Shafer

This appeal presents the question of whether an attorney, who is retained by an insurance company to provide coverage advice in a lawsuit against its insured, may be held liable to the plaintiff in that lawsuit for making a fraudulent statement about coverage. We answer that question in the affirmative because deceit undermines the administration of justice.

I

Background

For purposes of our review, we must accept as true the following allegations of the complaint. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [ 216 Cal.Rptr. 718 , 703 P.2d 58 ].) With that in mind, we rarely use “alleged” in discussing the factual assertions in the complaint.

John and June Shafer are homeowners in Los Angeles County. In the early 1990’s, they contracted with Tri-County Builders, a general contractor, to remodel their home and build an addition to it. Tri-County Builders, a partnership, was run by Jay DeMay and Perry Hanstad. The construction contract apparently required that any disputes between the parties be resolved by binding arbitration before the American Arbitration Association (AAA).

As a result of numerous problems with the construction, in December 1991, the Shafers filed…