PG&E and the owner/general contractor had settled prior to trial, and the trial proceeded only against Baja, which designed and installed approximately 60,000 sq. ft. of metal storage buildings for an RV storage park. Mr. Hawkins died on his first day on the job when a 20’ piece of flashing he was carrying up a ladder contacted a 12,000 volt overhead power line. Plaintiffs argued that Baja designed and constructed the buildings too close to the power lines and failed to warn of the overhead power lines or take other precautions to prevent injury or death. JGNH argued that responsibility rested with PG&E, with the owner/general contractor and with decedent’s employer.

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Accounting firm PricewaterhouseCoopers LLP was hired to audit two limited partnerships, Grafton Partners LP and Allied Capital Partners. Both partnerships were vehicles for investing in loans issued by Pinnfund, USA Inc., a mortgage company. In the course of conducting the audit, PwC noticed irregularities indicating possible fraud. PwC told James Hillman, owner and manager of Peregrine Funding, the general partner of Grafton and Allied, that it could not issue audit reports on Grafton and Allied until the questions were resolved. Hillman then terminated the auditor-client relationship. PwC neither issued an audit report on Grafton and Allied nor reported its suspicion of fraud to anyone other than Hillman.

It later came to light that Pinnfund’s owner was misappropriating the money invested in it, and that Hillman, who directed the limited partnerships’ investments into PinnFund, was implicated in the scheme. After the Securities and Exchange Commission shut down PinnFund, Grafton’s and Allied’s limited partners (the investors) sued PwC for aiding and abetting fraud and conspiracy to defraud, among other theories, asserting that PwC should have told them what it knew. The trial court granted PwC’s motion for summary judgment, ruling that PwC had no duty to communicate with the investors.

The First District Court of Appeal affirmed on the conspiracy and third party-beneficiary breach of contract claims, but reversed on the claim of aiding and abetting fraud. Liability for aiding and abetting an intentional tort may arise if the defendant ”knows the other’s conduct constitutes a breach of duty and gives substantial
assistance to the other to so act.” 134 CA4th at 407, quoting Saunders v Superior Court (1994) 27 CA4th 832, 846, 33 CR2d 438, and adding italics. It was undisputed that PwC had some knowledge of the fraud. PwC knew that the partnerships’ only significant assets were funds they had loaned to PinnFund. If PinnFund could not repay those loans, Grafton and Allied had little value. But when PwC asked for PinnFund’s audited financial statements, Hillman responded that they were not yet complete. He and PinnFund later produced reports that PwC discovered were falsified. PwC also realized Hillman had lied about the reports not being completed.

A triable issue exists as to whether PwC provided substantial assistance to the fraud. An audit report would have described the forged financial statements and the absence of verification of assets, and would have been available to the investors. The absence of the written audit report postponed public detection of the fraud, giving Peregrine/Hillman and PinnFund time to solicit and obtain additional investments. It allowed them to maintain the secrecy critical to their fraudulent scheme. This could lead a trier of fact to conclude that PwC provided substantial assistance to Peregrine/Hillman with knowledge of the fraud, which precludes summary adjudication of the aiding and abetting claim.

COMMENT: PricewaterhouseCoopers LLP was between a rock and a not-quite-so-hard place, and unfortunately chose the rock. It discovered strong evidence of fraud and was faced with the dilemma of either (1) disclosing [PAGE 49]that evidence to limited partners, thereby risking a lawsuit by the partnership and/or its general partners, or (2) withdrawing from the audit and remaining quiet, thereby risking a lawsuit by the innocent limited partners. It chose the latter, which in my opinion was a mistake from both a legal and an ethical perspective. It did nothing to prevent a massive fraud from continuing and exposed itself to liability to the victims of that fraud.

The court was obviously troubled by Pricewaterhouse’s decision and was thus willing to stretch existing law to reach what it considered to be an equitable result. Under earlier cases, auditors were granted some protection from liability to third parties (including investors and shareholders) for claims of negligence and negligent misrepresentation, but no protection for claims of fraud. See Bily v Arthur Young & Co. (1992) 3 C4th 370, 11 CR2d 51. In Frame, the court breaks new ground by holding that an auditor’s failure to issue an audit report or otherwise notify limited partners of potential fraud may support a claim for aiding and abetting the fraud, even though the court acknowledges that the auditor did not commit fraud and did not conspire to commit fraud. The Frame court somewhat surprisingly concludes that the auditor’s lack of action could be construed as providing “substantial assistance” to the fraud, although the court agrees with prior decisions holding that auditors do not owe a duty of due care to nonclient investors.

Because of ambiguities in the professional standards for accountants (Generally Accepted Accounting Principles (GAAP) and Generally Accepted Auditing Standards (GAAS)), many accountants believe that they may withdraw from an audit on discovery of facts indicating fraud or other illegal acts. This case strongly suggests otherwise. For many years, I have advised accountants in similar situations to carefully and prudently disclose evidence of fraud to innocent third parties, including limited partners and creditors, based on my belief that it is almost always preferable to be sued by the apparent crooks rather than by the innocent victims. —Farley J. Neuman

The Code of Civil Procedure sets forth a broad range of discovery tools for gathering relevant information and obtaining admissible evidence, covering everything from expert opinions and medical examinations to document production and face-to-face sworn examinations. Yet, despite the number of statutory discovery tools available, few experienced attorneys limit themselves to the ones specified in the Code. When attorneys do use statutory discovery tools, they frequently modify these procedures by agreement among counsel. This article highlights many of the discovery tools not set forth in the Code (what is usually referred to as “informal discovery”) and some of the stipulations that can make statutory discovery more efficient and more effective.

