- 1 Introduction
- 2 A Reservation of Rights Is Always Hostile
- 3 The Purpose of a Reservation of Rights Is to Empower the Policyholder to Protect Oneself from the Insurer
- 4 Acquiescence Is Dangerous
- 5 A Reservation of Rights Creates Uncertainty
- 6 Responding Is Easy
- 7 Try to Avoid a Second, Lengthy, Expensive Lawsuit
- 8 Quick Fixes:
- 9 What’s Next?
- 10 Analyze Coverage
- 11 Cooperate?
- 12 Separately Manage Issues Specified in a Reservation of Rights
- 12.1 1. The Insurer Has Appointed Dependent Counsel
- 12.2 2. The Insurer Has Not Agreed to Pay for Independent Counsel
- 12.3 3. The Insurer Has Agreed to Pay for Independent Counsel
- 12.4 4. The Insurer Has Agreed to Defend, But Also Denies Any Duty to Defend and Denies That Any Disqualifying Conflict of Interest Exists
- 12.5 5. The Insurer Reserves the Right to Recover Reimbursement of Defense Costs from the Policyholder
- 12.6 6. The Insurer Reserves the Right to Recover Reimbursement of Settlement Costs from the Policyholder
- 12.7 7. Policyholder and Plaintiff Should Try to Cooperate
- 12.8 8. Everyone Should Try to Settle
- 12.9 9. Dependent Counsel and Insurers Are Vulnerable to Conflicts of Interest
When notified of a plaintiff’s lawsuit, all insurers must promptly respond with one of only three possible coverage choices: Yes, No, or Maybe. Insurance regulations provide: “[E]very insurer shall immediately accept [Yes] or deny the claim, in whole [No] or in part [Maybe].” Maybe is usually expressed by a reservation of rights letter.
Maybe creates a greater quantity of complex coverage issues than Yes or No, but nonetheless, Maybe is quite manageable. Both the policyholder and the plaintiff should recognize that a reservation of rights is a hostile act by the insurer to undermine coverage so that the plaintiff must take less and the policyholder must pay more. The policyholder should not lightly acquiesce to a reservation of rights, in part because the policyholder can quickly, easily and cheaply determine whether the coverage challenge is serious with a couple of polite letters.
The policyholder should exhaust quick fixes and both the policyholder and the plaintiff should analyze coverage and decide whether they will cooperate with each other long before undertaking the expense, time, and stress of doing battle with a well funded reserving insurer and its lawyers. Only if the quick fixes fail, should the policyholder and the plaintiff undertake the task of determining how to respond to each basis upon which the insurer has reserved a right to later deny coverage.
A Reservation of Rights Is Always Hostile
California law is clear that if the insurer fails to reserve its rights, it risks forfeiture of any right to later deny coverage. Thus, the singular purpose of a reservation of rights is to empower it to deny some or all coverage at a later time. A reservation of rights is good for the insurer, bad for the policyholder, and bad for the plaintiff. It should go without saying that the trouble with deferring an insurer decision to deny coverage is the risk and uncertainty of what may happen between the time that the insurer reserves the right to deny coverage and the time that it actually denies coverage. The simple truth it that the way that the plaintiff’s lawsuit is litigation during this interim, the evidence developed, the positions taken, the sworn testimony given, the issues that resolved and left unresolved, and much more could impact coverage. Thus, it is critically important to determine whether the policyholder or the insurer will take control the process by which both the plaintiff’s lawsuit is resolved and simultaneously a evidentiary record is developed that will, or at least may, establish that coverage does or does not exist.
The Purpose of a Reservation of Rights Is to Empower the Policyholder to Protect Oneself from the Insurer
“Through reservation, the insurer gives the insured an opportunity to take any steps that it may deem reasonable or necessary in response.” By reserving rights, the insurer is actively taking steps to protect its interests against the policyholder and the plaintiff. In response to a reservation of rights, the policyholder and the plaintiff may and should actively take steps to protect their common interests against the insurer. A reservation of rights means war in which the insurer on one side engages in battle against both the policyholder and the plaintiff. It would be naive for the insurer, the policyholder, the plaintiff, or of any of their respective counsel to trust anyone else to control their interests in the contest. When the insurer reserves rights, everybody has at least potential conflicts of interest with everybody else.
