Appellate Court DecisionsDynamic Concepts Inc. v. Truck Insurance Exchange (1998) 61 Cal. App.4th 999 USE OF GUIDELINES addressed in footnote 9, as follows: "9. As the trial court noted, Truck never disclaimed any responsibility to underwrite such defense costs as an interpreter to translate records written in German or a paralegal to prepare a computerized index of documents. Truck would have paid for those costs if incurred by Sheehy or Koeller, its appointed counsel, and, possibly by Chen as well. These would have been appropriate matters to discuss in a face-to-face discussions between defense counsel, meetings in which Chen refused to participate. In this regard we question the wisdom and propriety of so-called *outside counsel guidelines* by which insurers seek to limit or restrict certain types of discovery, legal research, or computerized legal research by outside attorneys they retain to represent their insureds. Some guidelines go so far as to call for the use of paralegals, rather than attorneys, to respond to *routine* discovery requests or prohibit the retention of experts or the filing of certain pretrial motions until shortly before trial. Under no circumstances can such guidelines be permitted to impede the attorney's own professional judgment about how best to competently represent the insureds. If the attorney's representation is to be limited in any way that unreasonably interferes with the defense, it is the insured, not the insurer, who should make that decision. (See discussion on *Outside Counsel Guidelines* in Richmond, Lost in the Eternal Triangle of Insurance Defense Ethics (1996) 9 Geo. J. Legal Ethics 475, 531-535.) Nothing in the record indicates Truck intended to so arbitrarily limit the manner by which either Sheehy or Koeller would represent Dynamic in the UniBasic litigation."
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Trial Court MattersSaskia Smith, et. al. v. Legalguard, et. al. OUTSIDE AUDITING ISSUES. Status: Defendant's' Demurrer to Complaint sustained with leave to amend. Dismissed with prejudice in exchange for a waiver of costs by defendants. A copy of the demurrer is available, thanks to Jack Pierce, attorney for Chubb. Ricketts v. Farmers Group, Inc., et al4/13/00: Improper and Illegal for Insurer and Captive Law Firm to Direct Defense Counsel's Defense of Insured -- California Trial Court Refuses to Set Aside Punitive Award Against Insurer and Captive Law Firm California Superior Court [Los Angeles Superior Court #BC165961] In a matter already on its way to the California Court of Appeal, the trial court refused to set aside a punitive damage award against an insurer and its captive law firm.The court held that Farmers Insurance and the company's Los Angeles law firm of Early, Maslach & Price, engaged in the illegal practice of law when they used claims adjusters to direct attorneys defending policyholders.
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Ethics Rulings and OpinionsTHE STATE BAR OF CALIFORNIA STANDING COMMITTEE ON PROFESSIONAL RESPONSIBILITY AND CONDUCT ISSUE: May an insurance company retain its in-house counsel to represent insureds in litigation brought by third parties pursuant to the policy? DIGEST: In-house counsel for an insurer may represent insureds in litigation without violating the prohibition against aiding the unauthorized practice of law set forth in rule 3-101(A). However, the attorneys must be certain that the insurance company does not control or interfere with the exercise of professional judgment in representing insureds, that any fees are not split with the insurance company or any other third parties, that cases involving conflicts of interest are referred to outside counsel, and that the firm name used by in-house counsel is not false, deceptive or misleading. |
| StatutesNew California Law Provides That
Insurance Company Billing Auditors Can Not Be Paid On A Contingency Basis - Insurance Code
Section 11580.02
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS
FOLLOWS:
SECTION 1. Section 11580.02 is added to the Insurance Code, to read: 11580.02. A liability insurer may review bills submitted for the defense of its insured, but shall not compensate a reviewer based on any of the following: (a) A percentage of the amount by which a bill is reduced for payment. (b) The number of claims or the cost of services for which the reviewer has denied authorization or payment. (c) An agreement that no compensation will be due unless one or more bills are reduced for payment. Back in June, HOT CASES reported this opinion from California: Where Law Firm Represents Liability Carrier's Insured, It is Also Representing Carrier
Concurrently; Firm is Disqualified From Representing Adverse Carrier in Unrelated
Declaratory Judgment Action
BILL
NUMBER: AB 2069 CHAPTERED CHAPTER 472 APPROVED BY GOVERNOR
SEPTEMBER 16, 2000 PASSED THE SENATE
AUGUST 25, 2000 PASSED THE ASSEMBLY
AUGUST 25, 2000 AMENDED IN SENATE
AUGUST 18, 2000 AMENDED IN SENATE
AUGUST 7, 2000 AMENDED IN SENATE
JUNE 14, 2000 AMENDED IN ASSEMBLY
MAY 16, 2000 AMENDED IN ASSEMBLY
APRIL 27, 2000 AMENDED IN ASSEMBLY
APRIL 13, 2000 AMENDED IN ASSEMBLY
MARCH 27, 2000 INTRODUCED
BY Assembly
Member Corbett
FEBRUARY 22, 2000 An act to add and repeal Section 6086.11 of the Business and
Professions Code, and to amend Section 1714.10 of the Civil Code,
relating to attorneys. LEGISLATIVE
COUNSEL'S DIGEST AB 2069, Corbett. Attorneys:
defense of insureds.
(1) Existing decisional law in this state deems that an
attorney who is hired by an insurance company to defend an insured
represents 2 clients, the insured and the insurer.
