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February 2013

Attorney-Client Privilege Protects Communications Between Title Insurer and Counsel Prosecuting Insured's Case

The California Court of Appeal, Fourth Appellate District, recently held that the attorney-client privilege protects confidential communications between a title insurer and counsel it hired to prosecute an action on behalf of its insured. The court noted that a tripartite relationship exists when an insurer prosecutes an action on behalf of the insured.

In Bank of America, N.A. v. Superior Court (Pacific City Bank), the court decided the insurer was a joint client of the attorney under California Evidence Code §§943 and 954, and it was immaterial that the insurer retained the attorney to prosecute rather than defend the lawsuit.

On Jan. 15, the court granted a writ petition and ordered the issuance of a writ of mandate directing the trial court to grant the plaintiff’s motion to quash or modify the defendant’s subpoenas duces tecum. The defendant had sought communications between the insurer and the plaintiff’s attorney the insurer retained. 

As alleged, Bank of America had provided a loan to Helena A. Cho to refinance her home mortgage.  Bank of America secured the loan with a first deed of trust against Cho’s home. Bank of America obtained a title insurance policy from Fidelity National Title Insurance Co. insuring the priority of Bank of America’s deed of trust over any other lien or encumbrance. The policy provided that Fidelity would defend Bank of America in any litigation involving a covered claim and that Fidelity had the right to prosecute any action to establish the title or the lien of the insured mortgage.

Unbeknownst to Bank of America, Cho obtained a $1.5 million business line of credit from Pacific City Bank, which was secured by a deed of trust recorded against Cho’s home five days before the recordation of Bank of America’s deed of trust. Bank of America tendered the claim to Fidelity, which retained the law firm of Gilbert, Kelly, Crowley & Jennett LLP to prosecute, on Bank of America’s behalf, an action against Pacific.

During the litigation between Bank of America and Pacific, Pacific served subpoenas on Fidelity requesting production of communications between Fidelity and the Gilbert firm regarding the litigation. Bank of America moved to quash or modify the subpoenas on the ground they sought confidential communications protected by the attorney-client privilege or attorney work product doctrine. The trial court denied the motions to quash or modify on the basis that there was no attorney-client relationship between the Gilbert firm and Fidelity because the Gilbert firm was retained to prosecute an action as opposed to defending an existing action.  Bank of America and Fidelity then brought a petition for writ of mandate or prohibition to challenge the court’s order.

The Court of Appeal reversed. The appellate court held a tripartite attorney-client relationship existed among Fidelity, Bank of America, and the Gilbert firm by virtue of Fidelity’s retention of the Gilbert firm to represent Bank of America. Confidential communications between Fidelity and the Gilbert firm were, therefore, protected from disclosure by the attorney-client privilege. The appellate court rejected the trial court’s determination that the tripartite relationship arises when an insurer retains counsel to defend a lawsuit, but not when it retains counsel to prosecute a lawsuit. The appellate court noted that the policy obligated Fidelity to defend lawsuits against Bank of America, but also gives Fidelity the right to prosecute actions to establish the title or lien of the insured mortgage. The appellate court reasoned that whether a title insurer is defending an action or prosecuting one, the object of protecting the integrity of the insured’s title is the same, and there is no logical reason why a tripartite attorney-client relationship should exist in one case but not the other.

The appellate court also rejected Pacific’s contention that a tripartite attorney-client relationship does not exist because Fidelity agreed to provide counsel for Bank of America under a reservation of rights. The appellate court noted that the reservation of rights did not create a conflict requiring independent counsel, and the Gilbert firm was not acting as independent counsel. Moreover, even if the Gilbert firm served as independent counsel, the attorney-client privilege would still apply to communications among the Gilbert firm, Bank of America, and Fidelity pursuant to California Civil Code §2860(d).

Click here for the opinion.

This opinion in Bank of America, 2013 Cal. App. LEXIS 27 (Jan. 15, 2013); 13 C.D.O.S. 662, is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court.  These events would render the opinion unavailable for use as legal authority.

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Jordan S. Altura