October 26, 2021

Nede Mgmt., Inc. v. Aspen American Ins. Co., B307470 (October 5, 2021)

An insurer defended its insureds against a personal injury action which settled without any out-of-pocket payment by the insureds. The insureds nonetheless sued the insurer, claiming there was a conflict of interest that entitled them to independent Cumis counsel pursuant to Civil Code section 2860 because (a) the insurer advised that it would not pay any judgment exceeding the policy limit or punitive damages, and (b) the attorney retained by the insurer defended them poorly. The trial court dismissed the case and the Court of Appeal affirmed.

Consistent with the plain language of section 2860, subdivision (b), the appellate court held that “the insurer’s reservation of rights for punitive damages and damages beyond policy limits did not create a conflict of interest triggering section 2860.” “ ‘[T]he mere fact the insurer disputes coverage does not entitle the insured to Cumis counsel; nor does the fact the complaint seeks punitive damages or damages in excess of policy limits . . . The insurer owes no duty to provide independent counsel in these situations because the Cumis rule is not based on insurance law but on the ethical duty of an attorney to avoid representing conflicting interests.’ ”

The court also concluded that the insureds’ complaints about the quality of representation by the insurer-selected counsel was no basis for the insureds to claim entitlement to Cumis counsel. “The conflicts of interest contemplated by section 2860 do not include an insured’s mere dissatisfaction with the performance of insurer-appointed counsel.” The insureds “may not have liked or agreed with [defense counsel’s] litigation decisions, but they have alleged no circumstance that prevented [defense counsel] from serving both their interests and [the insurer’s] interests.”