Cumis Rule


In San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358 (Cumis) California joined eight other jurisdictions[1] to rule that when a liability insurer reserves its rights to deny coverage to its policyholder in a plaintiff’s lawsuit, the insurer must discharge its promise to defend by adequately funding competent counsel[2] of the policyholder’s choice to control the defense.[3] The insurer’s reservation of rights is a challenge to coverage that creates conflicts of interest between the insurer and the policyholder.[4] Lawyers selected and directed by the insurer always represent the interests of the insurer and represent the policyholder as a defendant.[5] A California lawyer who represents the interests of joint clients with potential conflicts of interest must comply with Rules of Professional Conduct, Rule 3-310.[6] The so-called tripartite relationship, that harmoniously permits dependent counsel to represent the insurer and policyholder when there are no conflicts of interest,[7] is “torn and shredded” when conflicts of interest emerge.[8]

“The Cumis decision held that where the insurer provides a defense, but reserves the right to contest indemnity liability under circumstances suggesting that the insurer’s interest may diverge from that of its insured, a conflict arises between insured and insurer. In such circumstances, a single counsel cannot represent both the insurer and the insured unless the insured gives informed consent. Absent the insured’s consent to joint representation, the insurer must pay the insured’s “reasonable cost” for hiring independent counsel to represent the insured’s litigation interests under the insured’s control.”[9]

California courts have elaborated on the scope of the Cumis Rule.[10] Because the insurer is not licensed to practice law, it must hire counsel to conduct the defense.[11] The insurer must defend immediately.[12] The insurer must defend the entire action.[13] The insurer must adequately fund the defense.[14] “Potential” not “actual” conflicts require the lawyer to comply with Rule 3-310.[15] “[A] distinction between ‘potential’ and ‘actual’ conflicts of interest which is invalid and unworkable.”[16] Both dependent counsel[17] and the insurer[18] have an affirmative duty to initiate disclosure of potential conflicts.[19] Dependent counsel’s conflicts analysis must be thorough.[20]


The rationale for the Cumis Rule may be traced to the Bible. “No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other.”[21]

The Cumis rule has two parts: 1) Lawyer ethics prohibits joint representation of dual clients whose interests potentially conflict; and 2) therefore, the insure must discharge its promise to defend by adequately funding independent counsel.[22]

“[W]here multiple theories of recovery are alleged and some theories involve uncovered conduct under the policy, a conflict of interest exists. In actions in which the insurer and insured have conflicting interests, the insurer may not compel the insured to surrender control of the litigation. If the insurer must pay for the cost of defense and, when a conflict exists, the insured may have control of the defense if he wishes, it follows the insurer must pay for such defense conducted by independent counsel.[23]

“[O]nce the insurer decides to assert a coverage defense, the same attorney may not represent both the insured and the insurer. [W]hen coverage is disputed, the interests of the insured and the insurer are always divergent. The attorney should not be placed in the position of divided loyalties. Such an arrangement would be adverse to the best interests of the insured, the insurer, the attorney, and the profession. 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, where there are divergent interests of the insured and the insurer brought about by the insurer’s reservation of rights based on possible noncoverage under the insurance policy, 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.”[24]

“We begin by briefly reviewing the reason for Cumis counsel. An insurer is obligated to provide its insured with a defense to a third party’s lawsuit when there exists a potential for liability under the policy. In this way, an insurer’s duty to defend is broader than its duty to indemnify. Under these circumstances, an insurer may provide a defense under a reservation of rights, agreeing to defend, but promising to indemnify only for conduct covered by the policy.

An insurer usually provides a defense to its insured by hiring competent defense counsel, who represents the interests of both the insurer and the insured. In some cases, there is a conflict of interest or a potential conflict of interest between the insurer and the insured. Usually, these conflicts involve the insured trying to obtain coverage and the insurer trying to avoid it. When this happens, defense counsel may not be permitted to represent both the insurer and the insured. The insurer may be required to provide the insured, at the insurer’s expense, with independent counsel (i.e., Cumis counsel), who then controls the litigation.”[25]

[1] “Among the cases from other jurisdictions which are generally supportive of the view we take are the following:” Alaska, Arizona, Illinois, Maryland, New York, Massachusetts, Rhode Island, and Texas. (Cumis, supra, 162 Cal.App.3d at 374, fn.9.) California’s requirement for independent counsel when an insurer and insured are in conflict is the majority rule. [fn. 9. See Federal Ins. Co. v. X-Rite, Inc., 748 F. Supp. 1223, 1228 (D. Mich. 1990) (stating ‘Cumis is representative of a growing body of case law which would give the insured an absolute right to choose counsel where a conflict exists’); Moeller v. Am. Guar. & Liab. Ins. Co., 707 So. 2d 1062, 1069 (Miss. 1996) (noting that ‘other jurisdictions have generally held that in such a situation [defending under a reservation of rights], not only must the insured be given the opportunity to select his own counsel to defend the claim, the carrier must also pay the legal fees reasonably incurred in the defense’); Union Ins. Co. v. Knife Co., 902 F. Supp. 877, 880 (W.D. Ark. 1995) (stating ‘[d]ue to this [coverage] conflict of interest . . . the insurer must give up control of the litigation and retain an independent counsel for the insured’); CHI of Alaska v. Employers Reins. Corp., 844 P.2d 1113, 1121 (Alaska 1993) (concluding that ‘the insured should have the right to select independent counsel’ subject to the ‘implied covenant of good faith and fair dealing’); Village of Lombard v. Intergovernmental Risk Mgmt. Agency, 681 N.E.2d 88, 94 (Ill. 1997) (holding that the insured can select independent counsel except where the insurer and insured contractually agree to limit scope of the defense and liability obligations); Brohawn v. Transamerica Ins. Co., 347 A.2d 842, 854 (Md. App. 1975) (requiring the insurer to inform the insured of the conflict and provide the insured with the option of accepting counsel selected by the insurer or selecting independent counsel whose reasonable expenses will be paid by the insurer).

