BILL NUMBER: AB 2069 CHAPTERED 09/18/00 CHAPTER 472 FILED WITH SECRETARY OF STATE SEPTEMBER 18, 2000 APPROVED BY GOVERNOR SEPTEMBER 16, 2000 PASSED THE SENATE AUGUST 25, 2000 PASSED THE ASSEMBLY AUGUST 25, 2000 AMENDED IN SENATE AUGUST 18, 2000 AMENDED IN SENATE AUGUST 7, 2000 AMENDED IN SENATE JUNE 14, 2000 AMENDED IN ASSEMBLY MAY 16, 2000 AMENDED IN ASSEMBLY APRIL 27, 2000 AMENDED IN ASSEMBLY APRIL 13, 2000 AMENDED IN ASSEMBLY MARCH 27, 2000 INTRODUCED BY Assembly Member Corbett FEBRUARY 22, 2000 An act to add and repeal Section 6086.11 of the Business and Professions Code, and to amend Section 1714.10 of the Civil Code, relating to attorneys. LEGISLATIVE COUNSEL'S DIGEST AB 2069, Corbett. Attorneys: defense of insureds. (1) Existing decisional law in this state deems that an attorney who is hired by an insurance company to defend an insured represents 2 clients, the insured and the insurer. Existing rules of professional conduct for attorneys, as interpreted by judicial decision relating to conflicts of interest, require a court to disqualify an attorney from representing a client if the attorney is representing a client with interests that are adverse to a former client and there is a substantial relationship between the subjects of the current and former representation. Those rules and decisions in all but a few instances also require a court to disqualify an attorney from representing a client where the attorney has another current client in a wholly unrelated matter whose interests are adverse to the first client. This bill would require the State Bar of California to conduct a study, as specified, concerning the legal and professional responsibility issues that may arise as a result of the relationship between an attorney and an insurer when the attorney is retained by the insurer to represent an insured, and the attorney is subsequently retained to represent a party against another party insured by the insurer. The bill would require that a report of the study, with any recommendations, be submitted to the Legislature and the California Supreme Court on or before July 1, 2001. (2) Existing law requires a court, prior to the filing of an action by a party against an attorney for a civil conspiracy with his or her client arising out of an attempt to contest or compromise a claim, to determine that there is a reasonable probability that the party will prevail in the action. This bill would require the attorney rather than a party to raise that defense upon the first court appearance. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 6068.11 is added to the Business and Professions Code, to read: 6068.11. (a) The Legislature finds and declares that the opinion in State Farm Mutual Auto Insurance Company v. Federal Insurance Company (1999) 72 Cal. App. 4th 1422, raises issues concerning the relationship between an attorney and an insurer when the attorney is retained by the insurer to represent the insured. These issues involve both the Rules of Professional Conduct for attorneys and procedural issues affecting the conduct of litigation. (b) The board in consultation with representatives of associations representing the defense bar, the plaintiffs bar, the insurance industry and the Judicial Council, shall conduct a study concerning the legal and professional responsibility issues that may arise as a result of the relationship between an attorney and an insurer when the attorney is retained by the insurer to represent an insured, and subsequently, the attorney is retained to represent a party against another party insured by the insurer. The board shall prepare a report that identifies and analyzes the issues and, if appropriate, provides recommendations for changes to the Rules of Professional Conduct and relevant statutes. The board shall submit the report to the Legislature and the Supreme Court of California on or before July 1, 2001. (c) This section shall remain in effect only until January 1, 2002, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2002, deletes or extends that date. SEC. 2. Section 1714.10 of the Civil Code is amended to read: 1714.10. (a) No cause of action against an attorney for a civil conspiracy with his or her client arising from any attempt to contest or compromise a claim or dispute, and which is based upon the attorney's representation of the client, shall be included in a complaint or other pleading unless the court enters an order allowing the pleading that includes the claim for civil conspiracy to be filed after the court determines that the party seeking to file the pleading has established that there is a reasonable probability that the party will prevail in the action. The court may allow the filing of a pleading claiming liability based upon such a civil conspiracy following the filing of a verified petition therefor accompanied by the proposed pleading and supporting affidavits stating the facts upon which the liability is based. The court shall order service of the petition upon the party against whom the action is proposed to be filed and permit that party to submit opposing affidavits prior to making its determination. The filing of the petition, proposed pleading, and accompanying affidavits shall toll the running of any applicable statute of limitations until the final determination of the matter, which ruling, if favorable to the petitioning party, shall permit the proposed pleading to be filed. (b) Failure to obtain a court order where required by subdivision (a) shall be a defense to any action for civil conspiracy filed in violation thereof. The defense shall be raised by the attorney charged with civil conspiracy upon that attorney's first appearance by demurrer, motion to strike, or such other motion or application as may be appropriate. Failure to timely raise the defense shall constitute a waiver thereof. (c) This section shall not apply to a cause of action against an attorney for a civil conspiracy with his or her client, where (1) the attorney has an independent legal duty to the plaintiff, or (2) the attorney's acts go beyond the performance of a professional duty to serve the client and involve a conspiracy to violate a legal duty in furtherance of the attorney's financial gain. (d) This section establishes a special proceeding of a civil nature. Any order made under subdivision (a), (b), or (c) which determines the rights of a petitioner or an attorney against whom a pleading has been or is proposed to be filed, shall be appealable as a final judgment in a civil action. (e) Subdivision (d) does not constitute a change in, but is declaratory of, the existing law.