Daily Blast September 23, 2013

Earlier this week, the California Court of Appeal, Second Appellate District, Division Seven (­­Los Angeles), issued an opinion in Swanson v. State Farm General Insurance Co.(September 23, 2013, B240016) ___ Cal.App.4th ___, analyzing whether an insurer must continue to pay the insured’s Cumis counsel after the insurer’s withdrawal of the Cumis-triggering reservations eliminated the conflict that created the need for Cumis counsel. (Slip opn., p. 2.)

Defendant insurance company provided personal and general liability coverage for plaintiff’s real property. (Slip opn., p. 2.) The policy provided that if a third party brought a suit against an insured for personal injury or property damage, the insurer would “provide a defense at our expense by counsel of our choice.” (Ibid.) Plaintiff’s neighbors alleged claims for premises liability and negligence against plaintiff in connection with an incident involving her real property. (Id. at p. 3.) The insurer accepted the defense of the lawsuit subject to reservation of rights. (Ibid.) Further, the insurer tentatively accepted plaintiff’s personal attorney, Richard Blasco (“Blasco”), as her Cumis counsel. (Ibid.) Four months later, the insurer amended its original reservation of rights, which eliminated the Cumis-triggering conflict between the insurer and its insured. (Id. at p. 4.) The insurer retained an attorney to serve as co-counsel and made no further payments to Blasco. (Id. at pp. 4-5.) Plaintiff sued the insurer for breach of insurance contract and sought damages for the attorney’s fees billed by Blasco. (Id. at p. 5.) The trial court granted defendant insurer’s summary judgment motion concluding that when the insurer withdrew its Cumis-triggering reservations, plaintiff insured was no longer entitled to independent counsel. (Id. at p. 6.)

The Court of Appeal affirmed the judgment concluding that the insurer “had the right to take control of the litigation with an attorney of its choosing and to cease paying Blasco, Cumis counsel chosen by withdrew its Cumis-triggering reservation of right.” (Slip opn., p. 7.) If an insurer reserves its right to deny indemnification on specific coverage issues, and the reservation creates a conflict of interest between the insurer and its insured, then the insurer is obligated to provide independent counsel to the insured pursuant to Civil Code section 2860 and San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358. (Id. at pp. 8-9.) However, when the insurer withdraws its Cumis-triggering reservation of rights, it no longer has an obligation to allow its insured to control the litigation or continue to pay the attorney’s fees of plaintiff’s independent counsel. (Id. at p. 12.)

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