On March 2, 2011, the court heard plaintiff Umpqua Bank's ("Umpqua") motion to compel defendant First American Title Insurance Company ("First American") to produce documents. Dckt. No. 29. Attorney Darrell Martin appeared at the hearing on behalf of Umpqua; attorney Anthony Coss appeared on behalf of First American. For the reasons stated herein and on the record at the March 2 hearing, the motion to compel will be granted in part and denied in part, as set forth below.
This lawsuit arises from claims under two title insurance policies issued by First American in favor of Umpqua. Joint Statement Re: Discovery Disagreement ("Jt. Stmt."), Dckt. No. 32, at 2. Umpqua tendered claims to First American because a third party, A. Teichert & Sons, filed suit seeking foreclosure of mechanics' liens it asserted were senior in priority to Umpqua's deeds of trust. Id. First American denied coverage contending that: (1) the claims were excluded under the policies; (2) Umpqua's settlement of Teichert's suit was unauthorized and in violation of the terms of the policies; (3) Umpqua did not give timely notice of the claims in violation of the terms of the policies; and (4) there was a lack of proof of damage. Id. Umpqua contends the denial was a deliberate breach of First American's policies of title insurance and was in bad faith. Id.
The primary dispute between the parties in this motion to compel is the scope and/or applicability of the attorney client privilege and work product doctrine, as they relate to Jeffrey Lowenthal, First American's coverage counsel. Umpqua contends that First American "is improperly shielding more than 1200 pages of documents that it claims are attorney-client communications or attorney work product, including the majority of its claims file relating to the two claims at issue in this dispute." Id. at 4. Umpqua argues that the facts establish that Lowenthal served as First American's claim adjuster, not its counsel, and that First American should not be permitted to shield the thoughts, impressions and analysis of its claim adjuster (including his claim file) from production just because he is an attorney, especially in a bad faith action such as this one, where the claims adjuster's file is indispensable evidence. Id. at 6-7. Umpqua further contends that "to the extent Mr. Lowenthal or his firm acted in a quasi-legal capacity, their communications still do not deserve protection because the non-legal, and any arguably legal activities they performed, were so intertwined one cannot clearly distinguish between them." Id. at 7.
First American counters that Umpqua "is improperly attempting to obtain documents that were created as a result of First American's retention of an outside, independent attorney to provide a coverage opinion," and that the "documents are clearly protected under the attorney-client privilege and are not discoverable." Id. at 9. First American argues that Catherine Piraino was the claims adjustor and also is an attorney, that Piraino retained Lowenthal to provide a coverage opinion in this case, that he is not an employee or in-house counsel for First American, and that the communications between Lowenthal and First American were done as part and parcel of the attorney-client relationship with an expectation that those communications would remain confidential. Id. at 10, 13; see also Piraino Aff., Dckt. No. 31, ¶¶ 1, 3, 8-10. First American contends that it has met its burden of establishing a prima facie claim that the communications were privileged, and that Umpqua now has the burden of proof to establish that the communications were not confidential or that the privilege does not apply for other reasons. Id. at 10-11. First American also contends that the communications and documents at issue are also protected by the work product doctrine because they contain Lowenthal's mental impressions. Id. at 14.
ATTORNEY CLIENT PRIVILEGE
The parties agree that in diversity actions such as this one, the attorney-client privilege is governed by state law. Fed. R. Evid. 501. Under California law, the attorney-client privilege, set forth at California Evidence Code section 954, confers a privilege on the client "to refuse to disclose, and to prevent another from disclosing, a confidential communication between client and lawyer. . . ." Cal. Evid. Code. § 954. A confidential communication between client and lawyer is defined as "information transmitted between a client and his or her lawyer in the course of that relationship and in confidence by a means which, so far as the client is aware, discloses the information to no third persons other than those who are present to further the interest of the client in the consultation or those to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted, and includes a legal opinion formed and the advice given by the lawyer in the course of that relationship." Cal. Evid. Code § 952. "The party claiming the privilege has the burden of establishing the preliminary facts necessary to support its exercise, i.e., a communication made in the course of an attorney-client relationship." Costco Wholesale Corp. v. Super. Ct., 47 Cal.4th 725, 733 (2009) (citations omitted). "Once that party establishes facts necessary to support a prima facie claim of privilege, the communication is presumed to have been made in confidence and the opponent of the claim of privilege has the burden of proof to establish the communication was not confidential or that the privilege does not for other reasons apply." Id.
Umpqua relies heavily on 2022 Ranch v. Superior Court, which was also an insurance bad faith action and which involved communications that were transmitted to the insurer from its in-house claims adjusters who also were attorneys. 113 Cal.App.4th 1377, 1387 (2003). In 2022 Ranch, the insurer claimed all the communications were privileged, as involving legal advice emanating from its attorneys, whereas the petitioner asserted none were, as the attorneys were serving merely as claims adjusters. Id. The California Court of Appeal distinguished communications reporting the results of factual investigations from those reflecting the rendering of legal advice, held only the latter were privileged, and ordered the trial court to review each of the communications to determine its dominant purpose. Id. at 1397.
