Houston Gen Ins Co v. Superior Court

• Decision Date: 06 August 1980
• Citation: 108 Cal.App.3d 958,166 Cal.Rptr. 904
• Court: California Court of Appeals Court of Appeals
• Parties: HOUSTON GENERAL INSURANCE COMPANY, Petitioner, v. SUPERIOR COURT of the State of California, IN AND FOR the COUNTY OF ALAMEDA, Respondent. James THOMSEN, Real Party in Interest. Civ. 48954.

Page 904

166 Cal.Rptr. 904

108 Cal.App.3d 958

HOUSTON GENERAL INSURANCE COMPANY, Petitioner, v. SUPERIOR COURT of the State of California, IN AND FOR the COUNTY OF ALAMEDA, Respondent James THOMSEN, Real Party in Interest.

Civ. 48954.

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

Aug. 6, 1980.

Rehearing Denied September 5, 1980.

Hearing Denied Oct.15, 1980.

Gordon E. McClintock, Jacqueline A. Willson, Hession, Creedon, Hamlin, Kelly, Hanson & Williams, Professional Corporation, San Mateo, for petitioner.

John F. MacGregor, San Francisco, for real party in interest.

TAYLOR, Presiding Justice.

In this discovery matter transferred to us by the Supreme Court, petitioner, Houston General Insurance Company, defendant in an action for damages for bad faith refusal to defend its insured (hereafter Houston) seeks a writ of mandate to compel respondent court to vacate an order requiring the production of excised portions of its claims file designated as a "file activity log" and directing Houston's representatives and attorney to be further deposed respecting matters disclosed by the log. The excised portions of the log allegedly contain notes of three telephone conversations had on October 19, 1977, between Houston's representative DeGuzman in Ft. Worth, Texas, and Houston's West Coast counsel Arnold in San Francisco concerning Houston's obligation to defend an action filed against its insured, Bevco Construction Co., by real party in interest, James Thomsen, plaintiff in this action (hereafter Thomsen). We have concluded that to compel disclosure of the excised portions of the log would violate Houston's lawyer-client privilege, ¹ and that Houston's petition must be granted.

In 1974, Thomsen was injured in an accident in his home, allegedly due to the shattering of a glass shower door. In February 1975, Thomsen and his wife filed a personal injury action against the Bevco Construction Company (hereafter Bevco) and other defendants, alleging that Bevco was negligent in the construction of the home. Transamerica Insurance Company (hereafter Transamerica) initially assumed the defense of the action against Bevco, believing that it had coverage. It was subsequently revealed that Bevco had been insured by General Insurance Company, which had merged with Houston.

Through counsel for Transamerica, Bevco then tendered defense of the case to Houston, who disclaimed coverage and refused to defend. Transamerica continued to defend Bevco in the action set for trial on November 7, 1977, but announced that it would not pay the judgment. Prior to trial and pursuant to settlement, a judgment for $275,000 was entered against Bevco and its former officers. Thomsen, Bevco's assignee, then filed an action against Houston seeking damages for bad faith refusal to defend. In the course of discovery proceedings, Thomsen learned of the existence of the log here in question and seeks to obtain the one and one-half pages of notes excised by Houston.

Houston contends that the excised portions of the log contain confidential communications between client and lawyer, as defined in section 952 of the Evidence Code, ² and that such communications are protected by the lawyer-client privilege of section 954. ³

Thomsen, Bevco's successor in interest, cites section 962 and argues that since Arnold was consulted by Houston upon a matter of common interest to Bevco and Houston, Houston may not claim the lawyer-client privilege as the communications between Houston and Arnold are to be offered in a civil proceeding between joint clients. ⁴

Houston contends that although it consulted its San Francisco counsel regarding the claim, it never employed Arnold to assume the defense of the insured; that no joint client relationship was ever established between the insurer, the insured and the attorney, and that a joint client relationship must be established before the joint client exception of section 962 is applicable to confidential communications. We agree.

Under California law, a client has a statutory privilege to refuse to disclose, and to prevent another from disclosing, a confidential communication between client and lawyer (§ 950, et seq.). ⁵ A communication between such persons "is presumed to have been made in confidence and the opponent of the claim of privilege has the burden of proof to establish that the communication was not confidential" (§ 917; North v. Superior Court (1972) 8 Cal.3d 301, 310, 104 Cal.Rptr. 833, 502 P.2d 1305).

