Tag Archives: cumis counsel

A Reservation of Rights Alone Is Not Enough to Trigger Independent Counsel in California

Last month, California’s Third Appellate District added to a growing list of California appellate decisions holding that the mere possibility or potential for a conflict is not legally sufficient to require a defending insurer to provide independent counsel under California’s Cumis statute, Civil Code section 2860. Simply because the insurer sent a reservation of rights letter is not enough.

In Centex Homes v. St. Paul Fire and Marine Ins. Co. (1/22/2018, No. C081266) __Cal.App.5th __, the Third District addressed a dispute between insurer St. Paul and a developer, Centex Homes, regarding whether the insurer was required to provide independent counsel to defend Centex against actions brought by several homeowners alleging construction defects. St. Paul insured one of Centex’s subcontractors—Ad Land Venture—and Centex tendered the lawsuits to St. Paul for defense. St. Paul agreed to defend, subject to certain reservations of rights, including St. Paul’s right to deny indemnity to Centex for any claims by the homeowners not covered by the policy, including claims for damage to Ad Land’s work and damage caused by the work of other subcontractors not insured by St. Paul.
St. Paul appointed a defense attorney to defend Centex in the underlying actions, but Centex claimed St. Paul’s reservation of rights created a conflict requiring St. Paul to pay for independent counsel under California Civil Code section 2860.

Centex essentially argued that a right to independent counsel exists whenever an insurer reserves rights. The Third District disagreed. Quoting Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1421, the court explained, “a conflict of interest does not arise every time the insurer proposes to provide a defense under a reservation of rights. There must also be evidence that ‘the outcome of [the] coverage issue can be controlled by counsel first retained by the insurer for the defense of the [underlying] claim.’” The court rejected the contention that defense counsel in a construction defect case could control the outcome of the coverage case. (Centex, supra, at p.13-14.)

A conflict of interest exists “only when the basis for the reservation of rights is such as to cause assertion of factual or legal theories which undermine or are contrary to the positions to be asserted in the liability case[.]” (Gafcon, supra, 98 Cal.App.4th at 1421-22.) A “mere possibility of an unspecified conflict does not require independent counsel[;]” rather, the conflict must be “significant, not merely theoretical, actual, not merely potential.” (Dynamic Concepts, supra, 61 Cal.App.4th at 1007.)

The Centex decision follows a long line of California decisions that are “both considered and settled.” (Centex, supra, at p.8.) California courts have repeatedly held that in the absence of an actual conflict of interest giving rise to the insured’s right to independent counsel, the defending insurer controls the defense of the underlying suit, including settlement and trial. “[U]ntil such a conflict arises, the insurer has the right to control defense and settlement of the third party action against its insured, and is generally a direct participant in the litigation.” (Gafcon, supra,  98 Cal.App.4th at 1407, citing James 3 Corp. v. Truck Ins. Exchange (2001) 91 Cal.App.4th 1093, fn. 3; see also Federal Ins. Co. v. MBL, Inc. (2013) 219 Cal.App.4th 29, 41 [“[T]he mere fact the insurer disputes coverage does not entitle the insured to Cumis Counsel;…”]; Blanchard v. State Farm Fire and Cas. Co. (1991) 2 Cal.App.4th 345, 350; Dynamic Concepts, Inc. v. Truck Ins. Exch. (1998) 61 Cal.App.4th 999, 1007; Long v. Century Indem. Co. (2008) 163 Cal.App.4th 1460, 1468; Centex Homes v. St. Paul Fire & Marine Ins. Co. (2015) 237 Cal.App.4th 23, 31-32.)

Two Important Insurance Matters Set For The California Supreme Court’s May Calendar

Yesterday, the California Supreme Court set two important and much anticipated insurance cases for May oral argument.

On May 26, 2015, the Court will hear argument in Fluor v. S.C. (Hartford Accident & Indemnity Company), No. S205889, which presents the following issue: Are the limitations on assignment of third party liability insurance policy benefits recognized in Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934 inconsistent with the provisions of Insurance Code section 520?

On May 28, 2015, the Court will hear argument in J.R. Marketing, L.L.C. v. Hartford Casualty Insurance, No. S211645, which presents a rare opportunity for guidance from the Supreme Court on independent Cumis counsel issues. The case present the following question: After an insured has secured a judgment requiring an insurer to provide independent counsel to the insured (see San Diego Fed. Credit Union v. Cumis Ins. Society Inc. (1984) 162 Cal.App.3d 358), can the insurer seek reimbursement of defense fees and costs it considers unreasonable and unnecessary by pursuing a reimbursement action against independent counsel or can the insurer seek reimbursement only from its insured?

Both matters will be heard in San Francisco on the 9:00 a.m. calendars. Under California rules, the Supreme Court must issue its decisions in the matters within 90 days after the argument.

The California Supreme Court Lets Stand The Federal Ins. v. MBL Cumis Decision

On November 26, 2013, the California Supreme Court denied MBL’s petition for review from the Court of Appeal’s recent decision in Federal Ins. Co. v. MBL (2013) 219 Cal.App.4th 29. In addition, the Supreme Court also denied eight different requests to depublish the decision filed by parties aligned with the insured.

Continue reading The California Supreme Court Lets Stand The Federal Ins. v. MBL Cumis Decision

Controlling Cumis – California Court Confirms that Right to Independent Counsel Can be Terminated by Withdrawing ROR

The Second District Court of Appeal has issued an important new opinion that adds to this year’s series of California appellate decisions on when an insurer owes its policyholder a duty to pay for independent defense counsel, in Swanson v. State Farm General Ins. Co., ___ Cal. App.4th ___ (2013). In Swanson, the Court of Appeal found that an insurer that had issued to its policyholder a reservation of the right to deny coverage that gave rise to the type of conflict that creates a right to independent counsel under California Civil Code section 2860 (“Cumis counsel”) could end that duty by withdrawing that portion of the reservation of rights that created the right to have the insurer pay for such counsel. Continue reading Controlling Cumis – California Court Confirms that Right to Independent Counsel Can be Terminated by Withdrawing ROR