If you are sued and have insurance that would cover that claim, it is common for your insurance company to assign legal counsel to defend you at their own expense. Since you are facing liability and they are insuring you for that liability and would have to pay the possible judgment, there is unity of interests and goals.

There are times, however, when the interests of the insurance company and you are not in complete accord and a potential “conflict of interest” can arise. A simple example would occur if you are sued for five million dollars and have only two million dollars of insurance available. Assume the plaintiff demands a two-million-dollar settlement. If that was accepted, it would cost you nothing…but would cost the insurance company the full two million dollars of their insurance.  They have little economic incentive to accept an offer that is equal to the maximum they would pay out.  They might feel that the claim was worth, at most, fifty thousand dollars and tell you that is all they are willing to offer.  But consider:

  1. The insurance company has almost nothing to lose by turning down the offer because the most they could lose would be the two million dollars demanded even if they go to trial and a verdict of five million dollars is rendered. Since their insurance limit is two million, any verdict above that will have to be paid by you, personally. So, from their own point of view, why settle for two million dollars?
  2. But from your point of view, settling for two million dollars eliminates all the risk you face and if they refuse that offer, you face personal risk if they lose more than two million dollars at trial.

You would possibly want them to take the offer since you would pay nothing under that settlement and be free from risk. They would not want to take the offer since the only risk they face would be what the demanded amount already was.

That is a conflict of interest.

And there are many other conflicts of interest possible, such as one cause of action filed against you among many being based on a claim of intentional wrong doing that is not covered by insurance, thus the insurance company has little incentive to fight that particular claim with the same vigor as the other causes of action in which they might have to cover your loss, etc.

The California courts have developed a doctrine, called the Cumis Doctrine, as to when such a conflict requires the insurance company to provide and pay for separate counsel for your personal interest. This article shall discuss that doctrine.

The Basic Law:

Cumis Counsel is legal counsel chosen by the insured when the insurer has a conflict of interest. Cumis counsel takes its name from San Diego Navy Federal Credit Union v. Cumis Insurance Society, Inc., a 1984 court case in California that established the insured’s right to independent counsel.

When an insurance company underwrites a new policy it not only agrees to protect the insured from losses, but also to defend the insured against any claims. The insurer is normally allowed to control the defense of the insured by selecting the defense counsel. In most cases this is permissible because both the insured and the insurer have the same interest, which is defeating the claim or limiting the amount of losses that the claim can cause. In other cases, however, the interests of the insured and the insurer are not the same.

            Typical Conflicts of Interests:

  1. Reservation of Rights.

An insurance company may feel there is a question of coverage either due to problems with the purchase of the policy, fail to disclose relevant facts before purchasing the policy, or the type of claim being pled. The insurance company often still agrees to defend but does so stating that they reserve the right to deny coverage at a later time.

The reservation of rights allows the insurer to deny coverage at a later date, and is used if information comes out during the case that suggests that the insured was guilty of an action that was not covered by the policy, such as not disclosing to the insurance company when purchasing the policy a fact that would have resulted in denial of coverage or, perhaps, engaging in wrongful conduct not covered by the insurance policy, such as theft or fraud.

 The reservation may serve as a warning that the insurer will not vigorously defend the insured since it does not intend on having the insured as a client in the future. Even more troubling, the insurer may not defend the uncovered claims with the same vigor as the covered claims.

  1. Settlement Offer Issues:

As discussed in the introduction, it is possible for an offer of settlement to be large enough to be covered by insurance but so large that the insurance company refuses it, thus exposing the insured to a possible claims in excess of the insurance amount.

