Settling a Case Without Allowing Insurer-Appointed Lawyer to Participate
In Dynamic Concepts, Inc. v. Truck Ins. Exchange (1998) the insured demanded the appointment of Cumis counsel after the insurer agreed to defend under a reservation of rights.
The action against the insured involved both claims that were covered and not covered by the insurance policy.
The insured then settled the case, without allowing counsel appointed by the insurance company to participate, ostensibly because the insurer had reserved its rights. (Dynamic Concepts, Inc. v. Truck Ins. Exchange, supra, 61 Cal.App.4th at p. 1001.)
Finding that most of the claims made against the insured were not covered by the subject insurance policy, but that the insured nevertheless had a "'prophylactic' duty to defend the entire complaint" (id. at p. 1005), the court was critical of the insured's effort to "'set up' insurers by making Cumis demands with unreasonably short deadlines, especially where the issues listed in the underlying litigation do not coincide with the issues raised in the reservation of rights and where the insurer agrees to provide a full and complete defense without regard to coverage." (Id. at p. 1006.)
The court stated that "a mere possibility of an unspecified conflict does not require independent counsel. the conflict must be significant, not merely theoretical, actual, not merely potential." (Dynamic Concepts. supra, at p. 1007.)
Consistent with prior decisions, the court observed, however, that "the potential for conflict requires a careful analysis of the parties' respective interests to determine whether they can be reconciled (such as by a defense based on total nonliability) or whether an actual conflict of interest precludes insurer-appointed defense counsel from presenting a quality defense for the insured." (Dynamic Concepts, Inc. v. Truck Ins. Exchange (1998) 61 Cat.App.4th at pp. 1007-1008.)
Finding that the "supposed Cumis conflict for the covered libel claim was vague, ephemeral and highly theoretical" (Dynamics Concepts, supra, at pp. 1009-1010), the court concluded that, under the facts presented in the case, the insurer could not be placed "in the category of a nondefending carrier who unreasonably failed to provide any defense al all, thus allowing, or even forcing, its insured to unilaterally settle the underlying action." (Id. at p. 1010.)