{"id":251,"date":"2018-02-28T12:40:18","date_gmt":"2018-02-28T16:40:18","guid":{"rendered":"http:\/\/blogs.duanemorris.com\/insurancelaw\/?p=251"},"modified":"2018-02-28T12:40:18","modified_gmt":"2018-02-28T16:40:18","slug":"a-reservation-of-rights-alone-is-not-enough-to-trigger-independent-counsel-in-california","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/insurancelaw\/2018\/02\/28\/a-reservation-of-rights-alone-is-not-enough-to-trigger-independent-counsel-in-california\/","title":{"rendered":"A Reservation of Rights Alone Is Not Enough to Trigger Independent Counsel in California"},"content":{"rendered":"

Last month, California\u2019s 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\u2019s Cumis<\/em> statute, Civil Code section 2860. Simply because the insurer sent a reservation of rights letter is not enough.<\/p>\n

In Centex Homes v. St. Paul Fire and Marine Ins. Co<\/em>.<\/a> (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\u2019s subcontractors\u2014Ad Land Venture\u2014and Centex tendered the lawsuits to St. Paul for defense. St. Paul agreed to defend, subject to certain reservations of rights, including St. Paul\u2019s right to deny indemnity to Centex for any claims by the homeowners not covered by the policy, including claims for damage to Ad Land\u2019s work and damage caused by the work of other subcontractors not insured by St. Paul.
\nSt. Paul appointed a defense attorney to defend Centex in the underlying actions, but Centex claimed St. Paul\u2019s reservation of rights created a conflict requiring St. Paul to pay for independent counsel under California Civil Code section 2860.<\/p>\n

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<\/em> (2002) 98 Cal.App.4th 1388, 1421, the court explained, \u201ca 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 \u2018the outcome of [the] coverage issue can be controlled by counsel first retained by the insurer for the defense of the [underlying] claim.\u2019\u201d The court rejected the contention that defense counsel in a construction defect case could control the outcome of the coverage case. (Centex, supra<\/em>, at p.13-14.)<\/p>\n

A conflict of interest exists \u201conly 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[.]\u201d (Gafcon, supra, 98 Cal.App.4th at 1421-22.) A \u201cmere possibility of an unspecified conflict does not require independent counsel[;]\u201d rather, the conflict must be \u201csignificant, not merely theoretical, actual, not merely potential.\u201d (Dynamic Concepts, supra<\/em>, 61 Cal.App.4th at 1007.)<\/p>\n

The Centex<\/em> decision follows a long line of California decisions that are \u201cboth considered and settled.\u201d (Centex, supra<\/em>, at p.8.) California courts have repeatedly held that in the absence of an actual conflict of interest giving rise to the insured\u2019s right to independent counsel, the defending insurer controls the defense of the underlying suit, including settlement and trial. \u201c[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.\u201d (Gafcon, supra<\/em>,\u00a0 98 Cal.App.4th at 1407, citing James 3 Corp. v. Truck Ins. Exchange<\/em> (2001) 91 Cal.App.4th 1093, fn. 3; see also Federal Ins. Co. v. MBL, Inc<\/em>. (2013) 219 Cal.App.4th 29, 41 [\u201c[T]he mere fact the insurer disputes coverage does not entitle the insured to Cumis Counsel;\u2026\u201d]; Blanchard v. State Farm Fire and Cas. Co.<\/em> (1991) 2 Cal.App.4th 345, 350; Dynamic Concepts, Inc. v. Truck Ins. Exch<\/em>. (1998) 61 Cal.App.4th 999, 1007; Long v. Century Indem. Co<\/em>. (2008) 163 Cal.App.4th 1460, 1468; Centex Homes v. St. Paul Fire & Marine Ins. Co<\/em>. (2015) 237 Cal.App.4th 23, 31-32.)<\/p>\n","protected":false},"excerpt":{"rendered":"

Last month, California\u2019s 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\u2019s Cumis statute, Civil Code section 2860. Simply because the insurer sent a reservation of rights … <\/p>\n

Continue reading “A Reservation of Rights Alone Is Not Enough to Trigger Independent Counsel in California”<\/span><\/a><\/p>\n","protected":false},"author":37,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[366,75,367,185,57,182,12,33,180,365],"ppma_author":[411],"class_list":["post-251","post","type-post","status-publish","format-standard","hentry","category-general","tag-california-civil-code-2860","tag-california-court-of-appeal","tag-construction-defect","tag-cumis-counsel","tag-duty-to-defend","tag-independent-counsel","tag-insurance","tag-paul-killion","tag-reservation-of-rights","tag-third-district"],"authors":[{"term_id":411,"user_id":37,"is_guest":0,"slug":"pjkillion","display_name":"Paul J. Killion","avatar_url":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-content\/uploads\/sites\/12\/2014\/08\/killionpaul-125x150.jpg","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts\/251","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/users\/37"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/comments?post=251"}],"version-history":[{"count":0,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts\/251\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/media?parent=251"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/categories?post=251"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/tags?post=251"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/ppma_author?post=251"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}