Informal Discovery

Three of the most common methods of informal discovery are interviewing witnesses, obtaining publicly available information and documents, and conducting surveillance. These discovery tools have three principal advantages over formal discovery:

• They tend to be less expensive than formal discovery;
• They provide greater flexibility than formal discovery; and
• They allow one party to obtain information without providing it to all other parties.

For example, a deposition in a multiparty case may last for several days and require significant preparation, especially in cases involving large numbers of documents. Because CCP §2025(f) only permits a natural person to be deposed once as a matter of right, that deposition will probably be the only opportunity any party has to depose that witness. Also, because §2025(d) requires notice of all depositions to all parties, any information obtained during that deposition becomes available to all parties. By contrast, an interview of that witness is usually less expensive, would not preclude a subsequent interview or deposition of that same witness, and would not reveal any information to other parties. Of course, informal discovery is not without its drawbacks, as discussed more fully below. Thus, careful consideration should be given to the appropriate uses of informal discovery.

Witness Interviews

Issues To Consider When Deciding Whether To Interview a Witness

In addition to the potential cost savings and increased flexibility of witness interviews, the lack of formality and absence of an adversary can be distinct advantages. For example, business clients are frequently reluctant to have depositions taken of their best customers, preferring an informal, nonadversarial interview, even though it may present significant litigation risks (discussed below). Also, some witnesses are more forthcoming in a less formal setting than they would be in the presence of a court reporter and a room full of attorneys.

Interviewing a witness may also help an attorney decide whether to conduct a deposition of that witness. An interview can establish the extent to which a witness is adverse or even hostile to one party or another, whether an opposing attorney has contacted that witness, and whether the witness has any plans to leave the area.

If the interview reveals that the witness has evidence that will be damaging to the interviewing attorney’s client, that attorney might decide to depose that witness to avoid surprise at trial, or might decide not to depose the witness in the hope the testimony will not reach the courtroom. That attorney will have to make a judgment as to whether any other party is aware of, or is likely to become aware of, that witness, whether the case is likely to settle before any other party learns of the damaging testimony, and whether the witness will be available for trial.

A similar decision is presented by the interview that reveals favorable testimony. Deposing the witness preserves the testimony for trial, but it also reveals it to the other parties. Those parties may be able to undermine the effectiveness of the witness’s testimony at trial as a result of the deposition.

Nonetheless, an attorney possessing information gleaned from an interview, whether it reveals favorable or damaging information, is in a better position to make decisions as to what witnesses to depose.

Whether the Dangers of a Deposition Outweigh the Benefits of a Predeposition Interview

When an interview suffices, the expense of the deposition is spared, and the information is not revealed to the other parties. Of course, another party may serve discovery to learn the identities of witnesses who have been interviewed, or to obtain the written or recorded statements. However, the identities of witnesses interviewed by counsel and recorded by counsel in notes or otherwise are protected by a qualified attorney work-product privilege. Nacht & Lewis Architects, Inc. v Superior Court (1996) 47 CA4th 214, 217, 54 CR2d 575. This information will tend to reveal counsel’s evaluation of the case by identifying the persons who claimed knowledge of the incident from whom counsel considered it important to obtain statements. Keep in mind, though, that because the privilege protecting counsel’s interview of the witness is only qualified, counsel may be compelled to reveal the information obtained in the interview. Notes or recorded statements taken by counsel, however, are protected by the absolute work-product privilege because they reveal counsel’s “impressions, conclusions, opinions, or legal research or theories” within the meaning of CCP §2018(c). Nacht & Lewis Architects, Inc. v Superior Court, supra.

On the other hand, the identities of potential witnesses who turned over to counsel their independently prepared statements would not reveal counsel’s evaluation of the case and, thus, do not enjoy any work-product protection. By the same token, statements written or recorded independently by witnesses neither reflect an attorney’s evaluation of the case nor constitute derivative material, and therefore are neither absolute nor qualified work product. 47 CA4th at 217. Although Nacht does not specifically define what constitutes an “independently” recorded or written statement, the court’s reasoning implies that any recording, whether by audiotape or by court reporter, of the attorney’s interview of the witness would be privileged.

Even when a previously interviewed witness must be deposed, the interview provides a road map for the attorney, who now as a result of the interview has a good sense of what the witness will say. An attorney who has conducted an interview before the deposition may be able to avoid certain problem areas in the testimony, and may be able to phrase specific questions so as to minimize the adverse impact of any testimony. If the witness is friendly, the attorney may choose to explain to the witness what the opposing counsel is likely to do at the deposition to undermine that witness’s testimony. If the witness changes his or her testimony during the deposition, the interview can be used to impeach the witness or to refresh the witness’s memory. The effectiveness of impeachment will depend, in part, on how the interview was conducted (see below).

Whether the Interview Is Ethical

One of the thorniest issues concerning witness interviews is whether there are ethical considerations that should prevent an attorney from interviewing a particular witness or restrict the scope of the interview. While an attorney is not permitted to communicate with an opposing party represented by counsel, an attorney generally is permitted to communicate with a witness who is not a party to the case. See Cal Rules of Prof Cond 2–100. However, special rules and limitations apply to present and former employees, directors, and officers of a corporate party to the litigation.

Generally, an attorney has a right to meet ex parte with ex-employees of a corporation that is an adverse party, even if they were managerial employees. Continental Ins. Co. v Superior Court (1995) 32 CA4th 94, 119, 37 CR2d 843; Bobele v Superior Court (1988) 199 CA3d 708, 714, 245 CR 144. Although counsel may not inquire about privileged communications, inquiry may be made with regard to relevant facts. State Farm Fire & Cas. Co. v Superior Court (1997) 54 CA4th 625, 652, 62 CR2d 834. The opinion in Continental Ins. Co. v Superior Court, supra, contains a good overview of these issues and their development in the law.

Ex parte communications with current employees of an adverse corporation are somewhat more complicated. California Rule of Professional Conduct 2–100 permits opposing counsel to initiate ex parte contacts with present employees (other than officers, directors, or managing agents) who are not separately represented, as long as the communication does not involve the employee’s action or failure to act in connection with the matter, which may bind the corporation, be imputed to it, or constitute an admission of the corporation for purposes of establishing liability. Triple A Machine Shop, Inc. v State (1989) 213 CA3d 131, 141, 261 CR 493. The exact scope of permissible inquiry, however, is not clearly defined. Presumably, a current, nonmanagerial employee cannot be questioned about his or her role in the events giving rise to the lawsuit, because that employee’s actions could be imputed to the corporation for purposes of establishing liability. Whether that employee can be questioned about coemployees’ actions, corporate policies and procedures, or factual observations of the events at issue is unclear.

Although an attorney’s interview of a current employee of an adverse corporate party is limited or prohibited once that attorney knows the corporation is represented by counsel, Rule 2–100 does not prohibit ex parte contacts when the attorney does not know the corporation is represented by counsel. For example, an attorney representing a potential plaintiff may contact current employees of the potential defendant before suit is filed as part of the process of investigating the merits of the claim. Jorgensen v Taco Bell Corp. (1996) 50 CA4th 1398, 1403, 58 CR2d 178. The knowledge or presumption that the potential defendant has “house counsel” does not trigger the application of Rule 2–100, unless the claimant’s attorney in fact knows that such house counsel represents the person being interviewed when the interview is conducted. 50 CA4th at 1402.

Even interviews of current employees conducted after suit is filed may be permitted. In Truitt v Superior Court (1997) 59 CA4th 1183, 69 CR2d 558, the court was faced with communications by an investigator for plaintiff’s counsel that would have violated Rule 2–100, if plaintiff’s counsel knew that the defendant corporation was represented by counsel in the matter at the time of the communications. 59 CA4th at 1187. Although the communications occurred after suit was filed, they were held to be permissible because they occurred before the answer was filed, which was the first time plaintiff’s counsel had actual knowledge that the defendant corporation was represented in this matter. 59 CA4th at 1189.

Before conducting interviews of current employees of an adverse corporate party, counsel should consider these ethical issues carefully. Counsel who conducts an interview in violation of Rule 2–100 runs the risk of being disqualified from the case and sanctioned. Because these issues are complex and can be hotly contested, the benefits of the interview may not justify the risks. For further discussion of the issue of ex parte interviews, see California Civil Discovery Practice, chap 3 (3d ed Cal CEB 1998).

How To Minimize Disadvantages of the Interview

Even when interviewing a witness is permitted, interviews present several disadvantages:

• The testimony is not preserved for trial if the witness dies or otherwise becomes unavailable.
• Because an interview does not usually result in sworn testimony, it may be difficult or impossible to impeach the witness at trial.
• Interviewing a witness may undermine that witness’s effectiveness at trial by creating the impression of bias or interference by counsel.

Therefore, before conducting a witness interview, counsel should consider how best to conduct the interview so as to minimize these disadvantages. Options for conducting witness interviews include:

Written or recorded statements. Even in the absence of a deposition, it may be possible to impeach a witness by a prior written or recorded statement. Evid C §§1235–1238. Although the witness’s statement can be memorialized with a tape recorder or by asking the witness to sign a written statement, using a court reporter should be considered as another option. While the resulting transcript would not qualify as that of an oral “deposition” under CCP §2025, it is much easier than a tape recording to use at trial. Some witnesses are intimidated by a request for a written or tape-recorded interview, and may be even more hesitant to speak with a court reporter present. Counsel must weigh the benefit of obtaining a recorded interview against the risk of turning a cooperative, friendly witness into a recalcitrant, antagonistic one.

Unrecorded interviews. A less intimidating way to “lock in” a witness is to have another person present (a corroborator) during the interview. The attorney may conduct the interview in the presence of a “corroborator,” often another attorney or a paralegal at the firm, who could testify about the witness’s statements, if necessary. Many attorneys prefer to have an investigator interview their witnesses, because the investigator can also testify at trial. Because any corroborator or investigator is subject to cross-examination based on bias, neither of these methods is nearly as effective as locking the witness into the statements made at the interview by a signed writing or recording.

