Insured Can’t Waive Privilege for Communications Between Insurer, Its Lawyers, Appeals Court Rules

Monday, August 27, 2001

Page 1

Insured Can’t Waive Privilege for Communications Between Insurer, Its Lawyers, Appeals Court Rules

By a MetNews Staff Writer

An employer cannot waive the privilege for communications between its workers’ compensation carrier and the insurer’s attorneys with respect to an employee’s claim, the Court of Appeal for this district ruled Friday.

Granting a writ of mandate, Div. Four ordered an in camera hearing to determine whether five boxes of documents seized from the offices of the State Compensation Insurance Fund in March are covered by the attorney-client privilege or work-product doctrine.

The documents relate to a district attorney’s investigation regarding possible fraud by an employee of a company called Race Craft, insured by State Fund. Investigators obtained a warrant authorizing a search of the State Fund offices, including those of its in-house lawyers, for materials relating to the claim.

The warrant was executed in the manner prescribed by Penal Code Sec. 1524(c). The statute provides that when the offices of certain professionals, including lawyers, are searched in connection with an investigation in which the professional is not a target, a special master must oversee the search and seal any documents subject to a claim of privilege.

If the statute is determined to apply, the documents cannot be unsealed until a hearing is held and the privilege claims are resolved.

In the case of Race Craft, Los Angeles Superior Court Judge Suzanne Person ruled that there was “merit” to the argument that the company’s written waiver of attorney-client privilege in connection with its claim was binding on State Fund. The judge also ruled that the “crime-fraud” exception to the privilege applied.

But Presiding Justice Charles Vogel, writing for Div. Four, said State Fund, not its insured, was the holder of the privilege under Evidence Code Sec. 953(a).

For purposes of the privilege, Vogel explained, a client is “a person who, directly or through an authorized representative, consults a lawyer for the purpose of retaining the lawyer or securing legal service or advice from him in his professional capacity,” including a corporation or similar entity.

“It follows that State Fund may retain lawyers to perform legal services and render advice to it without bestowing ‘holder’ status on its insured,” the presiding justice wrote.

Vogel went on to conclude that the trial judge erred in ruling on the “crime-fraud” exception based on a District Attorney’s Office affidavit that was filed under seal. The jurist noted that to invoke the exception, the district attorney must make a prima facie showing a higher standard than the probable cause needed to obtain the search warrant.

Attorneys on appeal were David M. Axelrad and Daniel J. Gonzalez of Horvitz & Levy and Frank Falzetta and Thomas M. Brown of Sheppard, Mullin, Richter & Hampton for State Fund and Deputy District Attorneys George M. Palmer, Brentford J. Ferreira, and Jessica Goulden for the prosecution.

The case is State Compensation Insurance Fraud v. Superior Court, People RPI, B150183.