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A Cumis counsel is "an attorney employed by a defendant in a lawsuit when there is a liability insurance policy supposedly covering the claim, but there is a conflict of interest between the insurance company and the insured defendant." [1]
The name derives from the case of San Diego Navy Federal Credit Union v. Cumis Insurance Society, Inc., which the California Court of Appeal for the Fourth Appellate District decided on December 3, 1984. [2] While Cumis is the best-known appellate precedent on the issue of the appointment of independent counsel for the defense of insureds when their insurance company has a conflict of interest, [3] Cumis was not the first proponent of this principle. The Supreme Court of California expressed its approval of the concept of independent counsel in an earlier 1964 case, which in turn was based upon a 1925 Kentucky case that laid the foundation for appointing independent counsel in the insurer-insured relationship. [3] Cumis innovated beyond existing precedent as of 1984 by holding that the insurer was required to pay for the insured's independent counsel, and that a merely theoretical conflict of interest could be ripened by the insurer's act of sending a reservation of rights letter into an actual conflict of interest, which in turn meant that the insured now had an enforceable right to independent counsel. [3]
Cumis concluded as follows:
We conclude the Canons of Ethics impose upon lawyers hired by the insurer an obligation to explain to the insured and the insurer the full implications of joint representation in situations where the insurer has reserved its rights to deny coverage. If the insured does not give an informed consent to continued representation, counsel must cease to represent both. Moreover, in the absence of such consent, where there are divergent interests of the insured and the insurer brought about by the insurer's reservation of rights based on possible noncoverage under the insurance policy, the insurer must pay the reasonable cost for hiring independent counsel by the insured. The insurer may not compel the insured to surrender control of the litigation ... Disregarding the common interests of both insured and insurer in finding total nonliability in the third party action, the remaining interests of the two diverge to such an extent as to create an actual, ethical conflict of interest warranting payment for the insureds' independent counsel. [4]
In 1987, the California State Legislature enacted a statute governing the right of insured defendants to independent counsel. [5]
A common conflict of interest arises when the insurance company denies or refuses to defend all or part of a claim under a liability insurance policy, such as when an insurance company pays for the defense of a policyholder under a reservation of rights to dispute coverage. [1]
A law firm can still have a conflict of interest, despite the appointment of a Cumis counsel. [6] However, in some states, the appointment can cure a conflict. [7] The appointment of Cumis counsel also raises unusual attorney–client privilege issues. [8]
After a number of pioneering insurance bad faith cases in the 1950s and 1960s, it became common for U.S. insurers to reflexively issue reservation of rights letters in response to practically every tender of a third party claim by an insured. Under those earlier cases, it was held that if an insurer withdrew a defense after failing to reserve their rights, they could be (and were actually often held to be) liable for all damages suffered by the insured, including damages in excess of the policy's limits of coverage. Therefore, insurers wanted to always reserve their right to withdraw if facts were later discovered precluding coverage (e.g., evidence that the insured was guilty of an intentional tort, which is uninsurable).
The Cumis decision changed that practice significantly. Now, in California and several other states, an insurer faced with a new tender has three options: (1) deny the tender completely and either risk an immediate bad faith lawsuit by the insured or having to sue the insured first to obtain a judicial declaration of no coverage (a "race to the courthouse"); (2) accept the tender without a reservation of rights and thereby commit to defending the insured to a final judgment (unless the policy is expressly designed so that defense costs "eat away" at policy limits); or (3) accept the tender but issue a reservation of rights letter, which may cause the insured to promptly exercise his or her right to Cumis counsel if a potential conflict of interest is already clear enough at that point in time under the known facts or allegations and the insurer's letter expressly reserves the right to withdraw from the insured's defense and deny indemnity for that reason. In turn, the third option jacks up the insurer's costs because the insurer now has to pay for independent counsel and counsel of its own to monitor the case at arm's length (so that privileged information never reaches the insurer).
