In-house lawyers may have finally received some good news from a California appellate court. After a long period of several employer-unfriendly opinions involving arbitration and employment law, the Second District Court of Appeal in October published a decision that slightly expands the corporate attorney-client privilege � but also reminds counsel to be careful who they talk strategy with.

In Zurich American Ins. Co. v. Superior Court ( Watts Industries), the court of appeal held that communications about legal advice between non-legal employees can be privileged as long as both parties reasonably need to know the content. The ruling also reminded companies that merely carbon-copying a lawyer on everything isn’t enough to protect that privilege.

At first glance, the decision looks like a gift to in-house counsel, providing greater clarity to a group that often works in a gray area when it comes to privilege. “When they give direction that is specific in this manner, it’s pretty much always a good thing,” says Chas Rampenthal, general counsel at LegalZoom.com. “[This case] says if you follow certain procedures, you’re going to have protections.”

But some attorneys caution that the decision may create new headaches even as it eases older ones. “It’s a double-edged sword, [because] there’s more opportunity to waive,” says D. Gregory Valenza, an employment litigator and partner at San Francisco’s Shaw Valenza. “There’s going to have to be more judgment where the lawyer’s not directly involved in the communication.”

The Zurich case arose from a discovery dispute in an insurance bad faith lawsuit. Watts Industries wanted Zurich American Insurance Co. to turn over hundreds of documents in the underlying case. Zurich refused, citing its attorney-client privilege and the attorney work-product doctrine. The trial court and a court-appointed referee sided with Watts.

But the court of appeal’s October ruling reversed and remanded the case. Relying on the California Evidence Code and caselaw, the three-judge panel concluded that any communication between need-to-know employees is privileged, even when the attorney is not one of them. The ruling became final in mid-November, and no party has petitioned the state Supreme Court for review.

“It is neither practical nor efficient to require that every corporate employee charged with implementing legal advice … must directly meet with counsel or see verbatim excerpts of the legal advice given,” wrote Presiding Justice Norman Epstein. He was joined in the opinion by Justices Nora Manella and Thomas Willhite Jr.

That statement gets hearty agreement from inside attorneys, who must protect their companies from waivers without micromanaging every legal communication in a large company. “The lower court’s holding was quite a surprise,” says Gregory Adler, corporate counsel at Copart Inc., a Fairfield company that resells salvaged auto parts. “As in-house counsel … you have to rely on non-lawyers to discuss things among themselves to carry out the advice that you’ve given them.”

Brian Martin, general counsel at San Jose’s KLA-Tencor, thinks Zurich may free some in-house lawyers from busywork they do to avoid waiving privilege. “In the past, I think the way most people would work this is that they would say to the CEO, ‘Let me send the e-mail to whoever needs to know and I’ll make the determination,’” says Martin. The appellate ruling “cuts through and eliminates a needless step of having it actually come from the attorney’s mailbox.”

While Martin applauds the ruling, he also says he probably won’t change much about how he protects his company’s information. “I certainly wouldn’t … require our executives to [control potential waivers],” he says. “The whole jurisprudence around waiver is really tricky.”

In-house attorneys generally agree that the decision doesn’t call for changes so much as endorse their existing best practices. But several would consider training for non-legal employees on the decision’s specific requirements. “What I take from Zurich is that counsel need to … take better care in choosing the audience to whom the communication is made,” says Mark Harrington, general counsel at Guidance Software Inc. in Pasadena. “Conversely, [executives] need to be trained that if they want the company to retain privilege on a communication to company counsel, it should be presented directly to the attorney, without cc’ing unnecessary parties.”

Valenza suggests that general counsel start this training in their own legal departments. “I think that in-house attorneys should be taking steps to express their intention that as their advice is re-communicated, that advice remains privileged and should therefore be kept in a certain way,” says Valenza. “And that the nature of the advice not be disclosed automatically to third parties.”

But on the whole, general counsel are pleased by Zurich, which offers added clarity to the question of which documents may be discoverable in the future. “It’s a great thing for in-house counsel,” says Valenza, while also adding a “Spider-Man”-inspired caveat into the mix: “But with great power comes great responsibility.”

Lorelei Laird is a freelance legal journalist in Los Angeles.