A second purpose of a reservation of rights is delay. Insurance companies are financial institutions that receive and dispense money. Time is money. At a 7% average rate of investment return (the NYSE average), a dollar will double in ten years. If the insurer can delay payment for five years (the statutory maximum), it will pay a claim with 50¢ dollars.
A third purpose of a reservation of rights is to create bargaining power with the plaintiff. If a plaintiff is made to believe that the insurer has no coverage for the policyholder, some plaintiffs may deeply compromise legitimate loss under the pressure created by the threat of no coverage. Conversely, an insurer’s disclaimer of coverage may create an incentive for the plaintiff to seek out the mutual cooperation of the policyholder to actively, properly, and truthfully secure coverage for the claim.
Acquiescence Is Dangerous
Many policyholders freeze like a deer in the headlights when they receive a reservation of rights letter, making no response whatsoever to the insurer’s warning that it wants to defeat coverage. However, doing nothing may result in the inadvertent forfeiture of valuable rights. The courts consistently interpret silence as surrender. The policyholder’s “silence will usually be deemed acquiescence.” “By accepting the insurer’s defense under [a reservation of rights], the insured is deemed to have accepted this condition.” Although the policyholder did not agree to the terms of a reservation of rights, “the insured’s nonqualified acceptance of the defense [under a reservation of rights] is deemed to be acquiescence . . . [by which] the insured impliedly agreed to the reservation.”
An alternative to acquiescence is for the policyholder to retain the inherent power to actively manage the defense and possibly manage a settlement, perhaps with the proper cooperation of the plaintiff. Any policyholder who opts to sit back and simply hope for the best, does so at one’s peril – a sitting duck.
A Reservation of Rights Creates Uncertainty
Reservations of rights always result in uncertainty. No one can accurately predict how the lawsuit will come out. At the beginning of a lawsuit, it is necessarily uncertain whether the policyholder will be found liable to the plaintiff, if so whether the wrongful conduct established by the evidence developed will be covered, how much the plaintiff may win, whether the defendant can pay, or whether the plaintiff can collect without valid insurance coverage.
Most reservation of rights letters state that the insurer agrees to defend the policyholder in the plaintiff’s lawsuit, but warns the policyholder that it may later deny all or certain specified coverages. Uncertainty is not limited to a Maybe response. Even if the insurer says Yes rather than Maybe, it may be able to change its mind at any time to change a Yes into a Maybe and a Maybe into a No. Maybe offers none of the comfort of a Yes and more anxiety than a No. A defending insurer (Maybe) has the right to control settlement, while a defaulting insurer (No) does not.
In only a few sentences of a standard liability policy does the insurer promise to do anything for the policyholders (the Lord giveth) – while the vast remainder of the policy language limits the coverage promised (and the Lord taketh away). The word count of the giveth language is small compared to the taketh away language. The exclusions, definitions, conditions, and endorsements all offer hundreds of ways by which the insurer may defeat coverage. Like a highwayman lying in wait, no one can know which one or more of these potential bases to deny coverage will attack.
Sometimes this uncertainty creates the false impression that responding to Maybe is infinitely complex and confusing.
Responding Is Easy
The daunting prospect of trying to unravel hundreds or thousands of potential coverage defenses in the absence of reliable facts is made manageable by insurance regulations. The insurer must state “all bases for [a reservation of rights] and the factual and legal bases for each reason given for such denial which is then within the insurer’s knowledge. Where an insurer’s [reservation of rights] is based on a specific policy provision, condition or exclusion, the written denial shall include reference thereto and provide an explanation of the application of the provision, condition or exclusion to the claim.” The insurer must thoroughly investigate all bases upon which it may deny coverage before issuing its reservation of rights letter. Thus, a response to a reservation of rights may safely focus only upon those few bases that have been specified in the insurer’s denial of coverage.
