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Finley v. Home Insurance Company12/30/1998
e concerned with developing facts showing non-coverage than facts defeating liability." Douglas Richmond, Lost in the Eternal Triangle of Insurance Defense Ethics, 9 Geo. J. Legal Ethics 475, 486 (1996) (internal quotation marks and footnote omitted) (hereinafter "Eternal Triangle").
Several jurisdictions have adopted the view that an attorney retained by an insurer to defend an insured under a reservation of rights cannot adequately represent the insured's interest because of the conflict inherent in the relationship. The United States Court of Appeals for the Eighth Circuit has concluded that
"it is impossible for one attorney to adequately and fairly represent two parties in litigation in the face of the real conflict of interest which existed here. Even the most optimistic view of human nature requires us to realize that an attorney employed by an insurance company will slant his efforts, perhaps unconsciously, in the interests of his real client--the one who is paying his fee and from whom he hopes to receive future business--the insurance company." United States Fidelity & Guar. Co. v. Louis A. Roser Co., 585 F.2d 932, 938 n.5 (8th Cir. 1978).
To resolve this perceived problem, many jurisdictions require the insurer to appoint "independent counsel" for the insured, paid for by the insurer. This counsel is commonly referred to as "Cumis counsel," following the case referenced supra at note 6. In California, subsequent to the adoption of this requirement by the courts, the legislature codified the duty to provide independent counsel in 1987. The California statute addresses many issues which surfaced after the courts implemented the independent counsel requirement. It states that:
"(a) If the provisions of a policy of insurance impose a duty to defend upon an insurer and a conflict of interest arises which creates a duty on the part of the insurer to provide independent counsel to the insured, the insurer shall provide independent counsel to represent the insured unless, at the time the insured is informed that a possible conflict may arise or does exist, the insured expressly waives, in writing, the right to independent counsel. An insurance contract may contain a provision which sets forth the method of selecting that counsel consistent with this section."
"(b) For purposes of this section, a conflict of interest does not exist as to allegations or facts in the litigation for which the insurer denies coverage; however, when an insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim, a conflict of interest may exist. No conflict of interest shall be deemed to exist as to allegations of punitive damages or be deemed to exist solely because an insured is sued for an amount in excess of the insurance policy limits."
"(c) When the insured has selected independent counsel to represent him or her, the insurer may exercise its right to require that the counsel selected by the insured possess certain minimum qualifications which may include that the selected counsel have (1) at least five years of civil litigation practice which includes substantial defense experience in the subject at issue in the litigation, and (2) errors and omissions coverage. The insurer's obligation to pay fees to the independent counsel selected by the insured is limited to the rates which are actually paid by the insurer to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended. . . ."
"(d) When independent counsel has been selected by the
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