California Code of Civil Procedure section 425.16, which authorizes the dismissal of a “strategic lawsuit against public participation,” did not require dismissal of an insured’s bad faith lawsuit arising from an insurer’s failure to provide independent counsel. (Miller Marital Deduction Trust v. Zurich American Ins. Co. (2019) 41 Cal.App.5th 247)
Facts
Helen Miller and related parties (the Millers) own a piece of real property. The Millers filed a federal court lawsuit against various previous owners / lessees of the property, including the Estate of Jack Miller (Miller’s Estate) and Mary DuBois (DuBois), alleging that those parties were responsible for environmental contamination emanating from the property. Miller’s Estate was an insured under various policies issued by Zurich American Insurance Company (Zurich). Zurich thus hired panel counsel to defend Miller’s Estate against the Millers’ lawsuit.
DuBois filed a counterclaim against the Millers, alleging that the Millers themselves had contributed to the contamination. In connection with DuBois’ counterclaim, the Millers claimed that they were additional insureds under the policies Miller’s Estate had through Zurich. Zurich agreed to defend the Millers against DuBois’ counterclaim, subject to a reservation of rights. Zurich appointed panel counsel to defend the Millers, but refused to pay for independent counsel to represent the Millers.
The Millers then filed a state court action against Zurich, alleging that Zurich had breached the policies and acted in bad faith by refusing to provide the Millers with independent counsel to defend against DuBois’ counterclaim. Among other things, the Millers alleged that Zurich: (1) placed limitations on appointed panel counsel’s ability to defend the Millers; (2) allowed panel counsel for Miller’s Estate (an adverse party) to advise Zurich regarding whether Zurich owed independent counsel to the Millers; (3) allowed panel counsel for Miller’s Estate to communicate with and advise the claim representative who was overseeing the Millers’ defense; and (4) allowed panel counsel for Miller’s Estate to exert influence and control over panel counsel for the Millers. The Millers’ lawsuit did not name any attorney as a defendant.
Pursuant to Code of Civil Procedure section 425.16, Zurich filed a special motion to strike the Millers’ complaint as a strategic lawsuit against public participation (i.e., an “anti-SLAPP” motion). Zurich argued that the Millers’ claims arose from protected speech by attorneys retained by Zurich, and that the Millers could not demonstrate a probability of prevailing. The trial court denied Zurich’s motion. Zurich appealed.
Holding
The California Court of Appeal affirmed the denial of Zurich’s anti-SLAPP motion. Pursuant to Code of Civil Procedure section 425.16, a cause of action can be stricken if it (1) arises from protected speech and (2) lacks even minimal merit. Here, Zurich could not establish the first prong, i.e., that the allegations against Zurich arose from protected speech. Zurich’s alleged liability was based not on the fact of counsels’ communications, but rather on Zurich’s refusal to provide independent counsel to the Millers. The allegations of counsels’ communications were merely evidence providing context for the allegation that Zurich failed to provide independent counsel. Thus, the appellate court rejected Zurich’s argument that counsels’ communications gave rise to Zurich’s alleged liability for bad faith.
Comment
Not all attorney conduct in connection with litigation, or in the course of representing clients, is protected by section 425.16. The involvement of lawyers and legal proceedings does not necessarily shield an insurer from liability for alleged bad faith. Here, the Millers sought relief against Zurich – and not against any counsel – based on the overarching premise that Zurich breached its duty to defend by failing to provide independent counsel to defend the Millers against DuBois’ counterclaim. Such alleged conduct did not fall within the scope of the anti-SLAPP statute.