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Insurance Law

A Win For Insurers: Nevada Supreme Court Adopts “Cumis” Rule

Tapas: Small Dishes of Insurance Coverage News & Notes

Answering a Certified Question from a Nevada District Court, the Supreme Court of Nevada held as follows in State Farm v. Hansen, No. 64484 (Nev. Sept. 24, 2015), [subscribers can access an enhanced version of this opinion: | Lexis Advance]: “Nevada law requires an insurer to provide independent counsel for its insured when a conflict of interest arises between the insurer and the insured. Nevada recognizes that the insurer and the insured are dual clients of insurer-appointed counsel. When the insured and the insurer have opposing legal interests, Nevada law requires insurers to fulfill their contractual duty to defend their insureds by allowing insureds to select their own independent counsel and paying for such representation. We further conclude that an insurer is only obligated to provide independent counsel when the insured’s and the insurer’s legal interests actually conflict. A reservation of rights letter does not create a per se conflict of interest.”

In reaching this decision the Nevada Supreme Court made abundantly clear that it was following California’s “Cumis” Rule, discussing the decision at length and referring to it as “appropriate for Nevada” and “most compatible with Nevada law.”

But “Cumis” is generally considered a pro-policyholder decision. So a win for insurers? Really? Yes. The reality is that the rule from Cumis — if an insured can prove that a reservation of rights creates a conflict, and that’s a big if, then it is entitled to independent counsel — is already the majority rule nationally. So in that sense insurers didn’t suffer a big defeat. But by adopting the majority rule in the way that it did — with so many references to Cumis — the Nevada High Court has opened the door to a strong insurer argument that independent counsel may be paid no more than the insurer’s panel counsel. After all, that is a specific aspect of the codified Cumis rule. And the ability to pay independent counsel (sometimes asking for $500/hr. and up) the same rates as panel counsel is no small advantage for insurers. Lastly, the Nevada High Court could have held that a reservation of rights creates a per se conflict, thereby automatically entitling the insured to independent counsel, but it didn’t.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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