While many insurers issue multiple reservation of rights letters over the course of a coverage dispute, the insurer should be required to satisfactorily explain why its initial investigation failed to reveal facts that might support any new bases upon which the insurer seeks to deny coverage.
Try to Avoid a Second, Lengthy, Expensive Lawsuit
Fighting a well funded insurer can be time consuming, expensive, and stressful. Thus, policyholders and plaintiffs are well advised to “make love, not war” and to “give peace a chance.” If it becomes necessary for the policyholder and/or the plaintiff to sue the insurer to compel payment, collecting may be delayed by five or more years. When the insurer becomes a defendant, it will likely spare no expense in defending itself. Therefore, it is often much more efficient for the policyholder and the plaintiff to behave in such a fashion that the evidence developed during the conduct of the plaintiff’s lawsuit makes several things clear: 1) that the policyholder is liable to the plaintiff; 2) that the monetary value of the plaintiff’s loss is clear; and 3) that the policyholder’s wrongful conduct is covered by the insurer’s policy.
Often the insurer’s reservation is not serious. A few quick fixes may make the coverage dispute either go away entirely or satisfy the policyholder that he/she can trust the insurer and its lawyers. The following suggestions may promptly resolve all coverage disputes, educate the policyholder whether the insurer and its lawyers can be trusted, and develop valuable admissible evidence that will become necessary in the event that the coverage dispute is not promptly resolved. In addition, policyholders who implement these Quick Fixes will distinguish themselves from the vast majority who meekly acquiesce to the insurer’s reservations of rights. In so doing, distinguished policyholders are likely to garner the additional attention that is sometimes necessary to resolve the entire controversy promptly and equitably.
1. Ask the Insurer to Limit or Withdraw Its Reservation of Rights
Many insurer routinely issue reservations of rights letters as a precaution even though the likelihood that the insurer will ultimately deny coverage is remote. To test whether an insurer is adamant about its intent to deny coverage, consider sending a polite letter requesting that the insurer withdraw its reservation of rights, inquiring about the investigation conducted, and urging a prompt response. If a response is not forthcoming soon, consider sending a polite request for a response. If the insurer satisfies the policyholder that it can be trusted, no further action need be taken. Alternatively, if the insurer reiterates or escalates its hostility, the policyholder may develop a distrust for the insurer. Such letters will initiate the important process of developing favorable, admissible evidence, just in case the coverage dispute does not evaporate.
2. Seek Clarification of the Reservation of Rights
While reservation of rights letters uniformly agree to defend while reserving rights to later deny indemnity coverage, many reservation of rights letters state an oxymoron: that the insurer will defend all the time denying that it has any duty to defend. Many insurers also decline to pay for independent counsel and reserve a right to seek from the policyholder reimbursement of defense costs. To clarify whether an insurer waives any challenge to its obligation to defend and to pay for independent counsel, consider sending a polite letter requesting that the insurer irrevocably agree to defend and pay for independent counsel. An insurer that denies any duty to defend may not qualify for the protection offered by Civil Code §2860. Regardless of the content of the insurer’s response to this suggested polite letter, the policyholder may gather information to help decide whether to trust the insurer and may develop favorable, admissible evidence.
3. Ask Dependent Counsel to Comply With Rule 3-310
When an insurer reserves its rights, dependent counsel always faces ethical problems. “When coverage is disputed, the interests of the insured and the insurer are always divergent.” “[O]nce the insurer decides to assert a coverage defense, the same attorney may not represent both the insured and the insurer.” To test whether dependent counsel is ethical, consider sending a polite letter requesting dependent counsel to explain the insurer’s reservation of rights and urging a prompt response. Dependent counsel has a duty to comply with Rule 3-310 and should explain whether he/she has any disqualifying conflict of interest. The tone and substantive content of dependent counsel’s response may give the policyholder a sense of whether dependent counsel can be trusted. If dependent counsel does not respond to the policyholder’s satisfaction, such a letter together with all follow-up communication may help to develop favorable, admissible evidence.
