State Farm Fire & Casualty Co. v. Superior Court

• Decision Date: 22 April 1997
• Docket Number: No. B106120,B106120
• Citation: 54 Cal.App.4th 625,62 Cal.Rptr.2d 834
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 2932, 97 Daily Journal D.A.R. 5135 STATE FARM FIRE AND CASUALTY COMPANY, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; Roderick TAYLOR et al., Real Parties in Interest.

Page 834

62 Cal.Rptr.2d 834

54 Cal.App.4th 625, 97 Cal. Daily Op. Serv. 2932,

97 Daily Journal D.A.R. 5135

STATE FARM FIRE AND CASUALTY COMPANY, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent Roderick TAYLOR et al., Real Parties in Interest.

No. B106120.

Court of Appeal, Second District, Division 4, California.

April 22, 1997.

As Modified May 1, 1997.

Rehearing Denied May 14, 1997.

Review Denied July 9, 1997.

Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone, Anthony E. Shafton and G. Arthur Meneses, Marina Del Rey; Robie & Matthai, James R. Robie and Pamela E. Dunn, Los Angeles, for Petitioners.

No appearance for Respondent.

Kick & Bernheim, Daniel O'Leary, Bernie Bernheim, Law Offices of Bernie Bernheim, Los Angeles, for Real Parties in Interest.

Latham & Watkins and Barbara A. Caulfield, San Francisco, as Amicus Curiae.

HASTINGS, Associate Justice.

At issue in this case is "the preservation of public trust in the scrupulous administration of justice and the integrity of the bar." (In re Complex Asbestos Litigation (1991) 232 Cal.App.3d 572, 586, 283 Cal.Rptr. 732.)

The subject of this proceeding is an order of the trial court granting disclosure of information, some of which falls within the attorney-client and work product privileges, developed by the defense during litigation. We conclude that substantial evidence supports a finding of a prima facie case establishing the crime/fraud exception to the attorney-client privilege and that the same evidence establishes good cause for disclosure of work product and trade secret information. We therefore deny the petition for writ of mandate filed by State Farm Fire and Casualty Company (State Farm).

STATEMENT OF FACTS

On September 21, 1995, real parties in interest, Roderick and Krista Taylor, filed suit against State Farm, several insurance brokers and current and former State Farm agents (the Taylor Action). In their second amended complaint, real parties allege that in 1983, State Farm, through its agent Harry Gelpar, issued a homeowners insurance policy to them, which they believed contained earthquake coverage for their Sherman Oaks residence. The policy was annually renewed and remained in force through the filing of the action. In 1990, real parties asked their insurance brokers, Cass, Roden and E. State Farm retained the law firm of Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (the Berger Firm) to defend it in the Taylor Action.

                Broox Randall & Sons, to prepare a schedule of insurance coverage for their properties.  The schedule, dated November 1, 1990, stated that earthquake coverage existed for their Sherman Oaks residence.  After their real property had been significantly damaged in the January 17, 1994 Northridge earthquake, real parties filed a claim with State Farm.  State Farm denied the claim on the basis that the policy did not include earthquake coverage.  Real parties allege that State Farm and its agents participated in fraudulent misrepresentation regarding the coverage afforded.  In addition, it is alleged that State Farm did not comply with Insurance Code section 10081 et seq. which requires that the company notify insureds that they do not have earthquake coverage and offer to sell it to them. 1  Real parties seek damages against State Farm based upon breach of contract, negligent misrepresentation, negligence, negligence per se and common law and statutory bad faith theories
                

At the time the action was filed, Amy Girod Zuniga was employed by State Farm as a claims specialist in the "Suits Against the Company" unit, later renamed the "Litigation Unit." Her unit was utilized as the contact within the company through which State Farm's outside attorneys could communicate with the company regarding suits against the company. Her responsibilities included evaluating bad faith claims against State Farm, responding to discovery in those actions, monitoring the litigation, and advising the company and outside counsel which witnesses from State Farm would be appropriate for testimony at trial or in depositions. She was assigned these duties in connection with the Taylor Action. In this capacity she communicated with outside counsel and other State Farm employees, aided outside counsel in gathering the necessary documentation to respond to discovery, and personally verified over 20 sets of discovery responses.