The Supreme Court, long before the establishment of the statutory privilege, set forth the reasons for the privilege as follows: "The privilege is given on grounds of public policy in the belief that the benefits derived therefrom justify the risk that unjust decisions may sometimes result from the suppression of relevant evidence. Adequate legal representation in the ascertainment and enforcement of rights or the prosecution or defense of litigation compels a full disclosure of the facts by the client to his attorney. 'Unless he makes known to the lawyer all the facts, the advice which follows will be useless, if not misleading; the lawsuit will be conducted along improper lines, the trial will be full of surprises, much useless litigation may result. Thirdly, unless the client knows that his lawyer cannot be compelled to reveal what is told him, the client will suppress what he thinks to be unfavorable facts.' (Citation.) Given the privilege, a client may make such a disclosure without fear that his attorney may be forced to reveal the information confided to him. '(T)he absence of the privilege would convert the attorney habitually and inevitably into a mere informer for the benefit of the opponent.' " (City & County of S. F. v. Superior Court (1951) 37 Cal.2d 227, 235, 231 P.2d 26; in accord: People v. Canfield (1974) 12 Cal.3d 699, 705, 117 Cal.Rptr. 81, 527 P.2d 633). The lawyer-client privilege is so pervasive that where a person seeks the assistance of an attorney with a view to employing him professionally, any information acquired by the attorney in the initial interview is privileged, whether or not actual employment follows (People v. Canfield, supra, at p. 705, 117 Cal.Rptr. 81, 527 P.2d 633; Sullivan v. Superior Court (1972) 29 Cal.App.3d 64, 69, 105 Cal.Rptr. 241).

With the exception of a court appointment, the relationship of lawyer and client is created by contract (American Mut. Liab. Ins. Co. v. Superior Court (1974) 38 Cal.App.3d 579, 113 Cal.Rptr. 561). "The contract may be express or implied (citation) and the general rules of agency apply. (Citation.) The attorney owes a fiduciary obligation to the client who usually is bound by the attorney's actions on his behalf. (Citation.) The existence of a contract is generally an issue and question of law. (Citation.)" (American Mut. Liab. Ins. Co. v. Superior Court, supra, at pp. 591-592, 113 Cal.Rptr. at p. 570.) A breach of an express or implied term of that contract may give rise to an action for legal malpractice (Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 180-181, 98 Cal.Rptr. 837, 491 P.2d 421).

Neither party has seen fit to provide this court with the underlying pleadings in this action nor with a copy of the policy in question (see Sherwood v. Superior Court (1979) 24 Cal.3d 183, 186-187, 154 Cal.Rptr. 917, 593 P.2d 862). However, it has been held that a provision in a policy which requires the insured to permit the insurer's lawyer to defend claims against the insured amounts to a consent in advance by the insured to the employment of an attorney by the insurer to defend such claims. "Accordingly, in such cases the attorney represents two clients, the insured and the insurer, and he owes to both a high duty of care imposed by statute (Bus. & Prof.Code, § 6068) and the rules governing professional conduct. (Citations.) Insofar as the insured is concerned the attorney owes him the same obligations of good faith and fidelity as if he had retained the attorney personally. (Citations.)" (Lysick v. Walcom (1968) 258 Cal.App.2d 136, 146, 65 Cal.Rptr. 406.)

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. Attorney Bishop, employed by Transamerica to defend Bevco in the original action, disclosed at his deposition that he had one discussion with Houston's representative DeGuzman prior to the time the case against Bevco was settled. This occurred at 9:44 a. m. on October 19, 1977, when Bishop returned DeGuzman's phone call. Bishop testified as follows: "Q. What was the content of that telephone discussion? A. He told me that their denial of coverage was withdrawn at this time and told me to mark my file at their request to that fact and that they were retaining Arnold of Sedgwick's office for an opinion " (emphasis added).

At Arnold's deposition, during which the lawyer-client privilege was invoked, Arnold stated that he had three telephone conversations with Houston's claims specialist DeGuzman, all on October 19, 1977, that he was advised by DeGuzman that there was a serious coverage question, that he did not address the merits or offer advice with respect to the coverage question, and that his only recommendation was that "If (DeGuzman) was going to investigate the case, he should have a reservation of rights in that connection." Arnold further stated that he did not review any policy of insurance issued by General Insurance Company to Bevco, that he did not know whether Houston had a standard form reservation-of-rights letter, that he considered no particular California statutes or case authorities relative to the matter, and that he submitted no bill to Houston for his services with respect to this particular inquiry. Nor is there any showing that Arnold had...