Court Of Appeal Permits Action Against Insurer And Its Coverage Counsel For Conspiracy And Multiple Torts03.09.2011
In February, the California Court of Appeal addressed an unusual set of circumstances involving a liability insurer (Insurance Company of North America) and its coverage counsel (the law firm of Cozen O'Connor). In Coretronic v. Cozen O'Connor, 2011 WL 653644, the court rejected a claim that Cozen's professional conduct was protected litigation activity under California's anti-SLAPP (Strategic Lawsuit Against Public Participation) statutes. This ruling sets the stage for the case now to proceed in the trial court on allegations that the Cozen lawyers conspired with INA to obtain sensitive information to use against INA's insured. It illustrates the need for coverage counsel and insurers to scrutinize assignments for potential conflicts of interest.
The background facts were that E&S International Enterprises, Inc. sued Coretronic Corporation in an action involving Coretronic’s manufacture and distribution of plasma televisions. Coretronic tendered its defense to INA, and INA retained the Cozen firm as coverage counsel to advise whether E&S’ claim was covered. INA denied the claim. Cozen continued to represent INA, and eight months later, a Cozen attorney appeared for INA at a mediation between E&S and Coretronic.
Cozen continued to obtain information from Coretronic, “ostensibly” to have INA reconsider its denial of coverage. INA never reversed its disclaimer of coverage. Yet, Coretronic’s counsel provided detailed information about the merits of E&S’ claims, including a copy of Coretronic’s confidential mediation brief. The Cozen attorney also went to Coretronic’s counsel’s office to review the file and obtain copies of pertinent documents.
Meanwhile, Cozen undertook to represent E&S in an unrelated lawsuit, and the same Cozen attorney handled this representation of E&S in that suit! In other words, a Cozen attorney was simultaneously representing INA as insurer for Coretronic regarding the E&S v. Coretronic suit and representing E&S in another suit. (The attorney’s explanation was that he did not know the same E&S entity was involved in the second suit.) Cozen eventually withdrew from the representation of E&S in the second suit, but continued to represent INA as coverage counsel in the first suit.
Coretronic thereafter sought dismissal of E&S’ suit based upon the conflict and Cozen’s conduct. The court denied that motion. Coretronic then brought the subject action against Cozen, INA and E&S asserting nine tort causes of action, including conspiracy, bad faith and misrepresentation. Coretronic alleged that Cozen attorneys concealed their status as E&S’ counsel to gain confidential information to benefit E&S in its suit against Coretronic.
Coretronic and INA filed a motion to strike the complaint as a SLAPP action, i.e., a suit arising from the exercise of constitutionally protected free speech, in this case, attorney-client communications and litigation activity. The threshold question on an anti-SLAPP motion is whether the challenged causes of action arise from protected activity.
The trial court denied the motion, and the Court of Appeal affirmed. The Court held that the gravamen of the complaint was not protected litigation speech or attorney-client privileged communications. Rather, the charging allegation was that the defendants (Cozen, INA and E&S) failed to disclose that Cozen was simultaneously representing E&S and obtaining confidential information from Coretronic about its defense of the E&S lawsuit. As the Court noted,“[t]hat the concealment occurred in the context of litigation does not change this result, as it is clear that any litigation activity is only incidental to plaintiffs’ allegations of wrongdoing.” The act of undertaking the representation of parties with conflicting interests was deemed actionable.
The Court further ruled that any protected activity was not the “root” of the complaint, but was “merely the setting in which the claims arose.” Thus, the Court remanded the case to the trial court to proceed.
The fact pattern in Coretronic v. Cozen O’Connor may be unique and unlikely to present any recurring issues. Still, the decision illustrates that coverage counsel and liability insurers must be diligent to assure that attorneys do not represent parties with conflicting interests, such as both the insurer and the insured (even in unrelated matters). A more common situation might occur if the coverage firm previously represented the insured or the claimant. That would require an analysis of whether there is any relation between the issues in the prior matter and the current claim for coverage. It may be ethically permissible for a firm to be adverse to a former client in a coverage matter. The wrinkle in the Coretronic action was that the law firm, and indeed the same lawyer, was concurrently obtaining information from an insured as the insurer’s lawyer while representing the claimant in another matter. Such a confluence of events is rare indeed, but can lead to a troublesome claim, as here.
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