When a witness who has been interviewed is subsequently deposed, any communications that witness has had with any party or attorney involved in the case will generally come to light. Any informal contacts between an attorney and a supposedly independent witness can be used by a skillful opponent to imply to the jury either that the witness is not independent, or that the interviewing attorney was trying to influence the witness’s testimony. Having an investigator conduct the interview (rather than counsel), having it recorded, or obtaining a written statement from the witness may diffuse any argument of bias or interference.

Publicly Available Information

An amazing amount of information is available free on the Internet, or for a fee through private databases. For example, attorneys litigating against a publicly held corporation should not overlook that corporation’s SEC 10k and 10q filings, which contain the company’s financial statements, detailed descriptions of its lines of business, future prospects, competition, stock holdings, options, compensation for officers and directors, and other significant information. Those filings may even contain information about the specific case involved.

There may also be a plethora of articles available on the Internet about better-known companies, and a wide range of publications. Gathering public information, such as newspaper articles, technical publications, textbooks, and the like, can also be accomplished the old fashioned way: from the public library. Given the amount of publicly available information, it is sometimes more efficient to retain a research service to gather specific information from both online sources and libraries.

A tremendous amount of information is also available from government agencies. This information, which includes court filings, filings with the SEC, corporate filings with the California Secretary of State or Department of Corporations, and information available from the federal government through the Freedom of Information Act (5 USC §§552–553) or the California government through the Public Records Act (Govt C §§6250–6270), is increasingly available on the Internet, although much of it must be obtained directly from the appropriate agency.

Surveillance

Surveillance is usually used in personal injury cases when there is some question as to the veracity of the plaintiff’s description of his injuries and physical limitations. When it is successful, it can be devastating to the plaintiff’s case. However, it is frequently inconclusive and runs the risk that the jury will find the defendant’s tactics to be extreme. Careful consideration should be given to the timing of the surveillance, and to whether it is likely to succeed in a given case.

For example, if a plaintiff complains of intermittent back pain, it will be difficult to obtain surveillance conclusively establishing that the plaintiff was lying. Even if the surveillance tape shows the plaintiff engaged in strenuous physical activity, the plaintiff will either say he was having a good day that day, or that he was in pain but engaged in the activity because he had to get on with his life and live with the pain. An attorney who is contemplating conducting surveillance of the plaintiff should set up that surveillance with detailed deposition questions so as to maximize the chance of catching the plaintiff in a clear fabrication or gross embellishment.

The timing of surveillance is also important. Although conducting surveillance before the plaintiff’s deposition allows the plaintiff to be cross-examined at the deposition with the results of the surveillance, it is usually preferable to take the deposition first. As discussed above, the deposition will help set up the surveillance. Also, most defense attorneys would prefer to keep the surveillance secret up to the point of trial. One exception to this is if the surveillance tape can be used at the depositions of treating physicians to persuade them that the plaintiff was not being truthful, and that their diagnoses should be changed accordingly.

If an attorney decides to keep the surveillance secret, it should be conducted after discovery closes. For example, the Judicial Counsel form interrogatories contain two questions (13.1 and 13.2) that require the defendant to reveal that surveillance has occurred. However, if it is not conducted until after discovery closes, there may be no way for the plaintiff to learn of the surveillance.
Discovery Stipulations

Agreements among counsel are particularly helpful when the letter of the discovery statutes does not allow for specific discovery to be obtained in the manner and at the time desired by counsel. Two examples of this are expedited depositions and the early exchange of expert witness information.

Stipulation for Expedited Deposition

The expedited deposition is a modification of the one-deposition rule that can be particularly helpful in complex commercial cases. Such cases pose timing problems because there is always an incentive to delay key depositions until all documents have been obtained and reviewed, and all issues and allegations thoroughly investigated. This makes it difficult to evaluate and resolve cases early. Rather than limiting each attorney to one opportunity to depose each witness, the parties can stipulate to expedited depositions, which are scheduled with specific limitations that allow the attorney to obtain basic important information early, without waiving the right to complete the deposition at a later date.

For example, in a typical business dispute case, it may be necessary to obtain and review a large number of documents before complete depositions of the key witnesses can be taken, causing many months’ delay in the evaluation of the case. It may be advantageous for counsel to agree to two-hour or half-day depositions of the key witnesses early in the case, and agree to waive the one-deposition rule for these witnesses. With this type of stipulation in hand, the attorneys are free to take those expedited depositions without the risk that they will be unable to ask the deponents questions after all the documents are obtained and reviewed.

This procedure promotes an early resolution of the case, because the case can often be evaluated after the expedited depositions and can save all parties enormous sums in litigation expenses. If the case does not settle, the depositions may be completed in preparation for trial.

The written stipulation should provide that any party may subsequently depose any of the witnesses again, simply by issuing a deposition notice, without any showing of good cause. This arrangement can make the expedited deposition device worth pursuing in a discovery plan involving many potential deponents or large numbers of documents.

