Imperfectly Insured Civil Litigation Is Like Three Dimensional Chess


A man slipped over the rim of the Grand Canyon and grabbed a root protruding from the wall of the cliff. He yelled: Help – Oh please God, is there anybody up there? Yes, my son, I will save you – if you have faith. Oh dear God, I have faith. If you have faith, let go of the root. Is there anybody else up there?

Faith is sometimes hard to hold. Similarly, when a plaintiff files a serious civil lawsuit, the defendant risks losing everything it took a lifetime to build. A policyholder with liability insurance may be asked to have faith that his or her fortune, fate, and future will be saved by an insurer and its lawyers who are total strangers – never before met, and when the lawsuit is over, never to be seen again. These strangers can be trusted if the policyholder’s insurance coverage is “perfect” – the insurer will pay of any judgment, for any reason, in any amount, at any time.

At a minimum, policyholders should find out if their coverage is flawed, and if so test the trustworthiness of their liability insurer and its lawyers by asking a few cogent questions[1], like a job interview. Such policyholders wield great power over their insurer and its lawyers, each of whom owe fiduciary duties to their policyholders and their clients.

Analogy to Three Dimensional Chess

Policyholders with “imperfect” coverage may have, not one, but three fights on their hands: One against the plaintiff, one against the insurer, and one against the insurer’s lawyer. Each of these three tussles is fought in separate venues, with varying rules of play, with shifting enemies and allies, distinct timing, and different burdens.

Fighting a plaintiff, an insurer, and its lawyers is analogous to three dimensional chess, a modern version of the ancient Persian board game that simulates war. The tactical goal of the game is to gain an advantage over one’s opponent in material to achieve the strategic goal of checkmating the opponent’s king. Three dimensional chess complicates the game by adding two more checkerboards, tripling the territory, now in three dimensions, subjecting players to stealth attacks from above and below.

Resolving disputes with imperfect liability insurance coverage also simulates war, with multiple sides, a variety of participants, each governed by rules of play, fought in three separate but related venues. One who understands the strategy and tactics can make every move with confidence.

Three Tussles: 1) Liability Dispute; 2) Coverage Contest; 3) Ethical Imbroglio

Civil litigation is complex, but adding imperfect liability insurance to the mix can be at least three times as complicated. When an injured plaintiff files a civil lawsuit against a defendant, these two parties do battle in what is known as a liability dispute – Plaintiff vs. Policyholder. When the defendant has liability insurance but the insurer’s agenda differs from the policyholder’s, the insured and insurer may engage in another battle known as a coverage contest – Insured vs. Insurer. When the insurer hires lawyers who are supposed to represent the conflicting interests of both the insurer and the policyholder, these lawyers may succumb to an ethical imbroglio – Client vs. Lawyer.

Each of these tussles will be fought in different venues, each subject to different rules of play, where strange alliances ware permissible, timing are important, and seizing the initiative is key. The three litigation tussles are fought in separate, but related 1) venues; each governed by different: 2) Rules of play; 3) timing; 4) alliances; and 5) burdens of initiative.

  1. Different Venues

The liability dispute is to be resolved in a civil lawsuit or arbitration. The coverage contest requires a second civil lawsuit that usually must be stayed pending resolution of the liability dispute, but may be resolved by complaining to the Department of Insurance. The ethical imbroglio may be resolved by complaining to the State Bar but may require a third lawsuit or joinder in the second action against the insurer. The participants in each venue may also join in the action in each of the other venues, but in each venue there may be a shift in: the rules of play, timing, one’s friends or foes, and the burden of initiative.

  1. Different Rules of Play

Unlike three dimensional chess where each piece has consistent permissible moves, in imperfectly insured civil litigation the rules of play differ in each venue. The liability dispute is confined to one venue that is usually governed by tort law arising from the alleged breach of some common law or statutory duty. The coverage contest is limited to a different venue that is wholly governed by contract law, rooted in the language of the policy contract. The ethical imbroglio is constrained to a third venue that is governed by Canons of Ethics. While the attorney-client relationship arises out of contract and violations of duty constitute a tort, the legal standards to which lawyers are held arise out of the Rules of Professional Conduct. Rule 3-310 prohibits the representation of multiple clients with conflicting interests.

