Key Decisions

October 2013 – The Insured’s Right To Cumis Counsel Ended

(filed under: Key Decisions | October 20, 2013)

The Insured’s Right To Cumis Counsel Ended

Swanson v. State Farm General Insurance Company
(Cal. Ct. of App., 2d Dist.), filed September 23, 2013, published September 23, 2013

KEY FACTS

Terry Ann Swanson sued her neighbors, Mark and Patricia Bitetti, for damages resulting from the failure of a retaining wall on their property. Attorney Richard Blasco represented her.

The Bitettis filed a cross-complaint against Swanson. Swanson tendered this cross-complaint to her liability insurer, State Farm, for a defense. State Farm accepted the tender but reserved its rights to deny coverage and to withdraw the defense.

Blasco asked to be appointed as “independent” or “Cumis” counsel because State Farm’s reservation created a conflict of interest. After some haggling over Blasco’s hourly rate, State Farm agreed.

State Farm ultimately withdrew portions of its reservation of rights and advised that because there was no longer a conflict of interest, it would no longer pay Blasco to represent Swanson in the defense of the cross-complaint. Rather, State Farm would select defense counsel.

Despite the fact State Farm said it would no longer pay Blasco, Blasco continued to represent Swanson in the defense of the cross-complaint. When State Farm refused to pay Blasco’s bill, Swanson sued State Farm. The trial court granted a summary judgment in favor of State Farm.

HOLDING & REASONING

The Court of Appeal affirmed.

The primary issue on appeal was whether State Farm had the right to take control of the litigation with an attorney of its choosing and to cease paying Blasco, after it withdrew itsCumis-triggering reservation of rights.

The court held that State Farm had such a right. When State Farm withdrew its Cumis-triggering reservation of rights, it no longer had an obligation to allow Swanson to control the litigation or an obligation to pay the attorney’s fees of Swanson’s Cumis counsel.

The court rejected Swanson’s argument that by agreeing on an hourly fee with Blasco, State Farm had modified the policy to permit her to select her own defense counsel. The court reasoned that the hourly fee issue was resolved in accordance with Civil Code Section 2860 and did not alter the policy.

The court also rejected Swanson’s argument that State Farm waived the right to withdraw its reservation of rights and to assume control of the defense. The duty to defend and the right to reserve rights derived from statutes and case law and there is no need to reserve the right to withdraw a reservation of rights.

ANALYSIS

This result is generally consistent with the rationale behind the insurer’s obligations to pay independent counsel in conflict situations. When the conflict is removed, the obligation to pay independent counsel may also be removed.