Stipulation for Early Exchange of Expert Witness Information

The early exchange of expert witness information also promotes the early evaluation of a case. Many cases, particularly business litigation, turn on expert testimony. It may be difficult to evaluate a case until the experts have been deposed, which is generally within a few weeks of trial and after an enormous amount of money has already been spent on the case. Most clients are interested in an early evaluation of the case, so that an assessment can be made about whether it should be settled, and at what level. An agreement to allow informal interviews of experts, or an exchange of expert reports or opinions, can be beneficial to all parties in the action. Most counsel, however, want their experts to have flexibility to react to new evidence and revise and refine their opinions as the case develops. This particular problem can often be resolved through an appropriate stipulation that prevents the use of information obtained during an informal exchange at the expert’s depositions or at trial.

Construction litigation provides an example of when stipulations regarding experts can be of crucial importance. Given the number of parties typically involved in such cases, and the technical nature of the claims, often the only practical way to obtain sufficient information with which to evaluate the case is to put all sides’ experts into a room together to exchange opinions. More-over, it is usually necessary for some destructive testing to be performed, such as opening walls or removing windows, to verify hidden conditions. It is common for counsel to stipulate that the experts establish a protocol for that destructive testing, and that they can all be present while it takes place.

When opposing experts meet to exchange information and opinions, the attorneys should stipulate that their discussion will be deemed privileged and cannot be used later against any of the parties. Sometimes, these meetings are enormously helpful in resolving the case, or at least in clarifying the issues so that discovery can be focused and effective.

Discovery stipulations can also be advantageous when two parties want to exchange information without revealing it to a third party. The classic example is when a plaintiff sues two defendants who have indemnity claims between them. As a general rule, if each of the defendants aggressively pursues its indemnity claim through formal discovery, the plaintiff will obtain an enormous benefit. In fact, the plaintiff may be able to sit back and simply allow the two defendants to prove the plaintiff’s claim against each other. Defense counsel frequently agree in such circumstances to exchange information informally. This allows each defense counsel to obtain the information necessary to evaluate and try the case, without providing a windfall to plaintiff’s counsel.

Stipulation To Coordinate Discovery Among Counsel

Even when statutory discovery tools are used, it is usually beneficial to all parties to agree to coordinate discovery efforts. This is particularly true in large, multiparty, and document-intensive cases. If each party serves similar interrogatories on all the other parties, the result is both cumbersome and inefficient. Duplicative and overlapping document requests can result in a mass of paper that will prove difficult to organize and use effectively. It is far preferable to stipulate to a discovery plan among counsel. A stipulated discovery plan can set the scope and order of discovery directed toward each party, minimize discovery disputes over procedural matters, and help counsel keep documents and other discovery organized.

For example, rather than have all six defense counsel serve form interrogatories on plaintiff’s counsel, all parties can agree that one defense counsel will serve them. To avoid dueling deposition notices, counsel may agree to set aside a number of consecutive days for taking several depositions, without delays or interruptions in the discovery process. Counsel should address at the outset whether each deposition will have to be completed before the next one commences. Of course, there may be strategic reasons for not resolving this issue at the outset. One attorney may want to hold one deposition open so that it can be resumed after other depositions are taken. By not resolving this issue, however, that attorney runs the risk that the attorney representing the first deponent will refuse to produce any other witnesses until that first deposition is completed.

In business litigation cases involving numerous documents, the parties should agree that documents being produced by a given party will be Bates-stamped (i.e., having consecutively numbered labels affixed to each page) with letters identifying the producing party. This provides a simple but effective way of keeping those documents organized, particularly when several parties may be producing their own copies of identical documents.

Bates-stamping documents will also help all counsel keep track of what documents they have produced. With a small number of documents this can be accomplished by attaching copies of the documents to all responses to the document demands. With large numbers of documents, it is accomplished more efficiently through Bates-stamping the documents, and then setting forth the Bates numbers of the documents being produced in the responses to the document requests.

This procedure will also make it easier to organize the documents into a database. For example, in construction litigation cases, there may be volumes of letters by homeowners or tenants making specific complaints about their units. Entering this information into a database allows the attorney to search for complaints by unit, owner or tenant, type of complaint, or time frame. Such database entries will enable the attorney to determine what complaints are being made relative to the work of a given subcontractor, and may also assist in making or resisting a statute of limitations defense. If all documents produced have been Bates-stamped with letters identifying the producing party, that information can be added to the database so that counsel will be able to determine what parties possessed what documents.

To track multiple exhibits to be used in a series of depositions, it is helpful to create a master list with one set of exhibit numbers. This avoids having 14 different “Exhibit 1″s to 14 different depositions. If the matter proceeds to trial, all parties will be working with the same set of numbered deposition exhibits.

Even in straightforward, two-party personal injury litigation, stipulations as to the order and timing of discovery can be advantageous. For example, most plaintiffs’ attorneys in a personal injury case will react positively to stipulations enabling the defense attorney to evaluate the case sooner rather than later. While defense counsel can serve Judicial Council form interrogatories on the plaintiff’s attorney and obtain the identity of health care providers in that manner, defense counsel can also pick up the telephone and ask the plaintiff’s attorney to send a list of those providers the next day. This arrangement saves at least a full month compared to the formal interrogatories procedure. Similarly, most plaintiffs’ counsel will agree to waive the 20-day period for notice to consumer for subpenaing of records from medical providers (CCP §2025(f)). It is extraordinarily rare for plaintiff’s counsel to move to quash a subpena seeking medical records relating to the plaintiff during that 20-day period. By obtaining medical records almost two months sooner, the plaintiff’s deposition can be taken and the entire case resolved sooner, to the benefit of both attorneys’ clients.

