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McDonold v. Superior Court (2018)

October 1, 2018

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Horvitz & Levy LLP protected its insurer client’s confidential claims file from being disclosed to the opposing party in a multi-million dollar insurance bad faith action.

Petitioners were insured under an excess policy issued by Lexington Insurance Company, and had a $34.9 million judgment entered against them in a personal injury action. In that action, Lexington had hired the Lewis Brisbois firm to advise the company on how to respond to a purported policy-limits demand, and Lewis Brisbois had become involved in working with the primary carrier’s attorneys in responding to that demand. In this follow-on bad faith action, petitioners sought discovery of Lexington’s claims file, arguing that when Lexington’s counsel got involved in negotiating a settlement on their behalf, it necessarily represented them as joint clients in a tripartite relationship, and therefore the attorney-client privilege did not protect the claims file from discovery. Petitioners filed a writ petition challenging the trial court’s determination that Lewis Brisbois had represented only Lexington during the negotiations, and that no tripartite relationship had arisen. The Court of Appeal issued an order to show cause, and Horvitz & Levy LLP filed a return on behalf of Lexington.

After a two-year delay, the Court of Appeal (Third District) held argument and issued a unanimous unpublished opinion affirming the trial court’s determination that the claims file was protected by the attorney-client privilege. The Court of Appeal held that “the trial court got it right” because while insureds “may benefit from an attorney’s representation of an excess insurer,” that does not automatically made them “joint clients of that attorney.” The court rejected the position that “an excess insurer’s lawyer is limited to merely monitoring the case to avoid creating an attorney-client relationship with the insured.” Rather, “[w]here an insured is represented by a lawyer hired by a primary insurer, and settlement may impact an excess insurance policy, the excess insurer may retain an attorney for itself” without creating any tripartite relationship with its insureds.

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