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Nevada’s Cumis Rule: When Two Lawyers are Better than One

A vehicle strikes a number of unsuspecting pedestrians on a crowded sidewalk in Las Vegas. The pedestrians sue the vehicle’s driver under negligence and intentional tort theories. The driver is insured by Insurance Company (I.C.). I.C. is only obligated to cover driver’s liabilities arising from “negligent conduct.” Some facts suggest the driver may have intended to strike the pedestrians on the sidewalk. The driver acknowledges his/her potential negligence, but opposes all allegations of intentionally causing injury. I.C. believes they have strong arguments regarding the driver’s intentional conduct. I.C. agrees to defend driver, but sends a reservation of right’s letter to driver before answering the Plaintiffs’ Complaint. Is I.C.’s defense of the driver pursuant to the reservation of rights’ letter proper?

Nevada is a duel-representation state. An attorney can represent both the insurance company and the insured. Nevada Rule of Professional Conduct 1.7 regarding conflicts of interest, however, prevents an attorney from representing a client (absent special circumstances) if:

  1. The representation of one client will be directly adverse to another client; or
  2. There is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.”

The Nevada Supreme Court has recently confronted with these and has adopted California’s “Cumis” rule requiring insurance companies to allow their insured to select and retained independent counsel at the insurance company’s expense. Nevada’s Supreme Court has reasoned that allowing one attorney to represent the insured and the insurance company in the presence of a conflict of interest could prejudice the insured’s legal rights. However, The Nevada Supreme Court has limited an insurance company’s duty to provide an insured independent legal counsel at the insurance companies expense (the Cumis rule) to situations that involve actual conflicts of interest. The Court rejected the argument that reservations of rights letters always create conflicts of interest. The Court has advised a case-by-case approach when evaluating if an actual conflict of interest arises. In the example above, I.C. will likely need to provide the driver an independent attorney because insurance companies cannot subject their insureds to personal liability by arguing that the driver’s conduct was intentional.

Nevada’s adoption of the Cumis rule places another duty on Nevada insurance carriers to determine whether a conflict of interest requires an independent attorney to be provided to the insured. Careful legal analysis must be conducted in situations that present conflict of interest concerns. While a reservation of rights letter may be necessary under the circumstances of the case and remains a good “best practices,” it will not shield insurers of their obligation to provide their insured independent attorneys when an actual conflicts of interest arise.

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