INSURANCE CLAIMS /
BAD FAITH LITIGATION

CUMIS COUNSEL – INSURANCE LAW

By Herman I. Kalfen
Kalfen Law Corporation

Cumis Counsel – An attorney employed by a defendant in a lawsuit when there is an insurance policy supposedly covering the claim, but there is a conflict of interest between the insurance company and the insured defendant. 

A common conflict of interest is when the insurance company denies or refuses to defend all or part of a claim under a liability insurance policy, such as when an insurance company pays for the defense of a policyholder under a reservation of rights.   (A "reservation of rights" letter usually states that the insurance company reserves its rights to later deny the claim should facts surface that prevent coverage, such as facts which would preclude coverage under a policy term or exclusion). 

Cumis Counsel is needed to avoid the prospect of defense counsel shading the defense of the policyholder to the advantage of the insurer so that the reservation of rights would be used to later deny coverage.  Please note that not every reservation of rights creates a conflict of interest.  Instead it depends on the nature of the coverage issue as it relates to the issues in the underlying case.

In some states (notably California) the defendant can demand that the insurance company pay the fees of his own attorney rather than use an insurance company lawyer.   In other words, this independent defense Cumis Counsel is paid for by the insurer but chosen and controlled by the policyholder.  It takes an experienced attorney to navigate you through this thicket.  Please be certain to get a lawyer that knows the way.

“Cumis” is named after a case decided by the California Court of Appeals for the Fourth Appellate District on December 3, 1984 in San Diego Federal Credit Union v. Cumis Ins. Soc’y, (1984) 162 Cal.App.3d 358.  The most important paragraph from the Cumis decision is as follows:

We conclude the Canons of Ethics impose upon lawyers hired by the insurer an obligation to explain to the insured and the insurer the full implications of joint representation in situations where the insurer has reserved its rights to deny coverage. If the insured does not give an informed consent to continued representation, counsel must cease to represent both. Moreover, in the absence of such consent, where there are divergent interests of the insured and the insurer brought about by the insurer's reservation of rights based on possible noncoverage under the insurance policy, the insurer must pay the reasonable cost for hiring independent counsel by the insured. The insurer may not compel the insured to surrender control of the litigation ... Disregarding the common interests of both insured and insurer in finding total nonliability in the third party action, the remaining interests of the two diverge to such an extent as to create an actual, ethical conflict of interest warranting payment for the insureds' independent counsel.

Since then, Civil Code §2860 and numerous Court Rulings have interpreted the original Cumis decision.  Please be certain that you have a lawyer familiar with this important material.

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