The advantage of the second option is that by assuming complete responsibility for the defense of its insured, the insurer has more control over defense costs. Most insurers operate so-called "captive" law firms (carefully designed to avoid the ban on the corporate practice of law) [9] and also maintain "panels" of preferred defense law firms who agree to carefully negotiated rate structures. In contrast, because independent counsel is separate from the insurer, their billing rates will be somewhat higher since they merely must bill the "reasonable" rate for their defense services. But if the insurer accepts the defense without a reservation of rights, it must defend completely and loses the right to recover the cost of defense from the insured even if it later discovers that the entire claim was uninsurable to begin with.
Because of all these issues, reservation of rights letters are issued today by adjusters only after careful consideration and discussion with experienced insurance coverage counsel.
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.
Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of an insured person. Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The policyholder typically pays a premium, either regularly or as one lump sum. The benefits may include other expenses, such as funeral expenses.
Title insurance is a form of indemnity insurance predominantly found in the United States and Canada which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans. Unlike some land registration systems in countries outside the United States, US states' recorders of deeds generally do not guarantee indefeasible title to those recorded titles. Title insurance will defend against a lawsuit attacking the title or reimburse the insured for the actual monetary loss incurred up to the dollar amount of insurance provided by the policy.
Home insurance, also commonly called homeowner's insurance, is a type of property insurance that covers a private residence. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its contents, loss of use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.
In insurance, the insurance policy is a contract between the insurer and the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known as the premium, the insurer promises to pay for loss caused by perils covered under the policy language.
Subrogation is the assumption by a third party of another party's legal right to collect debts or damages. It is a legal doctrine whereby one person is entitled to enforce the subsisting or revived rights of another for one's own benefit. A right of subrogation typically arises by operation of law, but can also arise by statute or by agreement. Subrogation is an equitable remedy, having first developed in the English Court of Chancery. It is a familiar feature of common law systems. Analogous doctrines exist in civil law jurisdictions.
Liability insurance is a part of the general insurance system of risk financing to protect the purchaser from the risks of liabilities imposed by lawsuits and similar claims and protects the insured if the purchaser is sued for claims that come within the coverage of the insurance policy.
Directors and officers liability insurance is liability insurance payable to the directors and officers of a company, or to the organization itself, as indemnification (reimbursement) for losses or advancement of defense costs in the event an insured suffers such a loss as a result of a legal action brought for alleged wrongful acts in their capacity as directors and officers. Such coverage may extend to defense costs arising from criminal and regulatory investigations or trials as well; in fact, often civil and criminal actions are brought against directors and officers simultaneously. Intentional illegal acts, however, are typically not covered under D&O policies.
Marine insurance covers the physical loss or damage of ships, cargo, terminals, and any transport by which the property is transferred, acquired, or held between the points of origin and the final destination. Cargo insurance is the sub-branch of marine insurance, though marine insurance also includes onshore and offshore exposed property,, hull, marine casualty, and marine liability. When goods are transported by mail or courier or related post, shipping insurance is used instead.
A claims adjuster, desk adjuster, field adjuster, or general adjuster investigates insurance claims by interviewing the claimant and witnesses, consulting police and hospital records, and inspecting property damage to determine the extent of the insurance company's liability. Other claims adjusters who represent policyholders may aid in the preparation of an insurance claim.
Medical underwriting is a health insurance term referring to the use of medical or health information in the evaluation of an applicant for coverage, typically for life or health insurance. As part of the underwriting process, an individual's health information may be used in making two decisions: whether to offer or deny coverage and what premium rate to set for the policy. The two most common methods of medical underwriting are known as moratorium underwriting, a relatively simple process, and full medical underwriting, a more indepth analysis of a client's health information. The use of medical underwriting may be restricted by law in certain insurance markets. If allowed, the criteria used should be objective, clearly related to the likely cost of providing coverage, practical to administer, consistent with applicable law, and designed to protect the long-term viability of the insurance system.
Insurance bad faith is a tort unique to the law of the United States that an insurance company commits by violating the "implied covenant of good faith and fair dealing" which automatically exists by operation of law in every insurance contract.