Depositions of expert witnesses is another area in which coordination among counsel is frequently necessary. Because all experts must be disclosed simultaneously, it is not uncommon for several parties to serve expert witness deposition notices on the same day. Some agreement among counsel will inevitably be required so that the expert depositions can be taken in a logical and efficient manner. Defense counsel usually argue, and plaintiffs’ counsel often concede, that it makes sense to depose plaintiff’s experts first because the defense experts will be responding to and testifying about the opinions of plaintiff’s experts.

Another expert witness stipulation that is frequently helpful concerns the right to disclose supplemental experts. Any party who has exchanged a list of expert witnesses may supplement that list within 20 days of the exchange to add an expert who will express an opinion on a subject covered by an expert designated by an adverse party, as long as the party adding the expert had not previously retained an expert to testify on that subject. CCP §2034(h). An attorney with no disclosed expert in an area in which there is an adverse expert may want to depose that adverse expert before making a supplemental disclosure. To do this without a stipulation, however, that adverse expert’s deposition must be taken within the 20 days timeframe, which is not always possible. Alternatively, counsel can agree that a supplemental expert can be named within two days (or other specified period of time) of the completion of that adverse expert’s deposition.
Concluding Thoughts

Although it may be possible to conduct discovery in strict compliance with the Code, using only statutory discovery tools, it is rarely in anyone’s interest to do so. Informal discovery and discovery stipulations provide mechanisms for obtaining and exchanging information and documents more efficiently and more effectively than can be achieved by reliance solely on statutory procedures. Discovery disputes, particularly on procedural matters, can be minimized if not avoided entirely, and the case can be moved forward at a faster pace. Your clients, especially, will appreciate the savings in cost and time that these efforts produce.

Most people engaged in commercial activities want as much protection as possible from future lawsuits. Where there is a contractualrelationship between two parties, protection is typically obtained through an indemnity provision: one of the parties agrees to defendand indemnify the other for claims arising out of the contractual relationship. But increasingly, parties that would typically onlyrequest indemnity also want to be named as an additional insured on the other party’s general liability insurance policy.

Additional insured status can be found in almost any circumstance in which contractual indemnity would be appropriate. A property owner hiring a general contractor to perform construction work can be named as an additional insured on that contractor’s general liability policy. A retail store in a shopping center can be named as an additional insured on the policy of the shopping center or common­area manager. That same retailer can also be named as an additional insured on the insurance policies of manufacturers or distributors whose products it sells.

The Advantages of Additional Insured Status

As any attorney who has analyzed a contractual indemnity clause knows, there are frequent disputes over their scope and interpretation.As a practical matter, once a dispute is in litigation, an attorney representing a party who has been requested to defend another party under a contractual indemnity clause will usually deny that tender of defense and assert the need for further investigation. And in truth, the application of the indemnity provision may turnon precisely who did what; facts that will come to light only through lengthy discovery. Moreover, there is generally little downside to refusing to accept a tender of defense, but once it is accepted, it is usually impossible to give the case back.

Insurance coverage, on the other hand, is often quite broad, and carries with it all the rules of interpretation favoring an insured: coverage provisions will be interpreted broadly, exclusionsnarrowly, and any ambiguities will be interpreted against theinsurer. More significantly, under Gray v. Zurich Insurance
Co., 65 Cal.2d 263 (1966), there is a duty to defend any time there is a potential for coverage.

The mere possibility that a contractual indemnity provision applies will not ordinarily convince the indemnitor to pick up the tender
of defense. That indemnitor will be at least as concerned that the indemnity provision does not apply. Under the same circumstances, however, an insurance company is obligated to undertake the defense of the additional insured, albeit under a reservation of rights.

Furthermore, a judgment establishing that a claim does not fall within the terms of a contractual indemnity provision generally
removes any argument that the indemnitor should have defended the indemnitee. On the other hand, even where a judgment establishes
that a claim does not fall within the terms of an insuring agreement, the insurance company will still be liable for defense costs if
there was a potential for coverage at the time of the tender. (See for example Mullen v. Glens Falls Ins. Co., 73 Cal.App.3d
163 (1977).)

Another advantage of insurance coverage over indemnity is that the insurer faces a significant downside if it wrongfully refuses the tender. Not only will the insurer be liable for the additional insured’s defense costs in the underlying case, but it will also be liable for any attorneys fees incurred in obtaining the policy
benefits wrongfully withheld. (Brandt v. Superior Court, 37 Cal.3d 813 (1985); but see Burnaby v. Standard Fire Ins. Co., 40 Cal.App.4th 787 (1995).) Under certain circumstances, the insurer may also be liable for punitive damages.

