Insurance Co. of North America v. Superior Court

Decision Date30 July 1980
Citation108 Cal.App.3d 758,166 Cal.Rptr. 880
CourtCalifornia Court of Appeals Court of Appeals
Parties, 14 A.L.R.4th 581 INSURANCE COMPANY OF NORTH AMERICA, a corporation, Petitioner, v. SUPERIOR COURT FOR the COUNTY OF LOS ANGELES, Respondent. GAF CORPORATION, Real Party in Interest. Civ. 59291.

O'Melveny & Myers, John G. Niles, Ira M. Feinberg, H. Lee Watson, Phillip R. Kaplan and M. Pilar Luna, Los Angeles, for petitioner.

Paul, Hastings, Janofsky & Walker, Daniel H. Williams, III, Ronald M. Oster, Earl M. Benjamin, and Jeanne E. Irving, Los Angeles, for real party in interest.

No appearance for respondent Superior Court of California.

FLEMING, Acting Presiding Justice.

Insurance Company of North America (INA), a casualty insurer, seeks a writ of prohibition against the superior court to preserve the confidentiality of its attorney-client communications against discovery by GAF Corporation (GAF). INA is a defendant in a superior court action brought by GAF against INA, INA Corporation, INA Financial Corporation, and others, seeking declaratory and other relief with respect to liability insurance coverage for asbestos-related claims.

In the INA group of affiliated companies, INA Corporation is the parent holding company, and INA Financial Corporation, Life Insurance Company of North America, and INA are, directly or indirectly, wholly-owned subsidiaries. The issue of attorney-client privilege arose under the following circumstances: Some 3,000 actions, 800 of them in Los Angeles County alone, are and have been pending against GAF and other manufacturers and commercial users of asbestos for damages for personal injuries assertedly the result of exposure of workers over substantial periods of time to asbestos fibers. From 1950 to 1975 INA was GAF's products liability insurer, and as a consequence of this and similar coverage for others INA found itself facing substantial liability for asbestos-related claims, whose potential amount, it is suggested, could reach $20 billion. As a consequence of this exposure INA employed the firm of Michael Gallagher in Cleveland, Ohio, as outside counsel to advise it on asbestos-related matters, and it solicited Gallagher's opinion on the extent of coverage of INA's products liability insurance policies with respect to asbestos-related claims against its insureds. On 11 March 1977 Gallagher undertook to report to his client on this and related legal matters at a meeting at INA's home office in Philadelphia, Pennsylvania, attended by eight full-time officers and employees of INA, five outside counsel, and two other persons. At this meeting Gallagher briefed senior management of INA on the nature and dimension of the asbestos litigation, the extent of INA coverage under its policies, its potential liability for asbestos-related claims, and possible initiation of an action for declaratory judgment. It is the events, memorandums, notes, and conversations of this meeting which GAF seeks to discover.

GAF, while recognizing that communications between attorney and client are ordinarily privileged (Evid.Code, § 954), asserts the privilege does not apply here, because two outsiders were present at the meeting and attorney-client communications in the presence of third persons are not privileged. (Marshall v. Marshall (1956) 140 Cal.App.2d 475, 480, 295 P.2d 131.) Two issues are presented. The narrow issue is whether the two persons present at the meeting were in truth and in fact outsiders to INA. The broad issue is whether, even if the two were legally unrelated to INA, disclosure to them furthered the interest of the client or was reasonably necessary to accomplish the purpose for which counsel had been consulted.

The two persons present at the conference were Earl McHugh, vice-president-law of INA Corporation, attending in his capacity as a legal officer of the parent company; and Donald Heth, president of Life Insurance Company of North America, a wholly-owned subsidiary of INA Corporation, attending in his capacity as a member of the Reserve Committee created by INA Corporation to supervise the reserve policies of its operating subsidiaries. The trial court rejected INA's claim that McHugh and Heth were present at the briefing to further the interest of the client INA in the consultation, and it concluded that their attendance destroyed confidentiality of communication between attorney and client and made Gallagher's legal opinions and advice discoverable. The court took the view that because Gallagher was retained only by INA and not by INA Corporation and Life Insurance Company of North America the presence at the conference with INA's consent of officers of the latter two companies resulted in a waiver by INA of its attorney-client privilege.