4. Be Prepared to Receive Telephone Calls
Although both dependent counsel and the insurer are required to disclose conflicts of interest in writing, it is likely that dependent counsel and/or the insurer’s claims agent will respond to the letters suggested above with a telephone call to give oral assurances that the policyholder has nothing to worry about. Such oral communications serve the purpose of the insurer and its lawyers to limit any written record which may later embarrass them. Nonetheless, policyholders should prepare for and take such telephone calls, take copious notes of everything that is said, and ask that the caller confirm in writing everything that was promised. If a caller gives any assurances that are not supported by the law (see, Pitches and Fallacies), the policyholder may conclude that the caller is not trustworthy.
5. Dependent Counsel and the Insurer Must Reply
Laying low is not a viable option for either the insurer or its lawyers when the policyholder sends letters requesting a response. “It is the duty of an attorney to do all of the following: (m) To respond promptly to reasonable status inquiries of clients and to keep clients reasonably informed of significant developments in matters with regard to which the attorney has agreed to provide legal services.” “Upon receiving any communication from a [policyholder], regarding a claim, that reasonably suggests that a response is expected, every [insurer] shall immediately, but in no event more than fifteen (15) calendar days after receipt of that communication, furnish the [policyholder] with a complete response based on the facts as then known by the [insurer].” Nonetheless, some recipients of such correspondence will freeze. A failure to respond in face of a clear duty to do so may be telling whether the insurer or its lawyers can be counted upon to fulfill any of their duties to the policyholder.
Some policyholders may find that either the insurer or dependent counsel fail to satisfactorily respond to the polite letters suggested above. Grounds to develop distrust may include: 1) the lack of any response; 2) a telephone call in which oral misinformation is received (see, Pitches and Fallacies); 3) a mere oral response without adequate written confirmation; 4) feigned ignorance of any conflict of interest created by a reservation of rights; 5) a disclaimer of any obligation to analyze conflicts; 6) the assertion that no conflict exists without revealing any analysis or authority; 7) the oxymoron that it would create of conflict of interest to analyze conflicts of interest; or 8) any other suspicious communication. In such an event, the policyholder may consider sending an Ethical Questionnaire to dependent counsel and/or an evidence development letter to the insurer. Responses to these (still polite but more challenging) letters, if any, will help develop an evidentiary record by which the policyholder may protect his/her interests from the inherent hostility of a reservation of rights.
If the Quick Fixes do not resolve the coverage dispute, then readers may analyze coverage and consider appropriate practice pointers to resolve common issues raised by a reservation of rights. Implementing practice pointers suggested here is unlikely to be as quick, easy, or inexpensive as the Quick Fixes, but they can be very effective. The extra effort may pay off since the insurer must pay attorneys fees incurred by the policyholders to recover policy benefits.
While analyzing an insurer’s duty to defend is relatively simple, analyzing the duty to indemnify can be daunting. (See, Uncertainty above.) Counsel for the policyholder and the plaintiff should analyze coverage. Using the reservation of rights letter as a guide, counsel should research each and every basis for denying coverage identified by the insurer. An excellent source of legal research regarding many coverage defenses is Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2015). The policyholder (not counsel) may consider sending a polite letter to the insurer requesting all information regarding its investigation.
When an insurer says Maybe, unfamiliar alliances are possible and sometimes necessary. The policyholder has a contractual obligation to cooperate with the insurer. The meaning of a cooperation clause is subject to well established rules of contract interpretation. While the policyholder and the plaintiff may not collude to defraud the insurer, they may properly cooperate with each other. Just as the insurer and the policyholder must cooperate with each other to achieve their common goals against the plaintiff, so the policyholder and the plaintiff may cooperate with each other to achieve their common goals against an insurer that is actively trying to defeat coverage. Such cooperation may include the plaintiff pleading into coverage and both the policyholder and the plaintiff truthfully testifying into coverage.
