19 Cal. App. 5th 789
Cal. Ct. App. 5th2018Background
- Homeowners sued Centex for construction defects; Centex tendered defense to St. Paul as Additional Insurer for subcontractor Ad Land. St. Paul agreed to defend under a reservation of rights.
- St. Paul appointed attorney David Lee to defend Centex in the homeowners' action; Lee did not represent St. Paul or Ad Land on the cross-complaint or coverage claims.
- Centex filed a cross-complaint seeking, among other relief, a declaratory judgment that it was entitled to independent (Cumis) counsel under Civ. Code § 2860 because St. Paul’s reservation of rights created significant conflicts.
- St. Paul moved for summary adjudication of that cause of action, submitting evidence Lee’s representation was limited to the defense and was not controlled by St. Paul; St. Paul retained separate counsel for its coverage/reimbursement claims.
- The trial court granted St. Paul’s motion, finding Centex failed to raise a triable issue that (1) Lee’s representation created a significant conflict or (2) Lee could control the outcome of the coverage dispute; final judgment was entered and Centex appealed.
Issues
| Issue | Plaintiff's Argument (Centex) | Defendant's Argument (St. Paul) | Held |
|---|---|---|---|
| Whether a mere possible conflict from a reservation of rights requires independent counsel under Civ. Code § 2860 | Any possible/potential conflict suffices to trigger right to independent counsel | § 2860 and cases require a significant/actual conflict; mere potential conflict is insufficient | Mere possible conflict insufficient; independent counsel not required absent conflict that affects counsel-controlled coverage outcome |
| Whether rule 3-310(C)(1) (ethical rule on potential conflicts) mandates independent counsel here | Rule 3-310(C)(1) bars joint representation when interests potentially conflict, so independent counsel required | Rule 3-310(C)(1) doesn’t change settled insurance conflict law; insurer often is not a client in the same matter; rule not applicable here | Rule 3-310(C)(1) inapplicable to insurer-insured relationship in this context and does not alter § 2860 analysis |
| Whether insurer-appointed counsel could control outcome of coverage issues (i.e., influence causation/damage findings) | Lee could have influenced underlying litigation to affect coverage outcome (e.g., causation allocation) | No evidence Lee could or did control coverage-determinative issues; Centex is strictly liable so causation defenses limited | Centex failed to show triable issue that Lee could control coverage dispute; control-of-outcome element unmet |
| Whether St. Paul “controlled both sides” of litigation requiring independent counsel | St. Paul effectively controlled both sides, creating unwaivable conflict | St. Paul did not control Centex on cross-complaint or coverage claims; it appointed separate counsel for its claims | No dual control; O’Morrow analogy inapplicable; no triable issue of control |
Key Cases Cited
- Long v. Century Indemnity Co., 163 Cal.App.4th 1460 (insurer generally controls defense and hires counsel)
- Dynamic Concepts, Inc. v. Truck Ins. Exchange, 61 Cal.App.4th 999 (potential conflict alone insufficient to require Cumis counsel)
- Gafcon, Inc. v. Ponsor & Associates, 98 Cal.App.4th 1388 (independent counsel required only if insurer-appointed counsel can control coverage issue outcome)
- Blanchard v. State Farm Fire & Casualty Co., 2 Cal.App.4th 345 (absence of evidence that defense counsel could control coverage outcome defeats right to independent counsel)
- San Diego Federal Credit Union v. Cumis Ins. Society, Inc., 162 Cal.App.3d 358 (Cumis) (recognized circumstances requiring insurer-paid independent counsel)
- Buss v. Superior Court, 16 Cal.4th 35 (section 2860 clarifies/limits Cumis)
- Acosta v. Glenfed Development Corp., 128 Cal.App.4th 1278 (developer strictly liable for construction defects; limits to causation defense)
- O'Morrow v. Borad, 27 Cal.2d 794 (dual-insured conflict where insurer cannot control defenses of both insureds)