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Court of Appeal:
Insurer May Request Attorney-Fee Documents in Discovery
Plaintiff Impliedly Waives Attorney-Client Privilege by Seeking Fees as Damages
By a MetNews Staff Writer
Div. Five of the First District Court of Appeal held yesterday that a party seeking attorney fees as damages caused by an insurance company’s breach of the covenant of good faith and fair dealing impliedly waives the attorney-client privilege concerning documents that provide evidence as to the amount of its damages.
Presiding Justice Teri L. Jackson wrote the opinion denying a petition for writ of mandate/prohibition which sought relief from an order by Consta Costa Superior Court Judge Danielle Douglas commanding the production of documents such as fee agreements and attorney invoices. Justices Mark B. Simons and Gordon B. Burns joined in the opinion.
Jackson commented that the court initially stayed the order and “determined writ review is warranted” because the petition raises important “questions of first impression” in an area in need of general guidelines.
Action Against Insurer
Petitioning the court were plaintiffs George and Sheila Byers, who filed a complaint in September 2020 against their homeowners’ insurance provider, USAA General Indemnity Company, alleging causes of action for breach of contract and breach of the covenant of good faith and fair dealing related to the installation of hardwood flooring by a USAA-approved contractor.
The Byerses’ complaint asserts that, following a covered event, the contractor installed faulty replacement flooring that was “cupping” and causing tripping risks throughout the elderly couple’s Orinda home and that USAA failed to restore the home to its condition before the loss. The prayer for relief included a prayer “[f]or attorneys’ fees and costs.”
In May 2023, USAA served document requests on the plaintiffs, including requests for “each and every fee agreement with YOUR attorneys in the instant litigation” and “each and every billing record, fee statement, invoice, receipt and proof of payment from YOUR attorneys in the instant litigation.”
Fees as Damages
Jackson pointed to the 1985 California Supreme Court decision in Brandt v. Superior Court as the basis for the attorney fee request in the present case and said:
“In Brandt, the California Supreme Court created an exception to the general rule that each party must ordinarily bear its own attorney fees….Under Brandt, an insurer is liable for attorney fees when the insurer’s tortious conduct in refusing to pay insurance benefits requires the insured to retain an attorney to obtain the benefits of the policy.”
The jurist noted that fees recoverable under this exception are damages proximately caused by a tort, akin to medical fees as damages in a personal injury action, and the determination as to the amount must be made by the trier of fact, absent a stipulation otherwise.
She noted that the award will not include fees incurred to recover any other portion of the verdict.
Finding an absence of authority on the issue at hand, Jackson wrote:
“The parties have not cited, nor are we aware of, any controlling authority specifically holding that a party claiming Brandt fees impliedly waives the attorney–client privilege as to documentation supporting the fees, including fees agreements and invoices.”
She said, however, that in other contexts, it is well established that the attorney-client privilege is waived where the client puts in issue in litigation matters as to which the privilege normally awould attach.
Implied Waiver
Jackson pointed out that, as in any tort case, the plaintiffs bear the burden of proving by a preponderance of the evidence both the existence and amount of the attorney fees as damages and remarked:
“The Byerses have put at issue the attorney fees they incurred in an effort to seek coverage under their insurance policy, and disclosure of documents supporting their claim for such fees is necessary to fairly adjudicate the issue of damages.”
Having put them at issue, she reasoned:
“We agree with the trial court that USAA has a right to learn during discovery of the attorney fees aspect of the Byerses’ alleged damages and that by seeking such damages the Byerses have impliedly waived the attorney client privilege.”
The plaintiffs argued that they did not waive, impliedly or otherwise, the attorney-client privilege because they did not elect to seek or specifically plead Brandt fees.
Rejecting that argument, Jackson wrote:
“While it is true that the Byerses’ causes of action for breach of contract and breach of the covenant of good faith and fair dealing does not specifically reference Brandt fees, their prayer for relief includes a general reference to attorney fees…. [T]hey cannot simultaneously assert entitlement to Brandt fees and then claim they have not ‘elected’ to seek such fees and therefore are not required to provide discovery regarding the amount of such fees.”
Request for Delay
The Byerses requested that the discovery responses relating to attorney fees be deferred until after the jury has had the opportunity to determine USAA’s bad faith liability, at which point they asserted there would be a “limited” waiver of the privilege for the purpose of deciding the issue of fees.
Unpersuaded, Jackson said:
“As the trial court observed at the hearing on USAA’s motion to compel, the Byerses did not file a motion to bifurcate. Nor are we reviewing an order denying a motion to bifurcate. We are not persuaded that a bifurcation procedure is necessary whenever Brandt fees are at issue.”
The justice also found that the waiver was appropriately limited in scope, saying:
“[W]e find no abuse of discretion at this stage in the proceeding because the trial court’s order explicitly permits the Byerses to redact the responsive documents. The Byerses may redact entries that are not recoverable as Brandt fees because such fees were not incurred to obtain payment under the insurance policy and, therefore, they are not evidence of the Byerses’ damages. Nor have the Byerses waived any privileges with respect to records of fees incurred to pursue claims against USAA other than to prove coverage under the policy.”
The case is Byers v. Superior Court of Contra Costa County (USAA General Indemnity Company), 2024 S.O.S. 1544.
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