For reasons set out below we disagree with the trial court's conclusions, both on the narrow issue and on the broad issue, and we order a writ of prohibition to issue.

I

The Evidence Code (Stats. 1965, c. 299) sets out a statutory privilege for attorney-client communication (§ 954) and declares all such communication presumptively confidential (§ 917). A confidential communication is defined in section 952:

"As used in this article, 'confidential communication between client and lawyer' means information transmitted between a client and his 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."

It may be seen that under section 952 communication of information by an attorney to a client in the presence of a third person does not destroy the confidentiality of the communication if the third person is "present to further the interest of the client in the consultation." When the third person is present for that purpose, confidentiality of communication is maintained.

A corporate client, like other artificial entities, can only receive communications from its attorney by means of human agency officers, agents, and employees of the corporation selected by the corporation's directors and officers to act on its behalf. A corporation, like a natural person, is entitled to the full benefit of the attorney-client privilege (D. I. Chadbourne Inc. v. Superior Court (1964) 60 Cal.2d 723, 736, 36 Cal.Rptr. 468, 388 P.2d 700). And a corporation, again like a natural person, is not limited to employment of full-time officers, agents, and employees, but it may avail itself of the services of part-time employees, ad hoc consultants, temporary advisers, and other servants it selects for specific purposes. (Corp. Code, § 207; Labor Code §§ 3351, 3357.)

With these general principles in mind we consider the relationship of McHugh and Heth to INA.

McHugh, according to papers submitted in support of the petition, was vice-president-law of INA Corporation, the parent holding company of which INA was a wholly-owned operating subsidiary. His duties included general supervision of legal affairs for INA Corporation's entire group operation, and general supervision of all major litigation involving INA Corporation and its subsidiaries. His responsibilities covered rendition of legal advice and assistance to the management, executives, and legal departments of various subsidiaries; selection of outside counsel in some cases; assistance and guidance to outside counsel during the course of major litigation; and advice to senior management on the status of particular litigated matters. Patently, McHugh was a chief legal officer of the INA Corporation enterprise charged with informing himself about important legal problems of the operating subsidiaries and with giving them the benefit of his advice, an attorney who not only advised INA Corporation but its principal subsidiaries as well. In effect, McHugh was a part-time counsel for INA who from time to time gave it legal advice. Since INA Corporation was the parent and INA the subsidiary, legal advice emanating from McHugh undoubtedly carried great weight and persuasiveness and perhaps often took the appearance of a command. Nevertheless, by reason of the separate corporate entities of the parent holding company and its operating subsidiary, INA was not technically required to accept such advice. McHugh's status in relation to INA was that of a staff officer of a higher headquarters whose advice is persuasive but not compulsory on a lower-echelon operating entity. In familiar terms we can identify McHugh as an unpaid legal consultant to INA. And if, as an INA vice-president's affidavit seems to suggest, INA Corporation followed the common holding company practice of charging its operating subsidiaries a management fee for services provided by the parent company, then McHugh was not merely an unpaid consultant but one for whose services INA was paying a fee. But whether his services were paid for or not, in either event, McHugh, far from being an outsider at the conference of 11 March 1977, was present in the capacity of legal consultant and adviser to INA. His presence was as much that of an attorney acting on behalf of INA as if he had been a full-time attorney directly carried on INA's payroll.

We turn to Heth, the other person at the conference, identified as president of Life Insurance Company of North America, another wholly-owned subsidiary of INA Corporation, and as a member of the Reserve Committee created by INA Corporation to advise, co-ordinate, and review reserve policies for its principal operating subsidiaries. Review of reserve policies by the ...

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