Where the insureds mistakenly provided their tax returns to the insurer’s attorney during investigation of a first-party claim, and the attorney then disclosed the returns to the insurer and its accountants, the attorney could be held liable for “invasion of privacy,” but not “elder abuse.” (Strawn v. Morris, Polich & Purdy, LLP (2019) 30 Cal.App.5th 1087)
Facts
In June 2009, Dennis and Diane Strawn’s home and pickup truck were damaged by fire. The Strawns immediately submitted claims to their insurer, State Farm General Insurance Company. State Farm hired Attorney Douglas Wood to assist with investigation of the Strawns’ claims.
The District Attorney subsequently prosecuted Mr. Strawn for arson in connection with the fire. However, in February 2013, the D.A. dismissed the charges against Mr. Strawn.
In August 2015, State Farm denied the Strawns’ insurance claims on the ground that Mr. Strawn had intentionally set the fire and Mrs. Strawn had fraudulently concealed evidence of her husband’s wrongful act.
A year later, in August 2016, the Strawns sued State Farm and its attorney, Wood. With regard to State Farm, the Strawns alleged that State Farm had insisted that the Strawns provide information that was not relevant to the cause of the fire; had encouraged a criminal prosecution of Mr. Strawn for arson; had withheld exculpatory evidence that tended to show that any intentional wrongdoing was done by others; and had failed to pay the Strawns’ lender even though the lender was not subject to any coverage defenses. These allegations formed the basis for causes of action against State Farm for “breach of contract,” “breach of the covenant of good faith and fair dealing” and “intentional infliction of emotional distress.”
With regard to Wood, the Strawns alleged that Wood repeatedly demanded the Strawns’ financial records, including tax returns; that in response, the Strawns agreed to provide financial records used to prepare the tax returns, but not the actual returns (the returns being privileged); that the Strawns’ accountant then mistakenly provided the returns to Wood; and that Wood failed to inform the Strawns of the error and instead sent the returns to State Farm and State Farm’s forensic accounting firm. The Strawns also alleged that Wood “assisted” State Farm in retaining funds that rightfully belonged to the Strawns. These allegations formed the basis for causes of action against Wood for “invasion of privacy” and “elder abuse.”
Wood filed a demurrer, which the trial judge sustained without leave to amend. The Strawns appealed.
Holding
The Court of Appeal reversed in part and affirmed in part.
Specifically, the appellate court reversed the trial court’s ruling as to the Strawns’ claim against Wood for “invasion of privacy.” According to the appellate court, the Strawns had sufficiently alleged facts satisfying the elements of a claim for invasion of privacy, namely: (1) a legally protected privacy interest; (2) a reasonable expectation of privacy in the circumstances; and (3) conduct by defendant constituting a serious invasion of privacy. Moreover, there was a factual issue as to whether the “litigation privilege” relieved Wood of any liability for his pre-litigation conduct in disclosing the Strawns’ tax returns to State Farm and its accountants. Thus, at least for pleading purposes, the Strawns had stated a claim against Wood for invasion of privacy.
However, the appellate court affirmed the trial court’s ruling as to the Strawns’ claim against Wood for “elder abuse.” The appellate court noted that an insurer’s bad faith denial of a claim can perhaps support a cause of action for financial elder abuse against the insurer. However, liability for financial elder abuse cannot be imposed on an attorney who assists the insurer in investigating the claim. Allowing such a claim against an insurer’s attorney would circumvent the well-established rule that an insurer’s agents cannot be found liable for bad faith denial of coverage.
Comment
The appellate court held that under the circumstance of this case, the insureds could proceed against the insurer’s attorney for invasion of privacy. The appellate court noted that although tax returns are privileged from disclosure, the privilege is not absolute. This is reflected in Insurance Code section 2071(a), which provides that “[t]he insurer shall inform the insured that tax returns are privileged against disclosure under applicable law but may be necessary to process or determine the claim.” Thus, the statute allows the insured to decide whether to disclose tax returns during the insurer’s processing of a claim. Here, the gist of the Strawns’ invasion of privacy claim was that Wood improperly provided the Strawns’ tax returns to State Farm and its accountants despite the Strawns’ assertion of their privilege not to disclose the returns.