Extensive discovery was undertaken. Real parties served a number of requests to produce documents on State Farm. Among the items sought were documents reflecting State Farm practices in handling applications for issuance of insurance, manuals and documents instructing how claims were to be handled, and documents which evidenced how State Farm complied with Insurance Code sections 10083 and 10086.1 notice requirements. Interrogatories were served requesting information on the same subjects. State Farm interposed numerous objections to these discovery requests but did provide some of the information requested.

Because Amy Zuniga had verified responses to various items of discovery, real parties took her deposition. The questions focused on her role at State Farm in gathering information to respond to the various items of discovery. During the deposition, which was taken before a discovery referee, State Farm interposed numerous objections to questions it believed infringed upon the attorney-client and work product privileges. The referee instructed counsel for real parties and the witness to avoid privileged subjects, although Ms. Zuniga was directed to answer questions eliciting factual information.

Real parties also noticed the deposition of the person at State Farm "most qualified on the subject of the reasons why [real parties'] Ms. Nicholson identified Toni Hotzel as the State Farm claims specialist who had investigated and denied the claim of real parties. Ms. Hotzel's deposition was noticed and taken. During the second portion of her deposition she was evasive and failed to confirm whether she had signed and sent two letters, one of which notified real parties that their claim was denied. She also failed to authenticate a tape recording she made during her investigation of the claim. ²

                claim for coverage for losses arising out of the January 17, 1994 earthquake was denied...."  That person was requested to produce documents at the deposition, including the following:  "13.  The State Farm ... claims manual as it existed on the date the [real parties] made their claim for damages to the PROPERTY arising [54 Cal.App.4th 633] out of the January 17, 1994 Northridge earthquake.  [p] 14. All DOCUMENTS evidencing, in whole or in part, State Farm's policies and procedures for handling residential damage claims relating to the January 17, 1994 Northridge earthquake, including but not limited to bulletins, memoranda, manuals, and portions of manuals."   State Farm designated Karen Nicholson as the person to be deposed and objected to production of the documents requested.  Her deposition was also conducted before the discovery referee, who ordered that the referenced documents be produced at the next session of Ms. Nicholson's deposition.  They were not produced;  instead, she testified that no such documents existed
                

On July 19, 1996, State Farm filed a motion for summary judgment. It presented evidence to establish that it had no involvement in the 1990 broker prepared Schedule of Insurance and argued that it was not responsible for any misrepresentations that real parties were covered for earthquake damage. Additionally, it presented evidence In opposition, real parties sought to file a third amended complaint. They alleged that State Farm's agent, Harry Gelpar, or his employee, forged real parties' signatures on the original of their application for insurance. In connection with this argument they presented the declaration of a handwriting expert who opined that the signature purporting to be that of Rod Taylor was not his signature. However, discovery was still ongoing and he requested further exemplars of handwriting in support of his opinion. The third amended complaint also alleged that State Farm had destroyed evidence relating to the initial issuance of the policy and of claims procedures and policies in connection with handling of earthquake claims and, more particularly, real parties' claim.

that it had satisfied its statutory duties to mail earthquake offers and notices to real parties. In support of the latter point it presented evidence that it used an automatic insertion machine to comply with all notices required by the Insurance Code. The evidence was presented through the declarations of Richard Churik, operator of the automatic insertion machine, and Charles G. Hook.

Real parties made similar assertions in opposition to the motion for summary judgment. They asserted that State Farm had not kept the original copy of their application for insurance and other connected papers. They also presented the declaration of Samantha Bird, a past employee of State Farm, who stated that in 1990 the company adopted a policy of destroying documents which might be discoverable in litigation against it: "The memorandum I wrote instructed my claims personnel to destroy documents so they could not be used against the Company in bad faith litigation.... [I]n writing this memorandum, and in directing my claims personnel to destroy potential evidence against us, I was at all times following the instructions of my superiors at the Company." ³

Real parties also contended that State Farm was manufacturing evidence. They provided the declaration of Linda Crisafulli, a business manager for real parties, who questioned the authenticity of the declarations page filed in connection with the motion for summary judgment to prove that earthquake coverage was not afforded to real parties. She pointed out that the declarations page identified the Small Business Administration as a mortgagee...