr. 435.)

FACTS

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.

[153 Cal.App.3d 471] 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. ¹ The judge denied Aetna's motions, but stayed his order until such time as we could rule on Aetna's petition for a writ

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.

DISCUSSION

A. The Attorney-Client Privilege

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.

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)." ²

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. [p] 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., 24 Cal.3d at pp. 818-819, 169 Cal.Rptr. 691, 620 P.2d 141 (emphasis 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.... [p] 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, 157 Cal.Rptr. 435. 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., 95 Cal.App.3d at p. 842, 157 Cal.Rptr. 435.) 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., 108 Cal.App.3d at p. 961, 166 Cal.Rptr. 904.) 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 964, 166 Cal.Rptr. 904, emphasis in original.)...