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State Farm Mutual Automobile Insurance Co. v. Federal Insurance Co.6/18/1999
APPEAL from a judgment of the Superior Court of Fresno County. Lawrence J. O'Neill, Judge.
The primary issue presented by this appeal is whether, for purposes of disqualification, the attorney representing an insured is also representing the insurance company. If the insurance company is a client, this case poses a secondary question regarding the applicable disqualification standard. The issue becomes whether the insurance company is a "former" or a "concurrent" client when the attorney files a complaint naming the insurance company as a defendant and then settles the insured's case.
When presented with these issues, the trial court denied the disqualification motion. However, the obligations and duties an attorney owes to an insurance company in this situation support finding an attorney-client relationship for purposes of a disqualification motion. Additionally, the overlap in representation requires application of the "concurrent" client standard. Thus, the motion to disqualify should have been granted.
STATEMENT OF THE CASE
In 1996, respondent, State Farm Mutual Automobile Insurance Company (State Farm) retained the law firm of McCormick, Barstow, Sheppard, Wayte & Carruth (McCormick) to advise State Farm regarding the coverage available to its insured, Gerawan Farming, with respect to personal injury actions arising out of a motor vehicle accident. McCormick and State Farm concluded that insurance policies issued by appellant, Federal Insurance Company (Federal), provided additional coverage for this accident. McCormick relayed this information to Federal's coverage counsel. However, Federal disagreed with State Farm's Conclusion and refused to voluntarily participate in the Gerawan cases. The last contact McCormick had with Federal's coverage counsel regarding this issue was in September 1996.
In January 1997, Federal retained McCormick to represent its insured, C & S Distributing Company, in a case entitled Pinion v. Clark-Stebbins, Inc. (Pinion). Federal did not dispute coverage in this matter and thus proceeded to provide a defense for its insured without a reservation of rights.
On February 4, 1998, State Farm filed this action against Federal for declaratory relief and subrogation damages. State Farm is asserting that policies issued by Federal provided additional coverage for the Gerawan Farming cases. State Farm defended Gerawan Farming in these actions and now seeks contribution from Federal for all the costs and expenses it incurred. This complaint was filed on behalf of State Farm by McCormick.
On March 6, 1998, approximately one month after the complaint was filed, Federal, through its defense counsel, Stephen Newton of Newton, Kastner & Remmel, advised McCormick that Federal objected to McCormick's continued representation of State Farm. Federal based its objection on California Rules of Professional Conduct, rule 3-310 "which requires [McCormick] to refrain from proceeding with a claim against Federal of an adverse nature given the fact that [McCormick] has represented and does presently represent insureds of Federal as well as Federal itself and other members of the Chubb Group of Insurance Companies." McCormick did not respond to this letter.
On April 7, 1998, Federal reiterated its objection to McCormick's representation of State Farm. However, McCormick again did not respond to the letter.
On May 28, 1998, the parties in the Pinion action settled the matter at mediation.
Also on May 28, 1998, State Farm commenced discovery in this case. In response, Federal filed the motion to disqualify McCormick. Federal further sought a protective o
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