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San Diego Fed. Credit Union v. Cumis Ins. Soc'y

Court of Appeal of California, Fourth Appellate District, Division One

December 3, 1984

Civ. No. 31043


 [*361]  [**496]   Cumis Insurance Society, Inc. (Cumis) appeals a judgment requiring Cumis to pay the San Diego Navy Federal Credit Union (Credit Union), J. W. Jamieson and Larry R. Sharp (insureds) all reasonable past and future expenses of their independent counsel retained for the defense of a lawsuit filed against the insureds by Magdaline S. Eisenmann (Eisenmann action). 3

 CA(1a)(1a) The issue presented to this court by the appeal is whether an insurer is required to pay for independent counsel for an insured when the insurer provides its own counsel but reserves its right to assert noncoverage at a later date. We conclude under these circumstances there is a conflict of [***3]  interest between the insurer and the insured, and therefore the insured has a right to independent counsel paid for by the insurer.

The Eisenmann action against the insureds seeks $ 750,000 general and $ 6.5 million punitive damages for tortious wrongful discharge, breach of the covenant of good faith and fair dealing, wrongful interference with and inducing breach of contract, breach of contract and intentional infliction of emotional distress. Under insurance policies issued by Cumis, the insureds tendered the defense of the Eisenmann action to Cumis. Cumis associate counsel Willis E. McAllister reviewed the complaint in the Eisenmann action and concluded Cumis had a duty to provide a defense to the insureds. McAllister selected and retained, at Cumis' expense, the San Diego law firm of Goebel & Monaghan to represent the interests of the insureds in the  [*362]  Eisenmann action. McAllister informed Goebel & Monaghan it was to represent the insureds as to all claims in the Eisenmann action, including the punitive damages claim. He also told Goebel & Monaghan Cumis was reserving its right to deny coverage at a later date and the insurance policies did not cover punitive damages.

 [***4]  McAllister sent Goebel & Monaghan copies of the insurance policies in effect and letters accepting the defense and reserving rights which were delivered to the insureds. McAllister never asked Goebel & Monaghan for an opinion whether coverage existed under the insurance policies, nor did Goebel & Monaghan give any coverage advice to either Cumis or the insureds.

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162 Cal. App. 3d 358 *; 208 Cal. Rptr. 494 **; 1984 Cal. App. LEXIS 2743 ***; 50 A.L.R.4th 913

SAN DIEGO NAVY FEDERAL CREDIT UNION et al., Plaintiffs and Respondents, v. CUMIS INSURANCE SOCIETY, INC., Defendant and Appellant

Subsequent History:  [***1]  A petition for a rehearing was denied December 20, 1984, and appellant's petition for a hearing by the Supreme Court was denied February 21, 1985. Broussard, J., and Lucas, J., were of the opinion that the petition should be granted.

Prior History: Superior Court of San Diego County, No. 493483, G. Dennis Adams, Judge.

Disposition: Judgment affirmed.


coverage, settlement, punitive, Ethical, hired, Carrier, loyalties, diverge

Insurance Law, Business Insurance, Commercial General Liability Insurance, Conflicts of Interest, Claim, Contract & Practice Issues, Fiduciary Responsibilities, Business & Corporate Law, Agency Relationships, Duties & Liabilities, Dual Agency, Reservation of Rights, Independent Counsel, Legal Ethics, Client Relations, Evidence, Privileges, Attorney-Client Privilege, Scope, General Overview, Governments, Fiduciaries, Duties to Client, Duty of Confidentiality, Effective Representation, Representation, Acceptance, Remedies, Costs & Attorney Fees