Q: I have been sued and the liability insurance company has accepted the defense with a reservation of rights. They could eventually decide coverage is excluded and stop handling the matter, and even ask me to pay them back. First inquiry: Am I entitled to my own lawyer here, so I am not reliant only on the lawyer hired by the insurance company?
D.C., Newport Beach
A: In 1984, a decision was rendered in a California appellate case entitled “San Diego Navy Federal Credit Union vs. Cumis Insurance Company.” The Court of Appeal addressed the issue regarding appointment of an independent lawyer for an insured person when the insurance company has a conflict of interest. A few years later, the California Legislature codified the Cumis decision in California Civil Code Section 2860. The question you ask can be phrased as: Are you entitled to Cumis counsel?
An insurance company’s reservation of rights letter typically contains language from the policy that impacts the insurer’s duty to defend you, and its right not to cover you for claims that are outside or excluded from coverage. For example, it is one thing if it is alleged you engaged in careless behavior, which usually is covered, compared to if you are accused of intentional wrongdoing. Intentional misconduct can be excluded, and the insurer would submit it is not responsible to cover you for that kind of behavior.
To be entitled to Cumis counsel, there has to be an actual conflict. The right to Cumis (independent counsel) is not triggered merely because there is a reservation of rights. So, if there is a qualifying conflict of interest between you and the insurance company, Civil Code Section 2860(a) states the insurer “shall provide independent counsel.” You may ask that an independent lawyer be retained, or you can have a lawyer make the request for you. If the insurer rejects the request, then a decision may be made whether you accede, or pursue the matter in court.
Q: Next inquiries: If I am entitled to independent counsel, can I choose who it is? Also, who pays for the lawyer?
D.C.. Newport Beach
A: Yes, you can indicate who you would like to be retained as Cumis counsel, which is subject to statutory requirements. For example, it should be someone with a number of years in civil litigation who has substantial experience with the subject matter of the case. The insurance company will pay the Cumis counsel, but the amount of payment is also subject to statute. Civil Code Section 2860(c) limits the obligation of the insurance company to “the rates actually paid by the insurer to attorneys it retains in the ordinary course of business for similar cases in the community.”
Q: Final question: If I ask for Cumis counsel, can the insurance company pull coverage?
D.C., Newport Beach
A: You have a basic right to indicate there is justification under the circumstances for you to be provided independent counsel. The insurer’s obligation to defend you turns on coverage, not on whether you may be entitled to Cumis counsel. The carrier may not agree to provide you with independent counsel — may not feel it is warranted under the circumstances — but that is much different from pulling coverage all together (which could be bad faith).
Ron Sokol has been a practicing attorney for more than 40 years, and has also served many times as a judge pro tem, mediator, and arbitrator. It is important to keep in mind that this column presents a summary of the law, and is not to be treated or considered legal advice, let alone a substitute for actual consultation with a qualified professional.