Centex Homes v. St. Paul Fire and Marine Insurance, DCA3, 1/22/18
When a claim is asserted against an insured, the insurance company usually has the right to assign the counsel of its choice to defend the insured. (Note that some companies have the clout to negotiate the right to choose their own counsel.) The carrier’s letter accepting coverage often includes a reservation of rights. But not every reservation of rights triggers the right to independent counsel. The insured will have a right to choose its own counsel (hired at the insurer’s expense) where competing interests between insurer and insured create an ethical conflict for counsel. Generally speaking, that happens when the issues to be litigated in the underlying case can determine the outcome of coverage (as opposed to being “extrinsic” to the litigation). When that happens, counsel retained by insurer can affect the outcome of the coverage question, which is what creates a conflict.
Here, homeowners sued Centex (a home developer) and various subcontractors for construction defect claims. Centex had coverage under a policy issued by St. Paul, who assigned counsel to defend Centex. Centex wanted independent counsel, and cited St. Paul’s reservation of rights as creating the necessary conflict. But St. Paul’s reservation of rights was innocuous—it only reserved the right to deny indemnity for any claims that weren’t covered by the policy and also reserved the right to reimbursement of costs spent to defend non-covered claims. The trial court held that wasn’t enough to trigger the right to cumis counsel. Held: Affirmed.
Further, Centex cross-complained against St. Paul for declaratory relief asking the trial court to find that Centex was entitled to independent counsel. But counsel appointed by St. Paul to defend Centex in the construction defect case had no involvement in defending St. Paul against Centex’s cross-complaint for declaratory relief. Centex and St. Paul were also litigating coverage disputes in separate actions concerning property developments not at issue in this case. Appointed counsel had no involvement in those cases either.
Final point: The court noted that the existence of a potential conflict was insufficient to trigger cumis counsel. Language in the Cumis decision that suggested otherwise had been clarified and limited by the Cumis statute, Civil Code section 2860.