Wednesday, June 18, 2008
Ninth Circuit Applies Cumis Conflicts Statute to Environmental Dispute
By SHERRI M. OKAMOTO, Staff Writer
Where an insurer tendered a defense subject to a reservation of rights but elected not to have counsel represent its own interests in a third-party action, a subsequent fee dispute between the insured’s attorney and the insurer was subject to mandatory arbitration, this district’s Court of Appeal held yesterday.
Affirming Los Angeles Superior Court Judge Joseph E. Di Loreto’s dismissal of Nevada attorney Jay B. Long’s complaint, Div. Seven ruled that the reservation of rights had created a potential conflict of interest triggering the insurer’s duty to provide independent counsel to its insured and the application of Civil Code Sec. 2860(c).
Long represented G. Harris International, a recycling company that was sued by the California Department of Toxic Substances Control in an environmental cleanup lawsuit. He tendered Harris’ defense to the Insurance Company of North America, which had issued a comprehensive general liability policy to Harris.
INA tendered a defense subject to a reservation of rights, the nature of which was not disclosed by the record, and asked Long to represent Harris.
Although INA was unwilling to pay Long the hourly rate he requested, Long agreed to undertake the representation at a reduced rate while reserving his right to seek payment at his normal hourly rate at a later date.
The insurer elected not to have counsel representing its interests participate in the action and allowed Long to conduct and control the entire defense.
After the environmental clean-up suit was settled as to Harris, Long demanded payment from INA for additional attorney fees. After INA refused, Long filed suit against INA and eight other insurance companies to recover over $193,252.
The insurers demurred to the complaint, asserting in part that Long’s claims were subject to mandatory arbitration pursuant to Sec. 2860(c). Rather than oppose the demurrer, Long filed an amended complaint alleging Sec 2860(c) was inapplicable.
Sec 2860 codified the holding in San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, which recognized that an insurer has a duty to provide independent counsel for an insured where there is a conflict or potential conflict of interest between the insurer and insured in a third-party action.
Subsection (c) specifically provides that any dispute concerning attorney fees for this independent counsel “shall be resolved by final and binding arbitration by a single neutral arbitrator selected by the parties to the dispute.”
Di Loreto rejected Long’s argument that Sec. 2860 was inapplicable and determined that the trial court had no jurisdiction to hear the dispute.
Writing for the appellate court, Presiding Justice Dennis M. Perluss agreed.
A reservation of rights by an insurer on a given issue and the outcome of that issue may be controlled by counsel retained by the insurer for the defense of a claim, a conflict of interest may exist, he noted.
It is “the existence of the conflict or potential conflict creates the need for ‘independent’ or Cumis counsel,” he explained, and the insurer’s duty to provide such counsel exists regardless of whether the insurer has, or will, retain its own counsel.
Accordingly an insurer may elect not to retain counsel to protect its own interest, and “such election will not obviate the need to provide Cumis counsel if a conflict or potential conflict exists, “he reasoned.
Perluss concluded that so long as an insured has a right to independent counsel, 2860(c)’s mandatory arbitration provision will apply.
Justices Fred Woods and Laurie D. Zelon joined Perluss in his opinion.
Long could not be reached for comment. Steven M. Haskell of Berman & Aiwasian represented Century and declined to comment.
The case is Long v. Century Indemnity Company, B195281.
Copyright 2008, Metropolitan News Company