Miller Marital Deduction Trust v. Zurich American Insurance Company, — P.3d –, 2019 WL 5304862; First Appellate District Court of Appeal, Division Three, Case No. A155398 (October 21, 2019).

In Miller Marital Deduction Trust v. Zurich American Insurance Company, the California Court of Appeal held that allegations that an insurance company improperly failed to provide independent, “Cumis” counsel did not arise from protected speech and thus were not subject to California’s anti-SLAPP statute.

Seeking to avoid liability for environmental contamination on a property they owned, the Millers sued several prior owners of the property, including the Miller Estate. Zurich retained panel counsel to defend the Miller Estate against this lawsuit.

One of the other defendants filed a counterclaim against the Millers. The Millers tendered the defense of the counterclaim to Zurich on the theory that they were additional insureds under the Miller Estate’s policy. Zurich agreed to defend them subject to an extensive reservation of rights. The Millers argued that Zurich’s reservation of rights, along with its appointment of panel counsel to defend the Miller Estate (one of the Millers’ adversaries), created conflicts of interest that required Zurich to pay for independent, Cumis counsel. Zurich refused to provide Cumis counsel and retained separate panel counsel to defend the Millers against the counterclaim.

The Millers then filed a separate lawsuit against Zurich. They alleged that Zurich’s refusal to hire Cumis counsel constituted a breach of contract and breach of the implied covenant of good faith and fair dealing. Among other things, they alleged that Zurich acted improperly because it:

• Refused to pay the reasonable defense costs billed by the Millers’ independent counsel.

• Allowed panel counsel for the Miller Estate (the Millers’ litigation adversary) to communicate with and influence the claims adjusters’ handling of the Millers’ claim.

• Allowed panel counsel for the Miller Estate to advise Zurich on the handling of the Millers’ defense, including the scope of the environmental investigation, what opinions the Millers’ experts could offer, and whether the Millers were entitled to Cumis counsel.

• Allowed panel counsel for the Miller Estate to instruct the Millers’ panel counsel on what actions should be taken to defend against the counterclaim, including what discovery to serve on the Miller Estate.

Zurich responded with an anti-SLAPP motion. Zurich argued that the allegations of misconduct arose from petitioning activity by the attorneys representing the Millers and the Miller Estate. According to Zurich, this conduct was protected activity under California’s anti-SLAPP statute.

The trial court denied the anti-SLAPP motion, and the Court of Appeal affirmed. It held that the gravamen of the Millers’ complaint did not challenge Zurich’s acts in furtherance of its right of free speech or petition. Rather, the overarching premise of the complaint was that Zurich breached the duty to defend and acted in bad faith because it refused to appoint independent, conflict-free counsel to defend the Millers against the counterclaim. The allegations regarding counsels’ communications gave context to the claim that Zurich purported to wrongfully deny the Millers the right to hire independent counsel. Those allegations, however, did not transform the complaint to one arising from protected activity.