Existing rules of professional conduct for attorneys, as
interpreted by judicial decision relating to conflicts of interest,
require a court to disqualify an attorney from representing a client
if the attorney is representing a client with interests that are
adverse to a former client
and there is a substantial relationship between the subjects of the
current and former representation.
Those rules and decisions in all but a few instances also
require a court to disqualify an attorney from representing a client
where the attorney has another current client in a wholly unrelated
matter whose interests are adverse to the first client. This bill would require the State Bar of California to
conduct a study, as specified, concerning the legal and professional
responsibility issues that may arise as a result of the relationship
between an attorney and an insurer when the attorney is retained by
the insurer to represent an insured, and the attorney is
subsequently retained to represent a party against another party
insured by the insurer. The
bill would require that a report of the study, with any
recommendations, be submitted to the Legislature and the California
Supreme Court on or before July 1, 2001. (2) Existing law requires a court, prior to the filing of an
action by a party against an attorney for a civil conspiracy with
his or her client arising out of an attempt to contest or compromise
a claim, to determine that there is a reasonable probability that
the party will prevail in the action. This bill would require the attorney rather than a party to
raise that defense upon the first court appearance. THE
PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section
6068.11 is added to the Business and Professions
Code, to read:
6068.11. (a) The
Legislature finds and declares that the opinion in State Farm Mutual
Auto Insurance Company v. Federal Insurance Company (1999) 72 Cal.
App. 4th 1422, raises issues concerning the relationship between an
attorney and an insurer when the attorney is retained by the insurer
to represent the insured. These
issues involve both the Rules of Professional Conduct for attorneys
and procedural issues affecting the conduct of litigation.
(b) The board in consultation with representatives of
associations representing the defense bar, the plaintiffs bar, the
insurance industry and the Judicial Council, shall conduct a study
concerning the legal and professional responsibility issues that may
arise as a result of the relationship between an attorney and an
insurer when the
attorney is retained by the insurer to represent an insured, and
subsequently, the attorney is retained to represent a party against
another party insured by the insurer.
The board shall prepare a report that identifies and analyzes
the issues and, if appropriate, provides recommendations for changes
to the Rules of Professional
(c) This section shall remain in effect only until January 1,
2002, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2002, deletes or extends
that date.
SEC. 2. Section
1714.10 of the Civil Code is amended to read:
1714.10. (a) No
cause of action against an attorney for a civil conspiracy with his
or her client arising from any attempt to contest or compromise a
claim or dispute, and which is based upon the attorney's
representation of the client, shall be included in a complaint or
other pleading unless the court enters an order allowing the
pleading that includes the claim for civil conspiracy to be filed
after the court determines that the party seeking to file the
(b) Failure to obtain a court order where required by
subdivision (a)
shall be a defense to any action for civil conspiracy filed in
violation thereof. The
defense shall be raised by the attorney charged with civil
conspiracy upon that attorney's first appearance by demurrer, motion
to strike, or such other motion or application as may be
appropriate. Failure to
timely raise the defense shall constitute a waiver thereof.
(c) This section shall not apply to a cause of action against
an attorney for a civil conspiracy with his or her client, where (1)
the attorney has an independent legal duty to the plaintiff, or (2)
the attorney's acts go beyond the performance of a professional duty
to serve the client and involve a conspiracy to violate a legal duty
in furtherance of the attorney's financial gain.
(d) This section establishes a special proceeding of a civil
nature. Any order made
under subdivision (a), (b), or (c) which determines the rights of a
petitioner or an attorney against whom a pleading has been or is
proposed to be filed, shall be appealable as a final judgment in a
civil action.
(e) Subdivision (d) does not constitute a change in, but is
declaratory of, the existing law. For full accessibility to Assembly and Senate Analyses, go to the following link, choose the 1999-2000 session, and search by Bill No. 2069. Choose AB 2069 when given the choice between the Senate or Assembly bill. For a full background and discussion of the bill and reasons for it, the State Farm case which the law references and the issues faced by defense counsel, refer to the Analyses of the Senate and Assembly. As indicated, the bill was sponsored by the California Defense Counsel. http://www.assembly.ca.gov/acs/acsframeset2text.htm
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As reported on the website of the Association of Northern California Defense Counsel: " The Association of Defense Counsel of Northern California and our sister organization The Southern California Association of Defense Counsel co-sponsored two "Audits//Guidelines Roundtable" meetings held on April 24 and September 24, respectively. The purpose of the meetings was to allow an open and frank exchange of ideas and opinions between the leaders of California's defense bar and leaders of the insurance industry from around the country. Our goal was achieved in that as a result of frank, at times, heated exchanges, a good deal of consensus was achieved between the parties regarding the manner in which insurers and their retained defense counsels should relate to each other. A direct result of these exchanges was the tentative approval of a document we have called "Recommended Protocols for the Relationship Between Insurers, Insureds and Retained Defense Counsel." This document is intended not to replace individual insurance company guidelines but rather to augment them and to provide general principles which is hoped will foster improved relations between the parties. You are invited to carefully review the protocols which follow and make any comments you wish concerning them. The members of the industry who were participating in the process are doing the same with respect to their principals and their competitors. Barring any violent objection or significant changes, it is the intent of your Board of Directors to adopt these protocols as the official policy of the Association of Defense Counsel of Northern California. Again, your commentary is invited. Please forward your comments to Steve Gurnee, ADC President, 2240 Douglas Boulevard, Suite 150, Roseville, California 95661, phone (916) 797-3100, or email Steve at classlaw@deepwell.com |
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The current and final version of the
Assembly bill