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Court Confirms Privilege Between Title Insurer, Insured and Attorney

Attorneys rely daily on the existence of the attorney client privilege to communicate openly with their clients without fear of being compelled to disclose these communications. Clients are justifiably reluctant to disclose information without assurances that their communications are protected. Our system could not function in its current form without the ability of attorneys and clients to communicate freely and without reservation.

 

This case pitted two banks against each other, each of which loaned money secured by what they thought was a first deed of trust against the same parcel. Pacific Security Bank (PSB) held a trustee’s sale where they purchased the parcel by credit bid. Bank of America (BofA) made a claim to Fidelity under their title insurance policy. Fidelity, in turn, hired an attorney to sue PSB on BofA’s behalf on the theory that PSB’s deed of trust was equitably subordinated to BofA’s. After many months of litigation, the trial court ordered BofA’s attorney to turn over all communications between the firm and Fidelity, finding no privilege applied to those communications.

 

The Court of Appeal for the Second District reversed the trial court’s order, finding that a “tripartite” privilege exists in the title insurance context just as it does in liability insurance context. The Court rejected PSB’s argument that Fidelity’s reservation of rights prevented the formation of an attorney client relationship and further rejected PSB’s argument that no privilege arises where the insurance company hires an attorney to prosecute an action rather than defend it.

 

The Court found that the communications in this case were made “relating to the joint and common purpose — the successful defense and resolution of the claim.” Because Fidelity, BofA and the attorney had formed a “loose partnership, coalition or alliance that was directed to the common goal of protecting BofA’s security position … communications exchanged among them are privileged.”

 

While this decision is not earth shattering, it is very important in that it confirms the parameters of the attorney-client relationship in the title insurance context.

 

Bank of America v. Sup. Ct. (Pac. City Bank) (2013) 212 Cal.App.4th 1076