Separately Manage Issues Specified in a Reservation of Rights
Those readers who understand that a reservation of rights is a threat, have decided not to meekly acquiesce, have exhausted the quick fixes, analyzed coverage, and have determined whether the policyholder and plaintiff will cooperate may now consider how to respond to each coverage issue raised by the insurer’s reservation of rights. Issues that are frequently raised in a reservation of rights letter will be examined is separate Practice Points, that are briefly introduced below:
1. The Insurer Has Appointed Dependent Counsel
Frequently a reservation of rights letter will identify dependent counsel whom the insurer has appointed to defend the policyholder. The Cumis Rule requires dependent counsel to resolve conflicts of interest by complying with Rule 3-310 before starting work. Being beholden to the insurer, dependent counsel may not be trustworthy to protect the policyholder. The very conduct of the defense may establish legal bases and factual support for liability to the plaintiff that is not covered by the policy. Such evidence is clearly contrary to the policyholder’s and the plaintiff’s interests because it may support the insurer’s denial of coverage.
2. The Insurer Has Not Agreed to Pay for Independent Counsel
Frequently a reservation of rights letter will not address any obligation to pay for independent counsel, instead opting to assume that the policyholder will acquiesce to the insurer’s lawyer controlling the defense and the development of evidence that could impact coverage. By ignoring conflicts of interest itsel, the insurer often coaxes the policyholder to also ignore conflicts of interest. This omission raises important issues including who carries the burden of proof to establish that a disqualifying conflict of interest exists: the insurer, dependent counsel, or the policyholder. There are many procedural options available to a policyholder to determine whether disqualifying conflict of interest exist that obligate the insurer to pay for independent counsel. Perhaps the most efficient procedural option is for the policyholder/client to exercise his/her inherent power by sending a short series of challenging letters invoking the insurer’s express and implied duties to the policyholder and invoking dependent counsel’s ethical obligations.
3. The Insurer Has Agreed to Pay for Independent Counsel
Occasionally a reservation of rights letter will acknowledge that a disqualifying conflict of interest exists and accept an obligation to pay for independent counsel. This admission raises many important issues. Does Rule 3-310(B) and (F) prohibit counsel from entering into a financial relationship with the insurer or accepting compensation from the insurer without the policyholder’s written consent? May the insurer invoke the rate limitation provision of Civil Code §2860(c)? If the insurer pays a reduced rate, does the policyholder have to pay the differential between that insurer’s rate and a higher rate charged by independent counsel? How much must the insurer pay to independent counsel? How often must the insurer pay independent counsel? What are the potential consequences of the insurer failing to faithfully discharge its duty to pay as much and as often as required by law? What information must independent counsel report to the insurer? What portion of counsel’s litigation file may become discoverable if the policyholder sues the insurer and/or dependent counsel? May a reserving insurer impose litigation guidelines upon counsel? Must independent counsel obtain advance authorization from the insurer to do work of incur expenses?
4. The Insurer Has Agreed to Defend, But Also Denies Any Duty to Defend and Denies That Any Disqualifying Conflict of Interest Exists
Frequently a reservation of rights letter will indulge an inherent contradiction by agreeing to defend while simultaneously denying that the insurer has any ultimate duty to defend and denying that any disqualifying conflict of interest exists that obligates the insurer to pay for independent counsel. Civil Code §2860 may not apply without the insurer’s “unconditional” agreement that it has a duty to defend and that a disqualifying conflict of interest exists. The applicability of §2860 will impact many other issues, including whether: 1) the insurer may pay reduced rates to independent counsel; 2) whether a punitive damage claim or potential liability in excess of the insurance policy limits creates conflicts of interest; 3) the insurer can require independent counsel to meet minimum competency standards; 4) fee disputes must be arbitrated; 5) independent counsel must report to the insurer; 6) dependent counsel may participate in all aspects of the litigation; and 7) whether independent counsel and dependent counsel must cooperate with each other.
