237 Cal. App. 4th 23
Cal. Ct. App.2015Background
- Centex Homes developed residences in Corona and was sued by homeowners for construction defects; Centex tendered defense to Travelers (insurer of subcontractor Oak Leaf), which accepted under a reservation of rights and appointed panel counsel.
- Centex is an additional insured on Oak Leaf’s Travelers policy and alleges it has incurred and will incur defense costs in the underlying action.
- Centex sued Travelers (declaratory relief) alleging Travelers breached its duty to defend (by reserving rights, seeking reimbursement, and controlling defense) and that those actions created a conflict entitling Centex to independent counsel under Civ. Code § 2860.
- Travelers demurred, arguing Centex’s coverage/reimbursement and independent-counsel claims were premature and conclusory; trial court sustained the demurrer without leave to amend.
- On appeal, the court reviewed whether Centex alleged an actual, ripe controversy over allocation/reimbursement and whether a present conflict required independent counsel, affirming the trial court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Ripeness of declaratory relief on allocation/reimbursement of defense fees | Centex: a present actual controversy exists and court should declare allocation/reimbursement rights now | Travelers: premature; liability, allocation, and defense costs unknown in underlying case | Not ripe — claims are anticipatory; insufficient facts to adjudicate allocation/reimbursement now |
| Right to independent counsel due to conflict from insurer-appointed panel counsel | Centex: reservation of rights and insurer control create a significant, actual conflict requiring independent counsel under § 2860 | Travelers: reservation alone is insufficient; Centex pleads only speculative conclusions without facts showing actual manipulation or incompatible duties | No present actual conflict shown at pleading stage; demurrer properly sustained |
| Whether insurer’s reimbursement demand automatically creates conflict | Centex: reimbursement pursuit inherently conflicts with insured’s interests | Travelers: reimbursement claim does not automatically create a significant conflict; must be shown with factual allegations of incompatible duties | Not automatic; must be significant and actual — not established here |
| Denial of leave to amend | Centex: should be allowed to amend to plead facts showing conflict/ripe controversy | Travelers: trial court did not err; Centex failed to seek leave or propose concrete amendments on appeal | Affirmed — Centex did not request leave in trial court nor suggest viable amendments on appeal |
Key Cases Cited
- Buss v. Superior Court, 16 Cal.4th 35 (insurer bears burden to prove reimbursement applies only to claims not even potentially covered)
- Cumis (San Diego Fed. Credit Union v. Cumis Ins. Society), 162 Cal.App.3d 358 (appointment of independent counsel required when insurer-controlled counsel has incompatible duties)
- Dynamic Concepts, Inc. v. Truck Ins. Exchange, 61 Cal.App.4th 999 (conflict must be significant and actual, not theoretical)
- Long v. Century Indemnity Co., 163 Cal.App.4th 1460 (insurer must provide independent counsel who represents insured when conflict exists)
- Blanchard v. State Farm & Casualty Co., 2 Cal.App.4th 345 (insurer-appointed counsel generally has aligned incentives with insured; no inherent incentive to attach liability to insured)
- Federal Ins. Co. v. MBL, Inc., 219 Cal.App.4th 29 (general reservation of rights insufficient to establish actual conflict)
- Foremost Ins. Co. v. Wilks, 206 Cal.App.3d 251 (insurer’s and insured’s interests may coincide sufficiently to preclude conflict)