However, in disapproving 2022 Ranch in part, the California Supreme Court in Costco, specifically stated that in 2022 Ranch, the court should first have "determine[d] the dominant purpose of the relationship between the insurance company and its in-house attorneys, i.e., was it one of attorney-client or one of claims adjuster-insurance corporation."*fn1 Costco, 47 Cal.4th at 739-40. According to the Costco court, "[t]he corporation, having the burden of establishing the preliminary fact that the communications were made during the course of an attorney-client relationship [would then be] free to request an in camera review of the communications to aid the trial court in making that determination, but the trial court [cannot] order disclosure of the information over the corporation's objection." Id. at 740. "If the trial court determined the communications were made during the course of an attorney-client relationship, the communications, including any reports of factual material, would be privileged, even though the factual material might be discoverable by some other means. If the trial court instead concluded that the dominant purpose of the relationship was not that of attorney and client, the communications would not be subject to the attorney-client privilege and therefore would be generally discoverable." Id.; see also Aetna Casualty & Surety Co. v. Superior Court, 153 Cal.App.3d 471, 475 (1984).
The ultimate question raised here is whether Lowenthal was hired by First American to give his legal opinion or whether he was hired to take over the claims adjuster role and to shield First American from liability on any bad faith claim. Where the answer appears to be both, the court must make a determination of which purpose was primary. The court takes the consideration of that question very seriously, particularly in light of the critical importance of claims files to the litigation of an insurance bad faith claim, which is the cause of action asserted here. See Reavis v. Metropolitan Prop. & Liab. Ins. Co., 117 F.R.D. 160, 164 (S.D. Cal. 1987). Admittedly, the court finds it suspicious that after being retained, Lowenthal became the only point of contact with Umpqua, Lowenthal retained an outside consulting expert to opine on the coverage issues raised in Umpqua's claims, and Lowenthal himself sent the May 26, 2009 coverage opinion letter directly to Umpqua's counsel. Such conduct suggests that his role for First American extended beyond that of outside claims counsel and into that of claims adjuster.*fn2
This suggests the very intertwining and ultimate blurring of lines between the roles of attorney and claims adjuster that the California courts have criticized. Indeed, California courts have noted that where the legal advice activities of the attorney "were so intertwined with activities which were wholly business or commercial [i.e., claims investing/adjusting] that a clean distinction between the two roles became impossible to make. This merging of business and legal activities jeopardizes the assertion of the attorney-client privilege, since the attorney and the client in effect have become indistinguishable." 2,022 Ranch, 113 Cal.App.4th at 1393 (quoting Chicago Title Ins. Co. v. Superior Court, 174 Cal.App.3d 1142, 1154 (1985)).
Nonetheless, this intermingling of roles does not relieve the court of the requirement that it make a determination as to which function predominated, even where the facts present a close call on the question. Costco, 47 Cal.4th at 739-40.
Although Lowenthal clearly performed both functions and the overlap has obscured the distinction, based on the representations of Catherine Piraino, First American's in-house claims counsel and the claims adjuster in this case, as well as the representations of First American's counsel at the March 2 hearing, the court finds that the dominant purpose of the relationship between First American and Lowenthal was in fact one of attorney-client, not claims adjuster-insurance corporation. Specifically, Piraino avers that (1) she is an attorney and claims counsel for First American and was also the claims adjuster assigned to this case, Piraino Aff. ¶¶ 1, 3; (2) she specifically retained Lowenthal, who was outside counsel, "to provide First American with a legal coverage opinion concerning the claims made by Umpqua" and, as part of that retention, authorized Lowenthal to conduct any necessary factual investigation and to directly contact Umpqua, id. ¶ 8; (3) "[a]ll communications between First American and Mr. Lowenthal were to be, and stay, confidential," id.; (4) "Lowenthal was not an employee of First American" during the time he was retained to provide a legal coverage opinion and has never been an employee of First American, id. ¶ 9; and (5) she authorized Lowenthal to issue a coverage letter directly to Umpqua's counsel "after Lowenthal provided First American with his legal opinions concerning the coverage issues," id. ¶ 10 (emphasis added). Additionally, at the March 2 hearing, First American's counsel represented that Piraino, as the claims adjuster, maintained her own claims file for this case and was the "ultimate decision-maker."
Accordingly, the court finds that First American has met its burden of establishing the preliminary facts necessary to support a prima facie claim of attorney-client privilege for information that was transmitted between Lowenthal and First American (1) in the course of their attorney-client relationship, (2) in confidence by a means which, so far as First American was aware, disclosed the information to no third persons other than those who were present to further the interest of the client in the consultation or those to whom disclosure was reasonably necessary for the transmission of the information or the accomplishment of the purpose for which Lowenthal was consulted, and (3) which included a legal opinion formed and the advice given by Lowenthal in the course of that relationship. See Costco Wholesale Corp., 47 Cal.4th at 733; see also Cal. Evid. Code § 952. Because Umpqua has not, at this time, met its burden of proof to establish that specific communications at issue that meet the definition prescribed above were not confidential or that the privilege does not for other reasons apply, information that was transmitted between Lowenthal and First American that meets the above definition of confidential communications need not be disclosed by First American.
First American also contends that certain documents at issue are protected by the work product doctrine. Jt. Stmt. at 14-15. Umpqua, on the other hand, argues that the documents at issue are not protected work product since this is a bad faith action and "[b]y assuming the role of First American's agent, decision maker and claims adjuster, Mr. Lowenthal has made himself the person most knowledgeable regarding the denial of Umpqua's claims." Jt. Stmt. at 8 (citing Holmgren v. State Farm Mut. Auto Ins. Co., 976 F.2d 573, 577 (9th Cir. 1992)).
As an initial point, it is unclear whether First American is withholding any documents on the basis of attorney work product that are not otherwise protected by the attorney-client privilege, as prescribed above. However, to the extent that First American is withholding documents on the basis of attorney work product alone, the court addresses the applicability of the attorney work product doctrine. Umpqua and First American both agree that ...