5. The Insurer Reserves the Right to Recover Reimbursement of Defense Costs from the Policyholder
Usually a reservation of rights letter will assert a Buss right of reimbursement to recover back from the policyholder all fees and costs of defense that are allocable to claims that were never even potentially covered by the policy. This Buss reservation must be asserted at the outset. It raises many related issues. Does a Buss reservation create an incentive for the policyholder to truthfully confess covered liability to the plaintiff? Should the policyholder and the plaintiff testify truthfully into covered liability and out of non-covered liability? Should independent counsel advocate for establishing such covered liability? Must dependent counsel to the same? Will the insurer waive Buss reimbursement as to fees and costs of dependent counsel? Should the policyholder withhold consent to and authority for dependent counsel to represent the policyholders? Should the policyholder and the plaintiff cooperate with each other? Should the plaintiff plead into coverage and out of non-covered liability? Is independent counsel directly liable to the insurer to reimburse non-covered costs of defense?
6. The Insurer Reserves the Right to Recover Reimbursement of Settlement Costs from the Policyholder
Although not required to be asserted in an initial reservation of rights letter, insurers may later perfect a Blue Ridge right of reimbursement to recover back from the policyholder settlement costs paid by the insurer over the objection of the policyholder. This Blue Ridge reservation must be asserted if at all at the time of settlement. It raises many related issues. Does a Blue Ridge reservation create an incentive for the policyholder to have truthfully confessed covered liability to the plaintiff from the very beginning of the defense? Should the policyholder and the plaintiff have already testified truthfully into covered liability and out of non-covered liability? Should independent counsel advocate for establishing such covered liability? Must dependent counsel to the same? What can the policyholder do to avoid exposure to a Blue Ridge reimbursement claim? Must dependent counsel advise the policyholder regarding settlement? Should the policyholder and the plaintiff cooperate with each other? Should the plaintiff plead into coverage and out of non-covered liability? What does it mean to “take back the defense?” What is the impact of settlement on behalf of multiple policyholders? Should a sacrificial lamb consent to Blue Ridge reimbursement exposure while others reject the settlement?
7. Policyholder and Plaintiff Should Try to Cooperate
Frequently a reservation of rights letter will invoke the cooperation clause of the policy as a basis to urge the policyholder to do as the insurer and as dependent counsel instruct. The question of who must cooperate with whom and in what manner raises many related issues. Beyond showing up for deposition and trial, what is the reach of the cooperation clause? May the policyholder and the plaintiff properly cooperate with each other? Does a reservation of rights create an incentive for the policyholder to truthfully confess covered liability to the plaintiff? Should the policyholder and the plaintiff testify truthfully into covered liability and out of non-covered liability? Should independent counsel advocate for establishing such covered liability? Must dependent counsel to the same? What is the dividing line between permissible cooperation and forbidden collusion? Should the plaintiff plead into coverage and out of non-covered liability?
8. Everyone Should Try to Settle
While an initial reservation of rights letter rarely will mention settlement, everyone knows from the outset that the vast majority of cases do settle. The likelihood of settlement raises many related issues long before settlement actually occurs. Does the insurer, dependent counsel, and/or independent counsel have an obligation to initiate settlement discussions with the plaintiff? May/should the policyholder and the plaintiff discuss settlement independently of their respective counsel? Because dependent counsel always represents both the insurer and the policyholder, does settlement always create special conflicts of interest for dependent counsel? Do such conflicts sharpen any evaluation by dependent counsel of liability, damages, covered and non-covered bases for liability, and the impact on the insurer’s bad faith liability for failing to accept a reasonable settlement offer? Should independent counsel always recommend settlement? While a performing insurer may control settlement, what is the impact on settlement of an insurer’s failure to faithfully and adequately fund the policyholder’s defense?