It is well established law in California that an insurer has a duty to accept a reasonable settlement  demand in order to protect the insured's reasonable expectations in purchasing insurance: "(I)n  light of the common knowledge that settlement is one of the usual methods by which an insured receives protection under a liability policy, it may not be unreasonable for an insured ...  to believe that a sum of money equal to the limits is available and will be used so as to avoid liability on his part ...." (Crisci v. Security Ins. Co. of New Haven, Conn. (1967) 66 Cal.2d 425, 431.) "The implied covenant of good faith and fair dealing imposes a duty on the insurer to settle a claim against its insured within policy limits whenever there is a substantial likelihood of a recovery in excess of those limits." (Johansen v. California State Auto. Assn. Inter-Ins. Bureau (1975) 15 Cal.3d 9, 14-15.)

"The duty to settle is implied in law to protect the insured from exposure to liability in excess of coverage as a result of the insurer's gamble - on which only the insured might lose." (Ibid.) "An insurer that breaches its duty of reasonable settlement is liable for all the insured' s damages proximately caused by the breach, regardless of policy limits." (Hamilton v. Maryland Cas. Co. (2002) 27 Cal.4th 718, 725.).

"An insurer that fails to accept a reasonable settlement offer within policy limits will be held liable in tort for the entire judgment against the insured, even if that amount exceeds the policy limits." (Rappaport-Scott v. Interinsurance Exch. of the Auto. Club (2007) 146 Cal.App.4th 831, 836, internal citations omitted.)

The related issue is whether such an offer creates a conflict of interest which requires appointment of independent counsel paid for by the insurance company.


  1. The Limitations Imposed by Sections 2860.


While the Cumis decision is from California and is a California principle, most states have their own rules, either codified by statute or case law, of when an insurer’s reservation of rights to contest insurance coverage triggers the insured’s right to independent counsel. At a minimum, Bar Professional Rules of Conduct address conflicts of interest where an attorney has multiple clients or where a third party is paying the attorney to represent a client which is at the core of the reasoning for the insured’s right to independent counsel.


Under California law, the existence of a conflict of interest entitling the insured to independent counsel is a question of law. The California legislature enacted Civil Code Section 2860, modifying the Cumis decision and limiting the duty of an insurer to provide independent counsel. Where the Cumis court required an insurer to provide independent counsel merely because of a potential conflict of interest, the statute imposes a duty only where “a conflict of interest arises” and states that a conflict does not necessarily arise simply because the insurer has reserved its rights.


Section 2860 codified the rule but did little to clarify the scope of the insurer’s duty to provide independent counsel and left much room for the courts to interpret when a conflict exists. The state’s courts have often adopted a restrained position requiring an actual and meaningful conflict to exist before the insurer’s duty to provide independent counsel 

The court in Dynamic Concepts v. Truck Ins. Exch., 61 Cal. App. 4th 999 (1998), did not want to encourage insureds to “cultivate conflicts with carriers” and stated that, “Not every reservation of rights entitles an insured to select Cumis counsel. There is no such entitlement, for example, where the coverage issue is independent of, or extrinsic to, the issues in the underlying action, or where damages are only partially covered by the policy… the conflict must be significant, not merely theoretical, actual, not merely potential.”  

California courts have held that an actual, significant conflict exists where the facts of the underlying case between the insured and third party are determinative of whether coverage exists under the policy and the insurer-appointed counsel is in a position to control such coverage issues. Gafcon, Inc. v. Ponsor & Assoc., 98 Cal. App. 4th 1388 (2002); Long v. Century Indem. Co., 163 Cal. App. 4th 1460 (2008). Thus, if the issue if whether fraud occurred or negligence and only negligence is covered by insurance, the facts developed in discovery may both establish liability to the plaintiff and whether coverage exists. A clear conflict would thus exist.

Courts have also suggested that where the attorney’s representation of the insured is rendered less effective by reason of his relationship with the insurer, a conflict may exist requiring independent counsel. Golden Eagle, 20 Cal. App. 4th 1372 (1993). In addition, where the insurer insures both the plaintiff and defendant in a case, a conflict exists requiring independent counsel for the insured. O’Morrow v. Borad, 27 Cal. 2d 794 (1946).