  1. Different Timing

Each of the three tussles usually plays out sequentially so that the urgency of play differs in each venue. Resolution of the ethical imbroglio has an extremely short fuse. When an injured plaintiff serves a policyholder with a civil complaint, the summons requires that a responsive pleading be filed in court in only 30 days. By the time the policyholder notifies the broker and the claims department makes a coverage determination, dependent counsel usually has only a few days to analyze potential conflicts of interest between the two clients, the insurer and the policyholder, make written disclosure to both, and obtain their informed written consent, if appropriate. Dependent counsel must resolve ethical conflicts of interest before accepting employment by the insurer to represent the policyholder in the liability dispute. “A [lawyer] shall not accept representation of a [policyholder/client] without providing written disclosure [and] shall not, without the informed written consent of each client: (1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict.”[2]

In contrast, the liability dispute may take as much as five years to resolve.

Because resolution of the coverage contest cannot prejudice the policyholder’s defense of the liability dispute, its resolution is often deferred until after the liability dispute is over, frequently consuming an additional five years.

  1. Differing Alliances

Both the participants in imperfectly insured civil litigation and their loyalties are quite different. Permissible participates number nine: the plaintiff, the plaintiff’s liability lawyer, the plaintiff’s coverage lawyer, the policyholder, the policyholder’s independent counsel, the policyholder’s coverage counsel, the insurer, the insurer’s dependent counsel, and the insurer’s coverage counsel.

In the liability dispute venue, the policyholder, the insurer, and their lawyers ally together in what is dubbed the harmonious tripartite relationship[3] to gang up on the plaintiff and the plaintiff’s liability attorney to achieve a common goal of minimizing the value of the plaintiff’s liability claim.

But in the coverage contest, the participants and their loyalties usually change. Both the plaintiff and the policyholder usually share a common goal of wanting to maximize insurance coverage to fund a prompt and equitable settlement. Thus, the plaintiff and the plaintiff’s lawyers may form a coverage alliance with the policyholder and one’s lawyers against the insurer and its lawyers. The insurer and its soldiers are often tempted to resist prompt and equitable settlements in order to run up the costs of litigation and enjoy the earning power of money for the five to ten years it may take before the insurer must pay the plaintiff.

In the ethical imbroglio, again the participants and their loyalties usually change. The insurer’s dependent counsel always represents both the interests of the insurer and the policyholder who have opposing interests in the coverage contest. Because of the short fuse to respond to a complaint, dependent counsel often appear of record for the policyholder before conflicts of interest are cleared. Thus, the policyholder, possibly with the cooperation of the plaintiff and their lawyers, may gang up on dependent counsel, who may ally with the insurer and its coverage counsel.

Friends may become enemies, enemies may become friends, and various participants may become active or passive – all depending on the venue. But the policyholder is always active in all three venues to try to lick the plaintiff in the liability dispute, crush the insurer and its allies in the coverage contest, and embarrass dependent counsel in the ethical imbroglio. Even so, the policyholder still wants to garner the support of all possible allies when the venue changes. If this sounds difficult, it can be, but no more so than the U.S.A. opposing China on many diplomatic issues, but allying with China to make sure the North Korea does not arm itself with nukes. With a little care and diplomacy, the job can be done and done well.

  1. Different Burdens of Initiative

In litigation, the initiative may be a burden. In the liability dispute, the plaintiff has the burden of proof, which if not fulfilled will spell defeat.

In a coverage contest, the policyholder has the burden to satisfy the insuring clause while the insurer has the burden to prove that applicability of exclusions.

But in the ethical imbroglio, the very onerous burden of taking the initiative to clear potential conflicts of interest is undisputedly on the lawyer. Rule 3-310 mandatorily proclaims that a lawyer “shall not accept or continue representation of a client”[4] without first, analyzing potential conflicts of interest between dual clients, making written disclosure of the analysis to them, and perhaps obtaining the “the informed written consent of each client”[5]. Enforcement of these requirements is bolstered by the rule that dependent counsel “shall not accept compensation for representing a client from”[6] an insurer without the policyholder’s informed written consent.