9. Dependent Counsel and Insurers Are Vulnerable to Conflicts of Interest
While an initial reservation of rights letter rarely will mention conflicts of interest, they are the engine that drives complex issues that Maybe creates. “When coverage is disputed, the interests of the insured and the insurer are always divergent.” (San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 375.) The Cumis Rule recognizes that because dependent counsel cannot ethically represent both the insurer and the policyholder without their informed written consent, the insurer must discharge its promise to defend by paying for ethical, independent counsel to control the conduct and the cost of the defense. Conflicts of interest are at the heart of many coverage issues created by a reservation of rights. Since not all conflicts of interest create a right of the policyholder to require the insurer to pay for independent counsel, what is the legal test to determine whether a disqualifying conflict of interest exists? Having the same origin, are conflicts of interest between dependent counsel and the policyholder/client resolved by the same standard as conflicts of interest between the insurer and the policyholder? If not, what is the rationale for any different standard? Does the policy language impose upon the policyholder any waiver of or consent to conflicts of interest? Does public policy? Can the policyholder’s passive acquiescence to a reservation imply any waiver of or consent to conflicts of interest? Are reported opinions that find no disqualifying conflict of interest often based upon the absence of admissible evidence in the record? What can the policyholder and the plaintiff do to develop favorable, admissible evidence of conflicts of interest?
It is important to meticulously develop evidence by sending letters and requiring responses relating to each of the forgoing issues. The best way to avoid becoming embroiled in coverage litigation with well funded insurers and their lawyers is to develop favorable, admissible evidence that scares them both off of the fight.
 Code of Reg. § 2695.7(b).
 Buss v. Superior Court (1997) 16 Cal.4th 35, 61 fn. 27 (Buss) (ellipsis omitted).
 Val’s Painting & Drywall, Inc. v. Allstate Ins. Co. (1975) 53 Cal.App.3d 576, 586.
 Blue Ridge Ins. Co. v. Jacobsen (2001) 25 Cal.4th 489, 498 (Blue Ridge).
 American Motorists Ins. Co. v. Allied-Sysco Food Services, Inc. (1993) 19 Cal.App.4th 1342, 1356.
 Code of Regs. § 2695.7(b) (ellipses omitted).
 “To eliminate the risk of inconsistent factual determinations that could prejudice the insured, a stay of the declaratory relief action pending resolution of the third party suit is appropriate when the coverage question turns on facts to be litigated in the underlying action.” (Montrose Chemical Corp. v. Superior Court (Canadian Universal Ins. Co.) (1994) 25 Cal.App.4th 902, 907.)
 Model Letter: Maybe – Please clarify if insurer agrees unqualifiedly to defend and pay for independent counsel.
 San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 375 (Cumis) (emphasis added).
 Cumis, supra, 162 Cal.App.3d at 374.
 Model Letter: Please Disclose Conflicts of Interest.
 Model Letter: Maybe -3-310 Disclosure.
 “Where an insurer denies a first party claim, in part, it shall do so in writing.” (Code of Regs. § 2695.7(b)(1) (ellipses omitted).)
 Bus. & Prof. Code § 6068(m).
 Code of Regs. § 2695.5(b).
 When the Insurer Has Appointed Dependent Counsel.
 When the Insurer Has Not Agreed to Pay Independent Counsel.
 When the Insurer Has Agreed to Pay Independent Counsel.
 When the Insurer Denies Any Duty to Defend and Denies Any Disqualifying Conflict of Interest.
 “[I]n the absence of a stipulation or unconditional agreement between the insurer and insured, unless and until there has been a judicial determination of an insurer’s duty to defend and the existence of a conflict of interest, the provisions of Civil Code section 2860 are inapplicable.” Handy v. First Interstate Bank (1993) 13 Cal.App.4th 917, 926.
 When the Insurer Seeks Buss Reimbursement.
 Policyholder and Plaintiff Should Try to Cooperate.
 Everyone Should Try to Settle.
 Dependent Counsel and Insurers Are Vulnerable to Conflicts of Interest.