In insurance law, a KC clause is a clause in an insurance policy that provides that an action against the insured is not to be contested unless a King's Counsel advises that the defence has a reasonable prospect of success. The principal reason for such clauses is to minimise conflict between the insured and the insurer. The insurer will often wish to settle claims as quickly and cheaply as possible, but the insured may be concerned that paying on a claim implies negligence which will damage their professional reputation, and want to contest the claim regardless. Professional indemnity policies commonly provide that the insurer will pay the legal costs of the defence. It is sometimes suggested that the clause is also designed to protect the public from the unjustified contesting of claims which have no real defence, but this may represent a charitable view of the way insurance companies conduct claims.
Insurability can mean either whether a particular type of loss (risk) can be insured in theory, or whether a particular client is insurable for by a particular company because of particular circumstance and the quality assigned by an insurance provider pertaining to the risk that a given client would have.
Legal protection insurance (LPI), also known as legal expenses insurance (LEI) or simply legal insurance, is a particular class of insurance which facilitates access to law and justice by providing legal advice and covering the legal costs of a dispute, regardless of whether the case is brought by or against the policyholder. Depending on the national rules, legal protection insurers can also represent the policyholder out-of-court or even in-court.
A reservation of rights, in American legal practice, is a statement that an individual, company, or other organization is intentionally retaining full legal rights to warn others of those rights. The notice avoids later claims that one waived legal rights that were held under a contract, copyright law, or any other applicable law.
Vehicle insurance in the United States is designed to cover the risk of financial liability or the loss of a motor vehicle that the owner may face if their vehicle is involved in a collision that results in property or physical damage. Most states require a motor vehicle owner to carry some minimum level of liability insurance. States that do not require the vehicle owner to carry car insurance include Virginia, where an uninsured motor vehicle fee may be paid to the state, New Hampshire, and Mississippi, which offers vehicle owners the option to post cash bonds. The privileges and immunities clause of Article IV of the U.S. Constitution protects the rights of citizens in each respective state when traveling to another. A motor vehicle owner typically pays insurers a monthly fee, often called an insurance premium. The insurance premium a motor vehicle owner pays is usually determined by a variety of factors including the type of covered vehicle, marital status, credit score, whether the driver rents or owns a home, the age and gender of any covered drivers, their driving history, and the location where the vehicle is primarily driven and stored. Most insurance companies will increase insurance premium rates based on these factors, and less frequently, offer discounts.
Insurance in South Africa describes a mechanism in that country for the reduction or minimisation of loss, owing to the constant exposure of people and assets to risks. The kinds of loss which arise if such risks eventuate may be either patrimonial or non-patrimonial.
Jeffrey Isaac Ehrlich is an American lawyer and author, known for handling landmark appeals in the United States Supreme Court and the California Supreme Court. He is co-author of the influential Thomson Reuters treatise on insurance litigation, and editor-in-chief of Advocate, the most widely circulated trial-bar magazine in the United States. He and his son, Clinton Ehrlich, are also known for exonerating Sgt. Raymond Lee Jennings, an Iraq War veteran who served 11 years of a life sentence for murdering teenager Michelle O'Keefe.
A liability insurance company's duty to settle is defined as an implied obligation to by the insurer to a policyholder and to a claimant to attempt "in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear." To the surprise of many, a typical liability insurance policy makes no express contractual promise to settle. In California, "an insurer, who wrongfully refuses to accept a reasonable settlement within the policy limits is liable for the entire judgment against the insured even if it exceeds the policy limits." A rationale for this duty is that "[w]hen an offer is made to settle a claim in excess of policy limits for an amount within policy limits, a genuine and immediate conflict of interest arises between carrier and assured." "An insurer who denies coverage does so at its own risk. Such factors as a belief that the policy does not provide coverage, should not affect a decision as to whether the settlement offer in question is a reasonable one." "It is the duty of the insurer to keep the insured informed of settlement offers." "[A]n insurer potentially can be liable for unreasonably coercing an insured to contribute to a settlement fund."