Clarification of the Tripartite Attorney-Client Privilege as between and Insurer, its Insured, and Counsel.
Fidelity National Title Insurance Co. ("Fidelity") was insurer for Bank of America N.A. ("BOA") under a lender's title policy, which insured a deed of trust on residential real property. BOA made a clam under the policy, which prompted Fidelity to hire a law firm to prosecute an underlying lawsuit for equitable subrogation, injunctive relief, declaratory relief, and fraud against Pacific City Bank ("PCB"). In turn, PCB served a Subpoena Duces Tecum on Fidelity seeking, among other things, communications between the law firm and Fidelity related to the litigation. BOA moved to quash the subpoena arguing the communications were attorney-client privileged. Trial court denied the motion to quash, prompting BOA to petition for a writ of mandate.
Petition was granted. The appellate court overturned the ruling holding that in California an attorney who is hired by an insurance company to defend its insured, or in this case prosecute an action, under the insurer's contractual obligation, represents and owes a duty to both the insurer and the insured, creating a "tripartite attorney-client relationship". This result seems obvious, right? Or at least consistent with the practice of the majority of California attorneys representing insurance companies and their insureds. So, what was the basis of the trial court's ruling?
It appears the crux of the trial court's denial was that the court drew a distinction between an insurer hiring a law firm to prosecute an action rather than defend an action. The trial court opined that because the law firm was retained to prosecute the action, Fidelity was did not have a "favored position" or "sacred role" in the litigation and the communications were not privileged. The appellate court called the distinction an error as matter of law.
The appellate court cited Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264-1265, holding that the language of the policy, which allowed Fidelity to prosecute such actions in the name of the insured (the court noted this provision is present in both ALTA and CLTA policies) controls; and that "To distinguish between defending an action and prosecuting one would deny a tripartite attorney-client relationship from ever forming in many situations in which a title insurer takes action to protect its insured's title."
By G. Andrew Slater
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