Because dependent counsel often have very little time to clear potential conflicts before having to respond to a summons, it is not unusual for the lawyer to accept representation of the policyholder before clearing conflicts of interest. This violation of strict ethical strictures makes many dependent counsel vulnerable to ethical attack. Thus, some policyholders may gain an advantage by promptly attacking dependent counsel for ethical lapses.

California Cases Often Fail to Differentiate Among Venues

Some California courts are confused by the three different venues in which imperfectly covered litigation plays out. The policyholder reliably wins in the Cumis line of cases[7] that focus on the Rules of Professional conduct that govern dependent counsel’s ethics to consistently reach a two-part, cause and effect holding that a mere potential conflict of interest compels dependent counsel to obtain the policyholder’s consent to representation, failing which the insurer must pay for independent counsel to represent the policyholder. “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. . . . [Therefore] the insurer must pay the reasonable cost for hiring independent counsel by the insured.[8] “A [lawyer] shall not, without the informed written consent of each client: (1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict.”[9]

In contrast, the insurer reliably wins in the Dynamic Concepts line of cases[10] that focus on an insurer’s obligations to its policyholder governed by contract law to consistently reach an opposite holding to the Cumis line of cases: “But not every reservation of rights entitles an insured to select Cumis counsel. . . . A mere possibility of an unspecified conflict does not require independent counsel. The conflict must be significant, not merely theoretical, actual, not merely potential.”[11]

The holding in Cumis has two parts: 1) because dependent counsel cannot ethically represent two clients whose interests conflict; 2) therefore, the insurer must fulfill its duty to defend by paying for independent counsel to conduct the policyholder’s defense. “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 . . . 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.”[12]

The Cumis/Dynamic Concepts dichotomy should enforce a single, reliable rule of law, but instead they are irreconcilable. If the court focuses on the insurer’s obligation pursuant to contract law, the insurer consistently wins. If the court focuses on dependent counsel’s conduct pursuant to the Rules of Professional Conduct, the policyholder consistently wins. These two lines of cases teache a lesson that the policyholder should focus on dependent counsel’s failure to clear potential conflicts of interest as a predicate to establish that the insurer must pay for independent counsel.

Practice Pointer

Many courts and counsel believe that this body of law “would tax Socrates.”[13] But those who are flummoxed have failed to recognize the analogy of imperfectly insured civil litigation to three dimensional chess. Strategically, policyholders may seek to gain any small advantage to achieve the strategic goal of resolving all three tussles. Because resolution of the liability dispute, the coverage contest, and the ethical imbroglio are synergistic, an advantage in one venue may favorably impact the play in other venues. Like a lion that singles out only the limping antelope for attack, the policyholder may usually focus on disqualifying dependent counsel who have already violated the Canons of Ethics as easy prey. The insurer may become vulnerable to attack in the coverage contest for failing to hire ethical counsel to conduct the policyholder’s defense, gaining another small advantage. The insurer may next yield to these disadvantages by settling the liability dispute at no cost to the policyholder, metaphorically toppling one’s own king long before checkmate is obvious.

They say that there is no harm in asking. The coverage contest and the ethical imbroglio may be easily resolved by gathering necessary information by sending an appropriate Coverage Questionnaire to the insurer and an appropriate Ethical Compliance Questionnaire to dependent counsel.

If the policyholder is not satisfied by the insurer’s or its lawyers’ responses, the policyholder would do well to attack ethically challenges dependent counsel.

[1] See, Why Send Questionnaires? at

[2] Rule 3-310 (ellipses omitted).

[3] Tripartite Relationship – Harmony or Dissonance at

[4] Rule 3-310(B).

[5] Rule 3-310(C).

[6] Rule 3-310(F).

[7] See, Cumis Line of Cases at

[8] San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 375 (Cumis).

[9] Rule 3-310(C)(1) (emphasis added).

[10] See, Dynamic Concepts Line of Cases at

[11] Dynamic Concepts, Inc. v. Truck Ins. Exchange (1998) 61 Cal.App.4th 999, 1006-07.

[12] Cumis, supra, 162 Cal.App.3d at 375.

[13] Hartford Acc. & Indem. Co. v. Foster 528 So.2d 255, 269, 273 (Miss. 1988).

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