In Fremont Indem. Co. v. Superior Ct. of Orange
Cty., 137 Cal. App. 3d 554, 187 Cal. Rptr. 137 (Cal. App. Dist. 4
11/19/1982), the California Court of Appeal found that the plaintiff, who
owned a restaurant insured by Fremont, the defendant, which insured the
plaintiff against loss of the restaurant by fire. Implicit in the record is
the circumstance that the policy included an exclusion under which the
insurer would be relieved of liability on the policy if it were shown that
the insured's arson caused the loss.
Facts of the Case
After the fire, a criminal investigation into the origin of the fire was
undertaken, and plaintiff came under suspicion. As a consequence, the defendant
declined to pay plaintiff's claim. Because of this, plaintiff filed suit against
his insurer.
Before his scheduled deposition counsel for plaintiff notified counsel for
defendant that plaintiff would not appear for his deposition because he had
been indicted for arson and therefore was asserting his constitutional privilege
against self-incrimination.
Since the plaintiff claimed the privilege as to his own behavior, which was
vitally relevant to a coverage exclusion contained in the very fire insurance
policy upon which he seeks recovery, the California Court of Appeal issued a
peremptory writ of mandate compelling the testimony of the plaintiff. If he
continued to refuse to appear for deposition as ordered, or refused to
provide the documentary evidence as already ordered, the Court of Appeal instructed
the trial court to dismiss the plaintiff's action. He continued to refuse, and
his case against his insurer was dismissed.
The Analysis
The Fremont court analyzed the issue by reviewing
discovery disputes where the commencement of litigation necessarily waived the
privilege asserted. (See, e.g.,
Newson v. City of Oakland (1974) 37 Cal. App.
3d 1050 [112 Cal. Rptr. 890] [plaintiff asserting claim for lost wages compelled
to disclose his failure to file income tax returns];
City & County of S. F. v. Superior Court (1951) 37 Cal. 2d 227 [231 P.2d
26, 25 A.L.R.2d 1418] [the physician-patient privilege was waived when the plaintiff
placed his physical condition in issue by filing an action for personal injuries];
Wilson v. Superior Court (1976) 63 Cal. App.
3d 825 [134 Cal. Rptr. 130] [by initiating an action against her accountant
for malpractice with respect to tax advice she received, the plaintiff tendered
issues involving the existence and content of her income tax returns and was
precluded from asserting the privileged status of a taxpayer's copies of income
tax returns].)
In Guadagni v. New York City Transit Auth.,
No. 08–CV–3163 (E.D.N.Y. 01/27/2009), a plaintiff was not allowed to assert
his Fifth Amendment privilege against self-incrimination to circumvent a jurisdictional
prerequisite to the commencement of an action in tort against the Transit Authority.
As the Southern District stated in Independent Productions
Corp v. Loew's, Inc.:
Plaintiffs in this civil action have initiated the action and forced defendants
into court. If plaintiffs had not brought the action, they would not have
been called on to testify. Even now, plaintiffs need not testify if they
discontinue the action. They have freedom and reasonable choice of action.
They cannot use this asserted privilege as both a sword and a shield. Defendants
ought not be denied a possible defense because plaintiffs seek to invoke
an alleged privilege. [See also In re Grand Jury Proceedings, 219 F.3d at
182 (internal citations omitted). See also In re Sims, 534 F.3d at132; 21
C. Wright & K. Graham, Federal Practice and Procedure
§ 5039 at 828 (2005); United Automobile Insurance
Co. v. Veluchamy, No. 09 C 5487 (N.D.Ill. 10/29/2010);
United States v. Hills, 618 F.3d 619 (7th
Cir. 08/18/2010).
Another Example
Most recently, in Medical Protective Co. v. Bubenik,
No. 09–2324 (8th Cir. 02/18/2010), the Eighth Circuit Court of Appeal was faced
with the question and resolved it against the person asserting the privilege
and in favor of his insurer, who claimed that Bubenik failed to cooperate in
his defense by asserting the privilege.
Medical Protective Company (MPC) brought a declaratory judgment action against
its insured, Dr. James Bubenik, and Joseph and Mary Johnston, who had obtained
a state court judgment against the doctor for malpractice, contending that it
had no duty to pay because Dr. Bubenik had materially breached the terms of
his insurance policy. The district court entered a declaratory judgment in favor
of MPC and the Johnstons appealed.
Dr. Bubenik was a dentist specializing in conscious sedation dentistry and
MPC provided his medical malpractice insurance. A patient named Marlon Jaudon
died in July 2004 during a procedure at Dr. Bubenik's office. Six months later,
Dr. Bubenik performed the same type of procedure on Henry Johnston. Johnston
did not regain consciousness and died 4 days later.
Malpractice actions were filed against Dr. Bubenik by the Jaudon family and
subsequently by the Johnstons. During the course of the Jaudon litigation, Dr.
Bubenik invoked his Fifth Amendment privilege against self incrimination and
refused to offer any testimony. In March 2006, MPC told Dr. Bubenik that his
refusal to testify might jeopardize his insurance coverage. MPC's counsel sent
Dr. Bubenik a letter on April 3, 2006, stating that his continued refusal to
testify might be a material breach of the cooperation clause in his policy.
