United Tripartite: the Attorney-Client Relationship between Insurer, Insured & Counsel

Sierra J. Spitzer, Esq.
Schwartz Semerdjian Ballard & Cauley LLP
Published:  04.01.2013

In the recent decision of Bank of America, N.A. v. Superior Court of Orange County, 212 Cal.App.4th 1076 (2013), the Court of Appeal held that when an insurer retains counsel to defend its insured, a tripartite attorney-client relationship arises between the insurer, insured and defense counsel.  Based on the idea that the three are united in the common goal of the successful defense and resolution of a claim, the Court held that the insurer and the insured alike are holders of the privilege and the communications with counsel by both are equally protected. 

In Bank of America, Fidelity National Title Insurance Company (“Fidelity”) was the insurer for Bank of America, N.A. (“B of A”) under a lender’s title policy insuring a deed of trust.  When B of A made a claim under the policy, Fidelity retained the law firm of Gilbert, Kelly, Crowley & Jennett LLP (GKCJ) to prosecute, on B of A's behalf, the underlying lawsuit for equitable subrogation, injunctive relief, declaratory relief, and fraud. Defendant Pacific City Bank (PCB) served subpoenas duces tecum on Fidelity's parent company and Lawyers Title Insurance Company (Lawyers Title), requesting production of documents, including communications between GKCJ and Fidelity regarding the litigation.  B of A moved to quash or modify the subpoenas    to exclude communications between GKCJ and Fidelity on the ground they were protected by the attorney-client privilege and/or were protected attorney work product pursuant to a tripartite attorney-client relationship between B of A, GKCJ, and Fidelity.  PCB refuted the existence of any such relationship.  At the hearing, the superior court denied the motions to quash, ruling that there was no attorney-client relationship between GKCJ and Fidelity because GKCJ was retained to prosecute the underlying action as opposed to defending an existing action.  B of A and Fidelity brought a petition for writ of mandate or prohibition challenging the court's order.    

In making its determination whether a tripartite attorney-client relationship existed, the Court examined the nature of the relationship between insurer, insured and defense counsel.  The case American Mut. Liab. Ins. Co. v. Superior Court (1974) 38 Cal.App.3d 579, 591–592 was particularly instructive, providing the following analysis: 

“In the insured-insurer relationship, the attorney characteristically is engaged and paid by the carrier to defend the insured. The insured and the insurer have certain obligations each to the other ... arising from the insurance contract. Both the insured and the carrier have a common interest in defeating or settling the third party's claim. If the matter reaches litigation, the attorney appears of record for the insured and at all times represents him in terms measured by the extent of his employment.  In such a situation, the attorney has two clients whose primary, overlapping and common interest is the speedy and successful resolution of the claim and litigation. Conceptually, each member of the trio, attorney, client-insured, and client-insurer has corresponding rights and obligations founded largely on contract, and as to the attorney, by the Rules of Professional Conduct as well. The three parties may be viewed as a loose partnership, coalition or alliance directed toward a common goal, sharing a common purpose which lasts during the pendency of the claim or litigation against the insured. Communications are routinely exchanged between them relating to the joint and common purpose—the successful defense and resolution of the claim. Insured, carrier, and attorney, together form an entity—the defense team—arising from the obligations to defend and to cooperate, imposed by contract and professional duty. This entity may be conceived as comprising a unitary whole with intramural relationships and reciprocal obligations and duties each to the other quite separate and apart from the extramural relations with third parties or with the world at large. Together, the team occupies one side of the litigating arena.” 

Applying the above concept to the instant matter, the Court found that Fidelity’s retention of GKCJ to represent B of A for the common goal of protecting B of A's security position was enough in itself to establish the tripartite attorney-client relationship.  Thus, the communications exchanged among their “loose partnership, coalition or alliance” were covered by the attorney client privilege and should not be subject to disclosure. (American Mut. Liab. Ins. Co. v. Superior Court, supra, 38 Cal.App.3d at p. 592.)  

The Court also took issue with the superior court’s reasoning that no attorney-client relationship existed between GKCJ and Fidelity because GKCJ was retained to prosecute the underlying action rather than defending an existing one.  Calling this an “artificial distinction,” the Court pointed to the specific terms of the Transnation Policy between Fidelity and B of A which provided both that Fidelity is obligated to defend B of A, but also, that Fidelity has the right to initiate and prosecute litigation such as a lawsuit to quiet title against an adverse claim.  In Jarchow v. Transamerica Title Ins. Co. (1975) 48 Cal.App.3d 917, 924, 927, the court examined a title insurer's duties in protecting an insured, holding that the obligations to defend and to ‘take other appropriate action’ are kindred duties designed to achieve the same objective: the integrity of the insured's title. Since these duties address the same fundamental concern, both must be equally accessible to insureds; legal rules regarding application of the one must, likewise, apply to the other.” Id. at pp. 941–942.  Applying the same principle here, the Court found 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. There is no logical reason why a tripartite attorney-client relationship should exist in one case but not the other. 

In this case, a lawsuit by PCB against B of A was not forthcoming as the foreclosure sale had extinguished B of A's lien.  Therefore, the only means available to Fidelity to fully protect its insured's interest was to seek equitable subrogation and declaratory relief on the underlying suit -- something Fidelity could not have done without the protection of a tripartite attorney-client relationship which allowed it to communicate with defense counsel without the risk of being forced to disclose confidential or privileged information.