Section 2860 provides further limitations on situations that may create conflicts of interest. A potential conflict could exist where the underlying claim against the insured seeks punitive damages or seeks damages in excess of the policy limits because punitive damages are generally not covered by insurance coverage and an insurer is obligated to indemnify the insured only up to the policy limits. Nevertheless, Section 2860 does not consider these situations alone to amount to a conflict requiring independent counsel despite the fact that the insurer has no intrinsic interest in defending claims for which it will not be liable.

That set of circumstances, however, could create a potential conflict of interest if the insured can establish that the defense team of the insurance company was not defending the case with the same vigor as to those claims not covered by insurance.

Thus, if the insurer pursues a settlement in excess of the policy limits and does not have the insured’s consent to do so, the insurer has created a conflict by leaving the insured exposed to liability not covered by the policy. Golden Eagle, 20 Cal. App. 4th 1372.

It is clear that the statutory protections of Section 2860 were created at the instance of the insurance industry and that is made clearer when one reads additional protections in the law.

Section 2860 offers protections for insurers required to provide independent counsel. Under the statute, an insurer must only pay independent counsel the rates that it would normally pay its own attorneys for a similar defense and may require that the independent counsel have a certain amount of civil litigation experience and carry errors and omissions coverage.

In general, the Cumis decision was a landmark decision establishing an insured’s right to independent counsel in conflict situations, but California has retreated via statute from the broad implications of the Cumis ruling. Section 2860 limited Cumis but provided little practical guidance as to which conflicts require independent counsel. The resulting case law has narrowed the insurer’s obligation to provide independent counsel. Unless an actual and significant conflict of interest exists, courts are hesitant to require independent counsel.

  1. Section 2860 did not cover all possible conflicts of interest.  

Civil Code section 2860 did not “occupy the field” as to all circumstances which would require independent counsel. Insurers will sometimes argue that a particular circumstance does not fall under the scope of Civil Code section 2860 and so independent or Cumis counsel need not be provided.  Note that Civil Code §2860 does not purport to address any and all conflicts that might arise: “it does not clearly state when the right to independent counsel vests.” [Citation] Civil Code §2860, subdivision (b) is “an example of a conflict of interest which may require appointment of independent counsel. It is not, however, the only circumstance in which Cumis counsel may be required.

The language of Civil Code §2860 “does not preclude judicial determination of conflict of interest and duty to provide independent counsel such as was accomplished in Cumis so long as that determination is consistent with this section.”

And the rules of ethics require independent counsel be provided in situations far beyond those set forth in Civil Code §2860. Even the supposed limitation on having to provide independent counsel where punitive damages are alleged should not be an impediment to demanding and obtaining such independent counsel in many situations. It should be noted that the rules of ethics impose upon legal counsel that obligation to recognize, advise of and remove any conflict of interest and that obligation is independent of Section 2860.



Cumis theory is simple: if the insurance company’s lawyer is in a conflict of interest with the insured, the insurance company must pay for independent counsel.  The complexity arises as to what amounts to a conflict sufficient to require such representation.

The motivation that led to enactment of Civil Code section 2860 was the very large fees that were being submitted by Cumis counsel who were hired to “monitor” litigation where there was a reservation of rights of any sort. Some of these Cumis counsel were charging many times the hourly rate of the insurance defense counsel who was also working on the case. Some of the Cumis attorneys had little or no experience. Defense costs increased dramatically.

But the effort of the insurance lobby to restrict appointment of Cumis counsel often ignored the practical requirements in the working of defense of a case. Attorneys are human. If you know that your “main” client, the insurance company, has no exposure if a certain type of verdict is rendered or has no benefit from a settlement at policy limits, it can alter your analysis of the case-and that is precisely what conflict of interest is all about.

Thus, many attorneys are convinced that even a potential conflict of interest should require independent counsel and that the Code of Ethics would so require even if Cumis did not exist. At a minimum, the individual confronting such a potential conflict should obtain legal counsel to make formal demand upon the insurance company, thus preserving all rights to claim conflict should the matter turn out badly.