That clause provided that "[t]he Insured shall at all times fully cooperate
with the Company in any claim hereunder and shall attend and assist in the preparation
and trial of any such claim."
On the morning of the Jaudon trial, the presiding judge disqualified Dr.
Bubenik's expert witness for that case because her opinion was based on information
which had been given her by the doctor but was not in the record. MPC settled
the Jaudon case the same day, but it was unable to contest coverage at that
point because it had not sent Dr. Bubenik a reservation of rights letter.
During the course of the Johnston litigation, Dr. Bubenik again asserted
his Fifth Amendment privilege. He refused to answer interrogatories, submit
to a deposition, or testify at trial. When asked about the merits of his defense,
Dr. Bubenik told MPC that the Johnston case was defensible, but that he was
unwilling to discuss how it could be defended. He also refused to release to
MPC a state dental board report completed 6 days after Johnston's death. That
report related what had occurred on Johnston's visit and contained Dr. Bubenik's
opinion as to the cause of his death, information that was not contained in
the dental records released to MPC.
MPC sent Dr. Bubenik's personal attorney a letter in August 2006 which stated:
Pursuant to the policy terms, including the provisions pertaining to his
duty to cooperate, Dr. Bubenik is required to "fully cooperate" and "assist
in the preparation and trial" of claims against him. Specifically, this
duty to cooperate requires Dr. Bubenik to answer interrogatory requests,
provide testimony in his defense at deposition and at trial, and assist
MPC in the defense of this matter, all of which he has refused to do.
The letter from the insurer further advised that "Dr. Bubenik's failure to
cooperate or testify creates a complete obstacle to the ability of MPC to defend
the claims" against him and that "[a]bsent his full cooperation . . . MPC will
be forced to choose between electing to deny coverage or providing a continued
defense only under a full reservation of rights." Neither Dr. Bubenik
nor his counsel responded to the August letter. A similar letter was sent in
October 2006. Again, MPC received no response. Finally at an October mediation
in the Johnston case, MPC hand delivered to Dr. Bubenik a letter stating that
he had breached the cooperation clause and that MPC was reserving its rights
under the policy.
By early November 2006, Dr. Bubenik knew that MPC planned to seek a declaratory
judgment that it was not liable to pay any judgment in the Johnston case due
to his breach of the cooperation clause. He entered into a settlement with the
Johnstons in which they agreed to pursue execution of any judgment only against
MPC. Shortly thereafter, MPC filed this declaratory judgment action in federal
district court, joining the Johnstons as defendants. The state court action
went to trial in December resulting in a $2.4 million judgment in favor of the
Johnstons against Dr. Bubenik. The federal district court subsequently concluded
that MPC was not liable for that judgment because Dr. Bubenik had breached the
cooperation clause in his policy by failing to testify and assist with his defense.
The court also concluded that MPC neither waived nor should be estopped from
asserting its affirmative defense.
The Johnstons appealed, asserting that MPC failed to make the showing required
by Missouri law to deny coverage for breach of a policy cooperation clause.
They also claim that MPC waived this defense and should be estopped from denying
coverage.
Cooperation clauses such as the one at issue in the case are valid and
enforceable under Missouri law. The district court concluded that Dr.
Bubenik had materially breached that clause by failing to answer
interrogatories, participate in discussions, share documents, submit to a
deposition, or testify at trial.
The district court concluded that much of the information in Dr. Bubenik's
sole possession would have been relevant to the coverage issue. The state court
which decided the Johnston case found that Dr. Bubenik had committed four separate
acts of malpractice. One of its findings was that Dr. Bubenik had not performed
cardiopulmonary resuscitation (CPR) on Johnston. This finding was directly contradicted
by the state dental board document completed by Dr. Bubenik 6 days after Johnston's
procedure, a document which he refused to release to MPC. The state court also
found instances of medical malpractice based on the amount of medication administered
to Johnston and Dr. Bubenik's decision to perform the dental procedure at his
office rather than at a hospital.
The limited medical records available to MPC did not contain explanations
for those decisions. Only Dr. Bubenik could have provided that information.
Dr. Bubenik's decision not to assist in the preparation of interrogatories,
submit to a deposition, or to testify, all impacted the ability of others to
testify in his defense.
The record disclosed that before issuing the reservation of rights letter,
MPC had advised Dr. Bubenik on multiple occasions about his duty to cooperate
under the policy and the jeopardy to his coverage caused by his non-cooperation.
MPC informed Dr. Bubenik that "[a]bsent his full cooperation . . . MPC will
be forced to choose between election to deny coverage or providing a continued
defense only under a full reservation of rights." Although MPC continued to
defend Dr. Bubenik despite his persistent noncooperation, it did not take inconsistent
positions on the matter. Rather, its continued defense of Dr. Bubenik was in
accord with its duty to defend and to attempt to secure his cooperation. The
Eighth Circuit, therefore, concluded that district court did not err by ruling
that MPC was not estopped from denying coverage.
Conclusion
The issue and solution are simple. The Fifth Amendment to the US
Constitution is a protection (a shield), not a weapon (a sword). If a person
does not wish to testify in a manner that might incriminate him or her
criminally, it would be prudent to avoid litigation and not file a lawsuit.
If suit is filed by the plaintiff, he or she will usually be required to
testify in a manner that might incriminate him or her criminally.
© 2011 Barry Zalma, Esq., CFE