[2] “Under the policy [the insurer] assumed . . . duties in relation to the assured: . . . to employ competent counsel to represent the assured and to provide counsel with adequate funds to conduct the defense of the suit.” (Merritt v. Reserve Ins. Co. (1973) 34 Cal.App.3d 858, 882 (Merritt).)

[3] “Where a question exists as to whether an occurrence is within coverage, independent counsel representing the insured’s interests is required.” (Cumis, supra, 162 Cal.App.3d at 374.)

[4] Reservation of Rights

[5] Dependent Counsel Always Represents the Insurer

[6] Duty to Comply with Rule 3-310

[7] Three Way Relationship – Harmony or Dissonance

[8] “The situation has changed. Partners have become adversaries. The closely knit fabric of confidentiality is torn and shredded.” (American Mut. Liab. Ins. Co. v. Superior Court (Nork) (1974) 38 Cal.App.3d 579, 593.)

[9] Hartford Cas. Ins. Co. v. J.R. Marketing (2015) 61 Cal.4th 988, 992, fn1.

[10] Cumis Line of Cases

[11] “Because insurance companies cannot themselves practice law, they must delegate their duty to defend to attorneys.” (Grissom v. Vons Companies, Inc. (1991) 1 Cal.App.4th 52, 59). “By its very nature the duty assumed by [the insurer] to defend its assured against suits must necessarily be classified as a delegable duty, understood by all parties as such, for [the insurer] had no authority to perform that duty itself and, in fact, was prohibited from appearing in the California courts. (Bus. & Prof. Code § 6126.) Since a carrier is not authorized to practice law, it must rely on independent counsel for the conduct of the litigation.” (Merritt, supra, 34 Cal.App.3d at 880-81 (citations omitted).)

[12] “Imposition of an immediate duty to defend is necessary to afford the insured what it is entitled to: the full protection of a defense on its behalf.” (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295.) “Upon receiving proof of claim, every insurer . . . shall immediately, but in no event more than forty (40) calendar days later, accept or deny the claim, in whole or in part.” (Cal. Code Regs. § 2695.7(b).)

[13] “[T]he insurer has a duty to defend the action in its entirety.” (Buss v. Superior Court (1997) 16 Cal.4th 35, 48.)

[14] “By definition, the duty [to defend] entails the rendering of a service, viz., the mounting and funding of a defense.” (Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, 58.)

[15] 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” (Rule 3-31(C);) Distinction Between Potential and Actual Conflicts of Interest

[16] Cumis, supra, 162 Cal.App.3d at 371, fn.7.) But see, Dynamic Concepts: So Right on the Fact; So Wrong on the Law! – Ed

[17] Dependent counsel “owed a duty to [the policyholder] . . . to disclose potential conflicts of interest between California Indemnity and plaintiffs.” (Canton Poultry & Deli, Inc. v. Stockwell, Harris, Widom & Woolverton (2003) 109 Cal App 4th 1219, 1224.)

[18] “[T]he insurer’s fiduciary obligations were consistent with those of the attorney retained to represent the insured, and as a result the insurer should have informed the insured of the conflict of interest and of the opportunity to have independent counsel. (Manzanita Park v. Insurance Co. of North America (9th Cir. 1988) 857 F.2d 549, 555.)” (State Farm Fire & Casualty Co. v. Superior Court (1989) 216 Cal.App.3d 1222, 1235-1236.)

[19] Duty of Disclosure; “Bad faith liability may attach when an insurer fails to notify its insured of a conflict of interest.” (Evanston Ins. Co. v Preferred Properties, LLC (ED Cal. 2008))

[20] Dependent counsel’s perfunctory denial of the existence of a conflict “was simply wishful thinking.” (Industrial Indem. Co. v. Great American Ins. Co. (1977) 73 Cal. App. 3d 529, 535.)

[21] Matthew 6:24. “The mandatory rule of disqualification in cases of dual representations [is] analogous to the biblical injunction against ‘serving two masters’ (Matthew 6:24) – is such a self-evident one that there are few published appellate decisions elaborating on it.” (Flatt v. Superior Court (1994) 9 Cal.4th 275, 286.)

[22] How Much Must an Insurer Pay Independent Counsel? and How Often Must an Insurer Pay Independent Counsel?

[23] Cumis, supra, 162 Cal.App.3d at 368 (citations, quotation marks, and ellipses omitted).

[24] Id. at 374-375 (citations, quotation marks, and ellipses omitted).

[25] Assurance Co. of America v. Haven (1995) 32 Cal.App.4th 78, 83-84 (citations, quotation marks, and ellipses omitted).)

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