5.1.8

Attorney-Client Privilege, Common Interest Doctrine

Case:

Walters Wholesale Electric Co. v. National Union Fire Ins. Co. of Pittsburgh, PA (C.D.Cal. 2008) 247 FRD 593

Issue:

In an action by an insured against its excess insurer for breach of an umbrella policy, the insured alleged that the excess insurer’s resistance to settle had “exposed” the insured to substantial judgments and “forced” it to contribute to the settlements with the plaintiffs in the underlying actions with the insured’s own funds.  Did the insured thereby waive the attorney-client privilege as to insured’s communications with: (1) the attorney appointed by the primary insurer that initially assumed defense of the insured but later tendered its coverage and withdrew from the process; and (2) insured’s communications with counsel insured had separately retained to advise it about its exposure in excess of coverage, where insured did not contend those conclusions came without advice of counsel?

Holding:

Yes.  The privilege was impliedly waived by the insured’s contentions.  The excess insurer is entitled to test the assertion that the insured faced exposure above coverage limits if the underlying cases went to trial and the proposition that the insurer’s intransigence “forced” the insured to contribute to the settlements out of its own pocket.

The Court found that the “common interest” exception to the attorney-privilege was an additional basis for requiring disclosure of the insured’s communications with the attorney appointed by the primary carrier.  Under that doctrine, where two or more clients have consulted an attorney on a matter of common interest, none of them may claim a privilege as to a communication in the course of that relationship when the communication is offered in a civil proceeding between the clients.  (Cal. Evid. Code §962.)  The Court noted the “paucity” of Ninth Circuit and California authority on the doctrine.  Since the primary insurer owes identical fiduciary obligations to the insured and the excess carrier, however, logically “none of these parties [may] assert the attorney-client privilege as a shield to issues of common interest which a court has determined must be disclosed to vindicate fairness.”  (Id. at 597.)