Does My Liability Policy Let Me Choose My Attorney?
Insurance companies sell liability insurance policies that promise to pay the costs necessary to defend insureds in lawsuits brought against them. Cumis counsel is an issue that frequently arises in these scenarios, and poses the important question of who gets to choose the insured’s defense attorney: the insurer or the insured? This is an issue that most non-insurance attorneys and insurance professionals know by name, but the key details of the rule are commonly overlooked.
California insurance law empowers insureds with the right to independent counsel of their choice, paid for by their insurance company, in certain situations. This right is commonly referred to as Cumis counsel due to the name of the case establishing it.
As part of their duty to defend their insureds, insurance companies generally retain the right to select the counsel and control the defense. That is because the insurer is the one who ultimately pays, and if the insured was in full control there is a risk they would often simply turn over the policy limits to avoid dealing with the lawsuit.
The insurer's right to hire counsel and control the defense, however, creates an inherently conflicting relationship where defense counsel effectively has two clients – the policyholder being defended and the insurer who retains and pays them. But that alone is not enough to trigger the right to independent counsel. The general rule for Cumis counsel is that insureds may demand independent counsel when the attorney selected by the insurer cannot provide adequate representation due to a disqualifying conflict of interest that goes beyond the mere inherent conflict in this tripartite relationship.
The most common conflict of interest arises when an insurer agrees to defend an insured under a “reservation of rights,” and the insurer’s coverage investigation overlaps with issues in the case. A “reservation of rights” is a tool designed to protect the insured by requiring the insurer to provide defense counsel immediately, even if it is still investigating whether the claim is covered by insurance. A conflict arises when the insurer’s ultimate coverage decision may turn on the facts likely to be learned by defense counsel because of the issues in the lawsuit. As counsel hired by the insurer is beholden to both the insurer and the insured, there is a risk that counsel will use information discovered during the defense of the insured to help the insurer deny coverage mid-suit, or worse, actually focus the entire litigation strategy on learning such information as opposed to defending the insured to the fullest extent possible. The right to competent defense counsel is so important that the mere risk of these scenarios happening is enough to justify independent counsel. Notably, such a conflict also undermines the protective purpose of a reservation of rights.
Thus, because the interests of the insurer and insured can diverge, the purpose of this law is to ensure the insured receives a truly independent defense. Accordingly, when applicable, the rule allows an insured to select its own counsel without losing the benefit of the insurer footing the bill.
Importantly, an insurance contract may contain a provision that sets forth the method of selecting Cumis counsel. For example, an insurer has the right to impose reasonable standards on who takes the case to ensure its pocketbook is being well-defended, and it can refuse to pay more than the reasonable rate it typically pays to normal counsel in the community.
The risks of a conflict of interest are staggering, and given the complexities of insurance policies and coverage disputes, conflicts can arise in many different ways. It is important that the issue is properly analyzed to ensure the best defense possible.
Ivo Labar and Dan Veroff are trial attorneys at Kerr & Wagstaffe LLP specializing in insurance policyholder rights. To learn more about the attorneys and their insurance practice, please explore the links at the top of this page.
 Cal. Civ. Code § 2860
 San Diego Navy Federal Credit Union v. Cumis Insurance Society, Inc., 162 Cal.App.3d 358 (1984).,