Furthermore, while a party to whom a contractual indemnity tender has been made can respond with a one­sentence rejection, or even with silence, an insurance company is required by the California Administrative Code to respond to a tender promptly, to affirm or deny coverage, and to disclose “all benefits, coverage, time limits or other provisions of any insurance policy issued by that insurer that may apply to the claim presented.”

When denying coverage, an insurance company should set forth thebasis for its rejection, citing language from the policy. An additional insured can often force the issue with an insurance company, whereas a mere indemnitee may encounter a brick wall in its attempts to press its contractual indemnity claim.

Failure to Obtain Required Coverage

Where a contract requires that one party (the contractor) have the other party (the owner) named as an additional insured on its general liability policy, the first issue facing the owner’s attorney is whether this was done. The owner’s attorney should gather and review all documents relating to the obligation to provide additional insured status. Usually this is a contract, but it may be contained in or modified by correspondence. Where property is involved, such as a shopping center, the requirement is often contained in the Covenants, Codes and Restrictions, or ground lease. With large construction projects, the requirement may be contained in a separate book of specifications, or in a separate document containing standard conditions.

In reviewing these documents, the owner’s attorney has to determine whether additional insured status was required, precisely what coverage was called for, and whether there was a condition the owner needed to fulfill. Occasionally, a contract will require additional insured status only upon written request by the owner.

The owner’s attorney should then gather and review whatever documentation exists concerning the additional insured status. Typically, one of two documents is used to provide additional insured status: a Certificate of Insurance or a policy endorsement.

The main purpose of a Certificate of Insurance is to provide evidence to a particular person (the certificate holder) that someone else has insurance, and to ensure that the policy is not canceled without prior notification to the certificate holder. This prevents a person from purchasing insurance that he is required to have for
himself, and then canceling it after providing evidence of that insurance.

In keeping with its main purpose, the Certificate of Insurance form states at the top that it does not afford any coverage to the certificate holder. Therefore, it is essential that there be some language on the certificate that specifically states that the certificate holder is an additional insured. A party that
is required to be named as an additional insured may believe this was done merely because it is provided with a certificate. Without specific language on the form establishing coverage, however,the certificate holder has no rights under the policy.

If the owner’s attorney determines that the required additional insured coverage was not obtained, or is narrower than what was required to be obtained, the owner may have a claim against the contractor for breach of contract. The insurance company can be sued for not providing the coverage it was obligated to provide. If the contractor never asked the insurance company to provide additional insured coverage for the owner, the owner probably only has a claim against the contractor, as the party having the contractual obligation to obtain that insurance coverage.

When faced with the failure to obtain the proper insurance coverage, the owner’s attorney should consider cross­complaining against
the contractor for breach of contract, and conducting discovery on this claim. Usually, focused sets of special interrogatories
and requests for production of documents, together with one or two depositions, will be sufficient to establish that the contractor failed to fulfill a contractual obligation, and that it has no compelling defense to this claim.

Scope of Coverage

Once it has been established that the owner was named as an additional insured, the owner’s attorney must determine what coverage was provided, and whether that coverage was what was called for in the contract (or other relevant documents). Typically, additional insured coverage is required only for claims
relating to the parties’ contractual relationship. With a retailer and a common­area manager, the insurance coverage required will usually be limited to “claims arising in, on or about the common area.” The common­area manager may have far broader coverage under its own policy, but the coverage required to be afforded to the retailer would be limited to common­area claims. Similarly, a general contractor will usually have coverage under its general liability policy for all its projects, whereas an owner named as an additional insured will only have coverage with respect to its particular project.

Often an insurance company will attempt to limit an additional insured’s coverage with a phrase such as “but only with respect to the acts or omissions of the named insured.” With such a phrase, the insurance company is attempting to exclude coverage for claims arising out of the negligence of the additional insured,
even if that negligence related to the subject matter of the additional insured’s contract with the named insured. Such a phrase significantly limits the scope of coverage, and creates issues that cannot be resolved at the outset of a lawsuit.

However, even where the scope of coverage has been limited, there will generally be at least a potential for coverage, and therefore a duty to defend. After all, the additional insured may be found liable to the plaintiff for the acts of the named insured, and this possibility should compel the insurance company to defend
the additional insured under a reservation of rights.

A typical example would be an accident in the parking lot of a shopping center, in front of one particular store. The plaintiff will probably sue both the store and the shopping center itself (which is generally the same as the common­area manager). If the insurance afforded to the store under the shopping center’s policy provides coverage for accidents “occurring in, on or about the common area,” then the store should be covered under that policy, even if the accident arose out of the negligence of the store’s employees. If, however, the store is only covered for the acts or omissions of the shopping center, then the store may not be covered depending on whose negligence caused the plaintiff’s injury. In either case, however, the potential that the plaintiff’s injury was caused by the shopping center’s negligence should entitle the store to a defense under the shopping center’s general liability policy.

As discussed above, if additional insured coverage was obtained, but is more restrictive than the coverage that should have been obtained, a claim for breach of contract may lie against the party with the contractual obligation to obtain the insurance. Therefore, it is essential to review not only the insurance documents showing the coverage afforded, but also the contract documents showing what insurance coverage should have been afforded.

Waiver and Estoppel

One issue that often arises where the required coverage was not obtained in whole or in part is whether the party entitled to the coverage ­­ the owner ­­ has waived that right, or is estopped from making a claim for coverage. This usually arises when the owner has received documentation, either a Certificate of Insurance or a policy endorsement, reflecting the coverage that was obtained, and does not complain. Whether no coverage or simply narrower coverage was obtained, the contractor will argue that the owner’s inaction after being made aware of the facts bars any claim. Estoppel is probably the stronger argument, since waiver requires a voluntary relinquishment of a known right: Mere inaction should not establish a waiver. (Some contracts even contain a clause that the failure to insist upon performance of a particular contractual obligation does not constitute a waiver of the right to do so at a later time.) Estoppel is based on reasonable detrimental reliance. There is probably a detriment, since the required coverage could have been obtained before the underlying claim arose, but not afterwards. However, often the contractor cannot establish that this detriment resulted from its reliance on the owner’s inaction. Usually, it is more of a clerical error than an intentional omission. Even if the contractor did rely on the owner’s inaction, it is probably not reasonable for one party to breach its contractual obligation in reliance on the other party’s failure to catch that breach until it became important. Other Insurance Another issue that frequently arises in these circumstances is whether the owner has other insurance that applies to the loss at issue. A self­insured company is in a much stronger position to argue for coverage as an additional insured, and its attorney should make sure to highlight the absence of other insurance in any tender letter to an insurance company. A self­insured company has to pay its attorneys fees (and any judgment) out of its own pocket, and without other insurance there are no issues of apportionment or of which insurance is primary. Where the owner has other insurance that covers the entire loss at issue and the contractor failed to obtain additional insured coverage, that owner may not have suffered any damages as a result of the contractor’s failure. The owner’s attorney should argue that any other insurance is a collateral source, and does not reduce the contractor’s liability for failing to obtain the required coverage. However, in Mid­Century Ins. Co. v. Hutsel, 10 Cal.App.3d 1065, 1069 (1970), the court stated (in what is probably dicta) that the owner and driver of an automobile involved in an accident suffered no damages as a result of an insurance agent’s negligent failure to procure insurance, if they were covered by another policy with limits sufficient to cover the entire loss.

Enforcing an Additional Insured’s Rights

Even where the required coverage is purchased, the additional insured frequently does not receive the benefits to which it is entitled. A surprising percentage of the time, an insurer receiving a claim from an additional insured will treat that claim as one for contractual indemnity, and not as a tender by an insured person. If the insurer does not accept the tender unconditionally, it should either accept under a reservation of rights, or decline it with a detailed letter explaining the basis of its position. It is surprisingly rare, however, to receive such a response. More typically, the insurance company will either ignore the claim, or reject it based upon vague claims of negligence by the additional insured. To ensure a proper response to a tender, the attorney for the additional insured should do a number of things. First of all, any contractual indemnity claim should be dealt with separately, and should be directed to the party owing the contractual indemnity, or to that party’s attorney. The tender under the additional insured endorsement should be made directly to the insurance company, and not through counsel for the named insured. In a typical case, a plaintiff sues the owner and the contractor. The contractor has agreed to defend and indemnify the owner, and to have the owner named as an additional insured on the contractor’s general liability policy. The owner’s attorney will then tender the case to the contractor’s attorney, citing both the contractual indemnity provision and the additional insured requirement. Even where the contractor’s attorney has been retained by the very same insurance company that is supposed to insure the owner, the tender under the insurance policy should also be made directly to that insurance company. The contractor has no obligation to defend the owner under the insurance policy, and the owner’s attorney should not rely on the contractor’s attorney to relay an insurance claim to the carrier.

The tender letter to the insurance company should specifically refer to the fact that a tender is being made by an additional insured under the terms of an insurance policy for policy benefits. It should also state that a defense under the policy is owed to the additional insured since there is at least a potential for coverage. Since an insurance company is required to respond to any claim for policy benefits, a specific request for a written response should always be made.

Even after a letter making all these points, an appropriate response from the insurance company may not be forthcoming. If repeated letters are ignored, the next step is to prepare a complaint for bad faith, breach of contract, and declaratory relief. This can either be done contemporaneously with the underlying litigation, or after the underlying litigation has been resolved. In either case, it must be done as a separate action. The insurer cannot be brought into the underlying litigation on a claim for policy benefits.

It is often only necessary to send the insurance company a courtesy copy of the complaint before it is filed. The fact that the insurance company has been named as a direct defendant in a bad faith lawsuit is frequently sufficient to get the insurer to analyze the claim properly. If the courtesy copy is not sufficient, filing and serving the complaint will at least guarantee that the insurance company will have counsel look at the claim. When the insurer hires outside counsel to defend it, a bad faith action starts to cost money. Where an insurer has simply ignored a tender from an additional insured that it should at least have defended under a reservation of rights, the entire matter is usually resolved promptly once the insurer hires counsel. On rare occasions (or more frequently if the claim for coverage is thin), it may be necessary to serve lengthy and detailed special interrogatories, to request the entire claims file, and to notice the depositions of the claims handlers. This generally does the trick. When forced to hire counsel to defend a coverage suit, especially where the insurer never properly declined the case, and where it had an obvious duty to defend, the insurer will generally pay most if not all of the claim.