Appellate Law Update

(October 22, 2019, through December 10, 2019)

The following published decisions may be of interest to attorneys practicing insurance law:

California Court of Appeal

Insurance bad faith claims arising out of an insurer’s alleged failure to provide independent counsel do not arise out of protected activity for purposes of the anti-SLAPP statute.  Miller Marital Deduction Trust v. Zurich American Insurance Company (2019) __ Cal.App.5th __Click here for opinion.

Two trustees of a property once used for dry cleaning sued the prior owner and lessees of the property to recover environmental remediation costs.  Zurich American Insurance Company insured the prior owner, and agreed to defend the prior owner against the trustees’ lawsuit.  When the lessees filed a counterclaim against the trustees for contribution and negligence, the trustees tendered defense of the counterclaim to Zurich, contending that they qualified as additional insureds under the prior owner’s policy.  Zurich agreed to defend subject to a reservation of rights.  The trustees then asked Zurich to allow them to select independent Cumis counsel given the conflict of interest between the trustees and the prior owner, who remained adverse in the main action.   Zurich refused and instead retained panel counsel to defend the trustees.  The trustees sued Zurich for bad faith.  Zurich filed an anti-SLAPP motion arguing that the trustees’ claims arose from allegations about the conduct of the attorneys representing Zurich’s insureds in the course of the environmental action, and that such allegations arose from protected petitioning activity.  While the trial court agreed with Zurich that a bad faith action could be subject to the anti-SLAPP statute where the asserted basis of liability was a judicial communication, it denied the motion on the ground that Zurich had failed to show that the litigation privilege barred the entirety of the trustees’ claims.  Zurich appealed.

The Court of Appeal (First Dist., Div. Three) affirmed.  The court held Zurich’s potential liability in the bad faith action arose not from counsels’ communications in the course of a judicial proceeding, but from Zurich’s alleged breach of its obligation to provide the trustees with conflict-free counsel.  Where counsels’ communications are described in the complaint only to provide factual context for the harm the insureds suffered from the insurer’s breach of the duty to provide independent counsel, and are not the basis for liability, the anti-SLAPP statute does not apply.

This e-Bulletin was prepared by Emily V. Cuatto, Certified Appellate Specialist and Associate of the Burbank office of Horvitz & Levy LLP. Ms. Cuatto is a member of the Insurance Law Standing Committee of the Business Law Section of the California Lawyers Association.