California Court of Appeals Refuses to Expand Trigger for Independent Counsel

Under California Civil Code §2860, insureds have the right to obtain independent counsel at the expense of the insurer whenever there are competing interests that create an ethical conflict for the attorney appointed by the insurer. . Since its enactment, California courts have defined the boundaries of §2860.

For example, California courts have ruled that not all reservations of rights asserted by an insurance company entitle an insured to choose a “Cumis attorney,” a technical term that refers to a court decision California Appeals of 1984. Rather, independent counsel is only required when the outcome of a matter of reserved coverage could be reviewed by defense counsel appointed by the insurer.

California courts have also held that there is no right to independent counsel where the issue of coverage was unrelated or extrinsic to the issues raised in the underlying action. In other words, when the reservation of rights is based on hedging conflicts that have nothing to do with the issues in dispute in the underlying action, no conflict of interest arises requiring the appointment of an independent lawyer. One of the main questions to ask is whether a real conflict of interest prevents the defense lawyer appointed by the insurer from presenting a quality defense for the insured.

Jordan Plitt

In Nede Mgmt., Inc. v. Aspen American Insurance Co., 284 Cal.Rptr.3d 122, 38 Cal. App. 5th 1121 (September 20, 2021), as amended (October 5, 2021), the California Court of Appeals considered the merits of various arguments advanced by an insured as to why the insured believed that §2860 required the appointment of an independent lawyer.

First, the insured argued that the insurer reserved its rights generally. Upon review, the court noted that the insurer’s reservation of rights related to the lack of coverage under the policy for punitive damages and that the damages alleged by the plaintiffs exceeded the limits of the policy. In rejecting this argument, the court noted that the insurer did not reserve any rights related to the coverage beyond an indemnity of deductible and punitive damages, which did not create an ethical conflict for the lawyer. of the defense. The court said the Cumis rule at §2860 relates to the dual representation of an attorney for the insurance company and the insured when their interests conflict. That a conflict of interest between jointly represented clients arises when the representation of one by their common counsel is rendered less effective because of the representation of the other by the counsel. The type of coverage dispute over excessive exposure and punitive damages did not create a situation where the interests of the insurance company and the insured diverged, requiring defense attorneys to represent one at a time. detriment of the other. Rather, the insurance company and the insured in these circumstances agreed to defend the lawsuit to minimize or avoid liability.

Another reason for appointing independent counsel was the claimant’s allegation that defense counsel had shown “unrelenting hostility” towards the claimant, which was exemplified by the belief that the insured would be bad witnesses who could not be believed at trial. The Nede The court did not find that defense counsel’s honest assessment created a conflict of interest. The court noted that if the defense attorney took such a view, that view was part of the attorney’s honest assessment of the merits of the case. This honest assessment would serve both the insurer and the insured. From the insurer’s perspective, the defense attorney’s honest assessment would help inform any decision the insurance company makes to litigate or settle the case. From the insured’s perspective, the honest appraisal could avoid the award of much higher damages if a jury dislikes the insured’s testimony or finds it not credible. By evaluating how the jury might react to the testimony of the insured, the insurer’s appointed attorney was serving the aligned interests of its clients by avoiding liability.

Another reason given by policyholders to justify the appointment of an independent lawyer related to the rejection of a policy limiting the claim to the beginning of the trial without the policyholders having been consulted. Policyholders argued that the rejection could have exposed them to damages beyond policy limits or punitive damages.

The Nede court rejected this basis for the appointment of independent counsel. The court noted that the insurance company was simply exercising its right to control the defense. The policy gave the insurer discretion to investigate and settle claims as it deemed appropriate. To back up their case, the policyholders claimed the defense attorney told them he believed the request for policy limits was “clearly premature”. In responding to the request, the defense attorney had chronicled and detailed all of the outstanding issues. A review of each of the elements chronicled, according to the Nede court, concluded that they were all aimed at equally defending the interests of the policyholders and those of the insurance company.

Finally, the policyholders argued that the insurer-appointed defense attorney advised cumis des Nedes’ attorney during subsequent settlement discussions that the policyholders needed independent counsel because the latest claim exceeded the limits of the police. The court concluded that the advice of the defense attorney appointed by the insurer was sound.

Overall, the Nede the court found no conflict between the interests of the insured and those of the insurance company. Even though the insureds disliked or disagreed with the court rulings of the insurer-appointed defense attorney, the insureds did not allege any circumstances during the examination that would have prevented the defense attorney appointed by the insurer to serve both the interests of the insured and those of the insurance company. In the absence of a coverage dispute or a reservation of rights creating a risk that an insurer-appointed defense attorney will serve the interests of the insurance company to the detriment of the policyholders, an independent attorney was not justified.

About Jordan R. Plitt

Plitt is a senior partner at the Cavanagh law firm in Phoenix, Arizona. His practice focuses on insurance coverage and bad faith litigation. He is an associate author/editor of Couch On Insurance 3rd Edition.


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