United States: Cumis Counsel: Court Of Appeal Resolves Several Questions Of First Impression In Favor Of Insurers And Provides Needed Clarity To California’s Independent Counsel Doctrine

Insurers navigating the sometimes unsettled waters regarding California's independent counsel, or Cumis counsel, doctrine received helpful guidance this week from the Sixth Appellate District of the California Court of Appeal.  Under California law, an insured may be entitled to independent counsel in the defense of an underlying claim when an insurer "reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim[.]"  Civ. Code § 2860(b).  But, determining whether a given reservation of rights gives rise to independent counsel is not always an easy task.  In Federal Insurance Company v. MBL, Inc. (2013) __ Cal.App.4th __ (Case Nos. H036296 & H036578), the Sixth District affirmed declaratory and money judgments in favor of multiple insurers in a dispute over whether the insured ("MBL") was entitled to independent counsel in the defense of certain underlying environmental pollution cases against the insured.  In reaching its conclusions, the Court found in favor of the insurers in several areas that had not been previously addressed by California appellate authority.

The Court rejected MBL's theory that a "general" reservation of rights gives rise to a conflict of interest requiring independent counsel, holding general reservations "create a theoretical, potential conflict of interest—nothing more."  This holding confirms existing California law.  Dynamic Concepts, Inc. v. Truck Ins. Exchange (1998) 61 Cal.App.4th 999.  From this proposition, the Court went on to explain that MBL cannot "manufacture" conflicts of interest based on a "general" reservation where the insurer did not reserve specific rights.  As a result, MBL could not claim a conflict of interest arose under the "qualified pollution exclusions" in the insurers' policies or based on the "number of occurrences" when the insurers did not specifically reserve those rights in response to the insured's tender.

From there, the Court of Appeal addressed several issues of first impression.  The Court held that an insurer's reservation of rights regarding its absolute pollution exclusion does not give rise to independent counsel because whether the underlying claim is the result of a governmental clean-up order or action is not a fact that defense counsel can control.  "Either the loss arose out of a government claim to remediate pollution or it did not, and there is nothing which counsel, whether retained or independent, could do to change the answer to that question."  This is the first California decision addressing an absolute pollution exclusion in the independent counsel context.

Perhaps the most significant holding relates to the insurers' reservation on whether there was "property damage during the policy period."  This is a common reservation for insurers, and MBL alleged that assigned defense counsel can control whether the alleged environmental property damage took place during the insurers' policy periods, thereby shifting the insured's liability to uncovered or self-insured periods.  Relying on the rationale in Blanchard v. State Farm Fire & Casualty Co. (1991) 2 Cal.App.4th 345, the Court held that the timing of property damage is not something that defense counsel could control in the underlying case, and therefore, this reservation did not give rise to a conflict of interest.  This is also the first time a California appellate decision has directly addressed this reservation.

In yet another first, the Court rejected MBL's argument that insurers' defense of other insureds in the same underlying action gave rise to a conflict of interest, holding that MBL "failed to present evidence below to show that the Insurers' representation of other parties in the [underlying] action gave rise to a 'significant, not merely theoretical, actual, not merely potential' conflict of interest."  The court distinguished O'Morrow v. Borad (1946) 27 Cal.2d 794, a case involving two insureds of the same insurer suing each other for negligence arising out of an automobile accident.  The Sixth District rejected MBL's arguments based on O'Morrow, noting that California negligence law has significantly changed since 1946 and that this change in law eliminated the incentives of the insurer at issue in that case.  In contrast, the insurers here had no incentive to shift liability from one insured to another because ultimately the insurers would potentially be obligated to indemnify all of their insureds.  In the environmental context, it is common for insurers to have multiple insureds involved in the same underlying case, and the Court's decision holds for the first time that an insurer can defend its multiple insureds without giving rise to a conflict of interest requiring independent counsel.

Finally, in addition to providing guidance for the first time on multiple reservations, the Court put teeth into the independent counsel doctrine by upholding an insurer's money judgment.  One of the insurers had paid independent counsel while the parties sought declaratory relief on whether MBL was entitled to independent counsel in the first place.  The Court held that where an insured insists on independent counsel but is ultimately not entitled to it, a defending insurer can seek reimbursement for those fees from the insured.  In other words, if an insured insists that a conflict of interest exists such that it has the right to independent counsel and it is later determined that no such conflict existed, a defending insurer that paid independent counsel's fees can recover those fees from the insured.  This may be one of the most important aspects of this decision because it puts insureds and their independent counsel on notice that being wrong on the independent counsel issue will have potentially significant financial consequences.

In sum, the Sixth District's decision provides important guidance to insurers regarding the complexities of the independent counsel doctrine in California.  And, by affirming a money judgment in favor of an insurer that paid independent counsel, the decision also creates a significant financial disincentive for insureds to try to manufacture conflicts of interest in the future.

Dominica C. Anderson, Paul J. Killion and Michael J. Dickman represented Great American Insurance Company in the case. 

This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.

Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. The Duane Morris Institute provides training workshops for HR professionals, in-house counsel, benefits administrators and senior managers.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Lewis Brisbois Bisgaard & Smith LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Lewis Brisbois Bisgaard & Smith LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions