USE NOTES

The following is a list of code words embedded in some draft documents. Readers may conveniently customize model documents by using the "find and replace" function of a wordprocessor.

LEGEND

&Blank& means that the Model documents needs to be supplemented with information unique to the case.

&Client& means the defendant/policyholder/client.

&ClmAgt& means the insurer's claims agent.

&Date& means that the Model documents needs to be supplemented with a date.

&DependentCounsel& means insurer appointed defense counsel who was selected by and represents the interests of the liability insurance company.

&IndependentCounsel& means the client's independent counsel.

&InsCo& means the client's insurance company.

&Lawsuit& means &Plaintiff& v. &Client&.

&Plaintiff& means the plaintiff who sued the defendant/policyholder/client.

&PlaintiffCounsel& means the plaintiff's independent counsel.

1) This model complaint was drafted with a particular set of facts in mind, facts that will surely differ from the facts in any readers case. Modify the complaint thoroughly to fit. Make corrections for gender and number.

2) This is a verified complaint that may have advantages of requiring the defendants to very carefully respond, also under penalty of perjury. This may save a lot of discovery and may be a source of embarrassment for the insurer and the attorneys if they deny allegations that turn out to be true. One must review allegations carefully and verify under penalty of perjury that all statements of fact are accurate. (Allegation on "information and belief" require only that one have a good faith belief that the allegation is true.)

3) This draft includes a lot of citations to authority, which is almost never done. However, the citations to authority are alleged to form the basis of the insurer's and dependent counsel's knowledge at the times of their conduct. If they deny knowledge of the law, they confess to ignorance and breach of duties. If they confess knowledge of the law, they must also explain why they did not obey these rules of law.

4) This draft is loaded with factual details, also not a usual practice at a pleading stage. But a recent published opinions granted a demurrer without leave to amend (threw the policyholder out of court) for a failure to alleged detailed facts while chiding that: "We conclude the facts alleged do not support [a] claim of a conflict of interest. An insurer has the right to control a defense. [The policyholder] argues [the insurer] will manipulate [the conduct of the defense] to its advantage without giving any explanation about how that will be accomplished. Similarly, [the policyholder] offers a host of allegations about how [the insurer] will control the litigation without describing how this is occurring in the underlying [liability] litigation. [The policyholder] is alleging conclusions without substance, not facts. As Gertrude Stein famously said about Oakland, there is no there there." (Centex Homes v. St. Paul Fire & Marine Ins. Co. (2015) 237 Cal.App.4th 23, 31-32 (ellipses and citation omitted).)

5) The insurer and dependent counsel are very likely to file a demurrer (a legal "So what?") and a motion to strike many of the allegations, including all of the references to legal authority. I believe one should welcome these attacks as it will require the trial judge to make an early assessment of the law, which he probably does not know. If the defendants challenge the propriety of pleading the law, hopefully he or she will have to read the law in those portions which the defendants seek to excise. It's a good thing to educate the judge in the applicable law at an early stage.

6) Be sure to attach exhibits, documents that one should have sent in advance of suit offering to try to resolve issues informally. The policyholder should make it clear who is the good guy. In another terrible reported opinion, the court chastised the policyholder and its lawyer for being rude: "The insured's unseemly haste to resolve a dubious Cumis situation reminds us of the farmer who pulled up his crops each night to see how they were growing. [Cumis counsel] refused to accept the defense. [Dependent counsel] responded. [Cumis counsel] turned nasty in his reply. He accused [dependent counsel] of acting in bad faith. [Cumis counsel] refused to speak or meet with [dependent counsel], acerbically noting 'there is no point in even calling my office to schedule it.' [The insurer] asked [Cumis counsel] to explain. [Cumis counsel] responded by filing suit. [The insurer's coverage counsel] also asked for a personal meeting. [Cumis counsel] refused these requests. No reason exists to allow insureds who face the prospect of no defense or indemnity for uncovered claims to 'set up' insurers. The best way to achieve this common purpose is to allow both insurer-appointed defense and independent counsel to participate in the settlement negotiations. [Precedence decries] similar concerns regarding gamesmanship and tactical maneuvers [by] overly aggressive insureds' attorneys who 'spend their wits and energies trying to maneuver the insurers into committing acts which the insureds can later trot out as evidence of bad faith.' 'What we have here, at bottom, is an effort by [the insured] to concoct a bad faith claim out of whole cloth . . . with the 'ingenious assistance of counsel.' Bad faith litigation is not a game, where insureds are free to manufacture claims for recovery. Every judgment against an insurer potentially increases the amounts that other citizens must pay for their insurance premiums.'" (Dynamic Concepts, Inc. v. Truck Ins. Exchange (1998) 61 Cal.App.4th 999, 1000-12.)

Counsel Bar #_

Address

Telephone:

Fax:

e-mail:

Attorneys for Plaintiffs,

&Client&

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF LOS ANGELES

&Client&s

Plaintiffs,

vs.

&DependentCounsel&, &InsCo&, And Does 1-250,

Defendants.

CASE NO.

VERIFIED COMPLAINT

for Declaratory Relief

Plaintiffs, &Client& corporation and &Client&, an individual (Individual) (collectively &Client&) allege against Defendants and each of them as follows:

Introduction

1.	&Client& is a defendant in a pending lawsuit filed by &Plaintiff& seeking to establish that &Client& is legally liable to pay damages to &Plaintiff&. Alliance of Nonprofits for Insurance (&InsCo&) issued a policy of liability insurance to &Client& and agreed to defend &Client& in a &Plaintiff&'s lawsuit under a reservation of its rights to later deny coverage to &Client& for any judgment. &InsCo& hired attorney defendants (&DependentCounsel&) to conduct the &Client&'s defense.

2.	&InsCo&'s reservation of rights created conflicts of interest between the &Client& and &InsCo&. Thus, &InsCo& is required by law to provide independent "Cumis" counsel to defend the &Plaintiff& lawsuit. The reservation of rights has simultaneously created disqualifying conflicts of interest between the &Client& and &DependentCounsel&, which requires &DependentCounsel& to comply with Rules of Professional Conduct, Rule 3-310.

3.	This action is based on six well established broad principles of California law. First, a policyholder sued as a defendant has the initial right to defend itself in litigation. [Civil Code §2778(4) "The [insurer] is bound, on request of the [policyholder], to defend actions or proceedings brought against [the policyholder] in respect to the matters embraced by the indemnity, but [the policyholder] has the right to conduct such defenses, if he chooses to do so"].

Second, if an insurer reserves its rights to deny coverage on any ground that is related to the subject matter of the liability dispute, the insurer must pay for independent counsel to defend the policyholder ["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." (San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 375.) "[T]he Cumis rule is not based on insurance law but on the ethical duty of an attorney to avoid representing conflicting interests." (Golden Eagle Ins. Co. v. Foremost Ins. Co. (1993) 20 Cal. App.4th 1372, 1394)].

Third, where the insurer reserves rights to deny indemnity coverage on grounds that are related to any issue being litigated in the &Plaintiff& lawsuit, the insurer must provide independent counsel to represent the policyholder. [A disqualifying conflict of interest exists unless "the coverage question is logically unrelated to the issues of consequence in the underlying case." (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 302)].

Fourth, insurance defense counsel must comply with Rule 3-310 before accepting or continuing representation of a policyholder [A lawyer must provide "written disclosure to the [policyholder] where [t]he [lawyer] has a legal, business, [or] financial relationship with another entity [such as an insurer that] would be affected substantially by resolution of the matter. 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"].

Fifth, the insurer has a duty to provide independent counsel where its reservation of rights creates a disqualifying conflict of interest and to make a detailed disclosure of a denial of independent counsel ["Upon receiving proof of claim, every insurer shall immediately accept or deny the claim, in whole or in part. Where an insurer denies a claim, it shall provide to the [policyholder a written] statement listing all the factual and legal bases for each reason given for such denial [and if] based on a specific policy provision, shall provide an explanation of the application of the provision to the claim." (Cal. Code of Regs. § 2695.7(b) (ellipses omitted).)]

Sixth, the insurer's selected defense counsel has a duty to disclose to a policyholder whether an insurer's reservation of rights creates a disqualifying conflict of interest "[T]he existence of a conflict of interest should be identified early in the proceedings so it can be treated effectively before prejudice has occurred to either party." (San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 371, fn. 7 (Cumis).) "Where there is a duty to disclose, the disclosure must be full and complete, and any material concealment or misrepresentation will amount to fraud. Cases in which the defendant stands in a fiduciary relationship to the plaintiff are frequently treated as if they involved fraudulent concealment of the cause of action by the defendant. The theory is that although the defendant makes no active misrepresentation, this element is supplied by an affirmative obligation to make full disclosure, and the non-disclosure itself is a 'fraud."' (Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 188-189. (citations, ellipses, and quotation marks omitted).) On information and belief, &Client& alleges that as attorneys and insurers handling the &Plaintiff& lawsuit, &DependentCounsel& and &InsCo& knew or should have known all of the law cited in this complaint.

The Parties

4.	&Client& is a resident of the State of California, County of Los Angeles.

5.	On information and belief &Client& alleges that defendants, Steven D. &DependentCounsel&, the law firm of &Blank&, and (&DependentCounsel&) are attorneys licensed to practice law and residing in the State of California.

6.	On information and belief &Client& alleges that defendant, &InsCo& is a corporation authorized to do business in the State of California and was and is authorized by the California Insurance Commissioner to transact and is transacting business in this state as an insurer.

7.	&Client& is ignorant of the true names and capacities of Does 1 through 250 and therefore sue such defendants by such fictitious names. On information and belief &Client& alleges that Does 1 through 200 are attorneys licensed to practice law in the State of California. Hereinafter, &DependentCounsel&, and Does 1 through 200 are referred to as "&DependentCounsel&". On information and belief &Client& alleges that Does 201 through 250 are authorized by the California Insurance Commissioner to transact and are transacting business in this state as insurers. Hereinafter, &InsCo& and Does 201 through 250 are referred to as "&InsCo&". &Client& will amend this verified complaint to allege the true names and capacities of the Doe defendants when they have been identified. On information and belief &Client& alleges that each defendant is responsible in some manner for the occurrences herein alleged.

8.	&Client& is informed and believes and thereon alleges that at all times material hereto, each defendant acted as an agent, duly authorized, for and on behalf of each other defendant within the course and scope of such agency and authority.

Venue

9.	This action is brought in Los Angeles Superior Court because &Client& and &DependentCounsel& are citizens of the State of California. The professional services rendered by independent counsel to &Client& were performed in Los Angeles County. The policy contract sued upon in this action was to be performed by paying independent counsel for work performed in Los Angeles County.

The &InsCo& Policy

10.	&InsCo& issued to &Client& a written Policy No. 2014-25843-DO with a policy period of __ (the Policy). The Policy states in part:

[Quote the insuring clause.]

11.	&InsCo& is licensed to issue insurance policies in the State of California or otherwise transacts the business of insurance in the State of California as an insurer.

12.	&Client& and Individual policyholder are insureds under the Policy.

The &Plaintiff& lawsuit

13.	&Plaintiff& filed a complaint against &Client& in or about &date&. &Client& notified &InsCo& of the &Plaintiff& lawsuit and asserted three claims for policy benefits: 1) a third party claim by &Plaintiff&; 2) &Client&'s first party claim for a defense of the &Plaintiff& lawsuit; and 3) &Client&'s first party claim for a indemnification of the &Plaintiff& lawsuit.

&InsCo&'s Investigation

14.	On information and belief &Client& alleges that &InsCo& conducted no investigation regarding &Client&'s request for a defense and indemnification of the &Plaintiff& lawsuit with knowledge that: "[A]n insurer may breach the covenant of good faith and fair dealing when it fails to properly investigate its insured's claim." (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 817) To protect the insured's peace of mind and security, "an insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial." (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 721.) The adequacy of the insurer's investigation is "(a)mong the most critical factors bearing on the insurer's good faith." (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 879.)

&InsCo&'s Belated Statement of Coverage

15.	On &date&, &InsCo& acknowledged receipt of the &Plaintiff& claim. A comparison of the allegations of the complaint in the &Plaintiff& lawsuit and the language of the Policy demonstrates the potential for coverage for &Client& for the &Plaintiff& lawsuit. By email dated &date&, &InsCo& stated: "&Blank&"

16.	The provisions of the Policy imposed upon &InsCo& a duty to defend &Client& in the &Plaintiff& lawsuit.

17.	&InsCo& failed to comply with insurance regulations found at Cal. Code of Regs. § 2695.7(b) to accept or deny coverage in whole or in part within 40 days. A failure to adequately and timely reserves rights to later deny coverage operates by law to waive coverage defenses.

&InsCo&'s Purported, Belated Reservations of Rights

18.	On &date&, (more than 40 days following the June notice of claim) &InsCo& agreed to defend &Client& in the &Plaintiff& lawsuit under a broad reservation of rights that reserved of &InsCo&'s rights to deny all coverage and waived no bases upon which it could later to deny coverage to &Client&. &InsCo&'s letter stated:

"&Blank&"

19.	On &date&, (more than 40 days following the June, 2105 notice of claim) &InsCo& agreed to defend &Client& and Individual policyholder in the &Plaintiff& lawsuit under a broad reservation of rights that reserved &InsCo&'s rights to later deny all coverage and waived no bases upon which it could later to deny coverage. &InsCo&'s letter stated:

"&Blank&

20.	&Client& notified &InsCo& that its purported reservations of rights were inadequate, untimely, and invalid.

&InsCo&'s Purported Reservations of Rights Created Disqualifying

Conflicts of Interest for &DependentCounsel&

21.	&InsCo&'s purported reservation of rights created a duty on the part of &InsCo& to provide independent counsel to &Client& in the &Plaintiff& lawsuit. On information and belief, &Client& alleges that as attorneys and insurers handling the &Plaintiff& lawsuit, &DependentCounsel& and &InsCo& knew or should have known all of the following law. California Courts of Appeal have expressed the legal test for a disqualifying conflict of interest in a variety of ways. Expressed positively: A disqualifying conflict does exist if: 1) "whenever their common lawyer's representation of the one is rendered less effective" (Spindle v. Chubb/Pacific Indemnity Group (1979) 89 Cal.App.3d 706, 713); 2) if coverage issues "overlap" issues in the third party liability action (United Enterprises, Inc. v. Superior Court (2010) 183 Cal. App. 4th 1004, 1010); 3) if a coverage question depends "upon the insured's own conduct" (Foremost Ins. Co. v. Wilks (1988) 206 Cal.App.3d 251, 261); 4) "the ground of noncoverage was based on the nature of the insured's conduct" (McGee v. Superior Court (1985) 176 Cal.App.3d 221, 226; 5) "the outcome of the coverage issue can be controlled by the way counsel defends the case" (Novak v. Low, Ball & Lynch (1999) 77 Cal.App.4th 278, 282; Civ.Code § 2860(a); 6) If "[i]nsurance counsel had . . . incentive to attach liability to [the insured]." (Gulf Ins. Co. v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2000) 79 Cal.App.4th 114, 131); 7) "the way counsel retained by the insurance company defends the action will affect an underlying coverage dispute between the insurer and the insured." ((James 3 Corp. v. Truck Ins. Exchange (2001) 91 Cal.App.4th 1093, 1108); 8) "the basis for the reservation of rights is such as to cause assertion of factual or legal theories which undermine the positions to be asserted in the liability case" (State Farm Fire & Cas. Co. v. Superior Court (1989) 216 Cal.App.3d 1222, 1226, fn.3). Expressed negatively, a disqualifying conflict of interest does not exist if: 1) "the reservation of rights is based on coverage disputes that have nothing to do with the issues being litigated in the underlying action" (Long v. Century Indemnity Co. (2008) 163 Cal.App.4th 1460, 1470); 2) "the coverage questions are logically unrelated (that is, irrelevant) to the issues of consequence in the underlying action" (Montrose Chemical Corp. v. Superior Court (Canadian Universal Ins. Co.) (1994) 25 Cal.App.4th 902, 909); 3) "where the coverage issue is 'independent of, or extrinsic to, the issues in the underlying action'" (Gafcon, supra, 98 Cal.App.4th at 1422); 4) "the issue on which coverage turns is independent of the issues in the underlying case" (Blanchard v. State Farm Fire & Casualty Co. (1991) 2 Cal.App.4th 345 (Blanchard).)

22.	By stating that "&Blank&" without any explanation whatsoever, &InsCo& violated Cal. Code of Regs. § 2695.7(b), which provides in part that "[w]here an insurer denies a claim [for independent counsel], it shall provide to the [policyholder a written] statement listing all the factual and legal bases for each reason given for such denial [and if] based on a specific policy provision, shall provide an explanation of the application of the provision to the claim."

&InsCo& Hired &DependentCounsel&

23.	&InsCo& hired &DependentCounsel& to defend &Client& in the &Plaintiff& lawsuit. &Client& is a client of &DependentCounsel&. &InsCo& is a client of &DependentCounsel&. On information and belief, &Client& alleges that &DependentCounsel& knew or should have known all of the law cited in this complaint.

24.	&InsCo& hired &DependentCounsel& to defend Individual policyholder in the &Plaintiff& lawsuit. Individual policyholder is a client of &DependentCounsel&. &InsCo& is a client of &DependentCounsel&. On information and belief, &Client& alleges that &DependentCounsel& knew or should have known all of the law cited in this complaint.

25.	&InsCo& hired &DependentCounsel& and &DependentCounsel& to protect the interests of &InsCo& in the &Plaintiff& lawsuit. &InsCo& could be affected substantially by the resolution of the &Plaintiff& lawsuit. Civil Code §2778(1) provides that "Upon an indemnity against liability . . ., the [policyholder] is entitled to recover upon becoming liable [to an injured plaintiff by entry of judgment]." &InsCo& did not request that &DependentCounsel& comply with Rule 3-310 in representing &Client& in the &Plaintiff& lawsuit.

&Client& Expressly Withheld Consent and Authority to

Representation by &DependentCounsel& Pending Ethical Compliance

26.	At no time did &Client& give to &DependentCounsel& "informed written consent" to be represented by &DependentCounsel& in the &Plaintiff& lawsuit. On or about &date&, &Client& expressly withheld consent and authority for &DependentCounsel& to represent &Client& and sent to &DependentCounsel& an Ethical Compliance Questionnaire. On &date& , &DependentCounsel& responded in part: "&Blank&"

27.	On or about &date&, individual policyholder expressly withheld consent and authority for &DependentCounsel& to represent Individual policyholder and sent to &DependentCounsel& an Ethical Compliance Questionnaire. &DependentCounsel& orally responded by agreeing to complete and return the questionnaire, but did not do so. Instead, Individual policyholder received an email from a claim agent for &InsCo& stating: "&Blank&".

28.	On information and belief, &Client& alleges that &DependentCounsel& knew or should have known that "attorneys do not have an absolute right to withdraw from representation at any time with or without cause." (Cal. Practice Guide: Professional Responsibility (The Rutter Group 2016) ¶10:21) and that attorneys "shall not withdraw from employment until the member has taken reasonable steps to avoid reasonably foreseeable prejudice to the rights of the client [and that withdrawal is mandatory if the lawyer] knows or should know that continued employment will result in violation of these rules or of the State Bar Act [such as Rule 3-310]." (Rule 3-700.)

FIRST CAUSE OF ACTION

(Declaratory Relief Against &InsCo& and Does 201-250 re: Duties Owed)

29.	&Client& realleges foregoing paragraphs 1 through 28 and incorporate them herein by reference.

&InsCo&'s Duties

30.	&InsCo& has a duty to &Client& in the &Plaintiff& lawsuit to do all of the following: 1) defend &Client& immediately and entirely; 2) delegate its promise to defend (&InsCo& is not licensed to practice law) by paying for ethical defense counsel; 3) refrain from asserting any inadequate, untimely, or unlawful reservation of rights; 4) determine objectively whether its purported reservations of rights create any disqualifying conflict of interest for &DependentCounsel&; 5) initiate disclosure to &Client& of any disqualifying conflict of interest; 6) initiate an offer to provide independent counsel to defend &Client& in the &Plaintiff& lawsuit; and 7) promptly pay independent counsel to defend &Client& on the &Plaintiff& lawsuit.

31.	On information and belief, &Client& alleges that &InsCo& knew or should have known all of the following law:

1) A liability insurer must defend &Client& immediately and entirely. "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.) "To defend meaningfully, the insurer must defend immediately. To defend immediately, it must defend entirely." (Buss v. Superior Court (1997) 16 Cal.4th 35, 48 (citation omitted).)

2) A liability insurer must delegate its promise to defend (&InsCo& is not licensed to practice law) by paying for ethical defense counsel. "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. Since a carrier is not authorized to practice law, it must rely on independent counsel for the conduct of the litigation." (Merritt v. Reserve Ins. Co. (1973) 34 Cal.App.3d 858, 880-881 (citations omitted).)

3) A liability insurer must refrain from asserting any inadequate, untimely, or unlawful reservation of rights. "[I]f the insurer adequately reserves its right to assert the noncoverage defense later, it will not be bound by the judgment." (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 279 (emphasis added).) "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. The amounts accepted or denied shall be clearly documented in the claim file unless the claim has been denied in its entirety. (1) Where an insurer denies or rejects a first party claim, in whole or in part, it shall do so in writing and shall provide to the [policyholder] a statement listing all bases for such rejection or denial and the factual and legal bases for each reason given for such rejection or denial which is then within the insurer's knowledge. Where an insurer's denial of a first party claim, in whole or in part, 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. Every insurer that denies or rejects a third party claim, in whole or in part, or disputes liability or damages shall do so in writing." (Cal. Code of Regs. § 2695.7(b).) "The general rule supported by the great weight of authority is that if a liability insurer, with knowledge of a ground of forfeiture or noncoverage under the policy, assumes and conducts the defense of an action brought against the insured, without disclaiming liability and giving notice of its reservation of rights, it is thereafter precluded in an action upon the policy from setting up such ground of forfeiture or noncoverage. In other words, the insurer's unconditional defense of an action brought against its insured constitutes a waiver of the terms of the policy and an estoppel of the insurer to assert such grounds." (Miller v. Elite Ins. Co. (1980) 100 Cal.App.3d 739, 754);

4) A liability insurer must determine objectively whether its purported reservations of rights create any disqualifying conflict of interest for &DependentCounsel&. "[The insurer] was required to show [dependent counsel's] lawyers could not impact coverage by the manner in which they defended the case. In order to meet its burden, [the insurer] was required to make some showing as to how the issues presented by [the insurer]' reservation of rights differed from or were extrinsic to those issues that were developing or had developed in the Association's action." (Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1423.)

5) A liability insurer must initiate disclosure to &Client& of any disqualifying conflict of interest. "Where an insurer denies or rejects a first party claim [for independent counsel], in whole or in part, it shall do so in writing and shall provide to the [policyholder] a statement listing all bases for such rejection or denial and the factual and legal bases for each reason given for such rejection or denial which is then within the insurer's knowledge." (Cal. Code of Regs. § 2695.7(b).)

6) A liability insurer must initiate an offer to provide independent counsel to defend &Client& in the &Plaintiff& lawsuit. "[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." (State Farm Fire & Casualty Co. v. Superior Court (1989) 216 Cal.App.3d 1222, 1235-1236; see also, Manzanita Park v. Insurance Co. of North America (9th Cir. 1988) 857 F.2d 549, 555.) "Every insurer shall disclose to a [policyholder] all benefits, coverage, or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by the [policyholder]. When additional benefits might reasonably be payable under an insured's policy, the insurer shall immediately communicate this fact to the insured and cooperate with and assist the insured in determining the extent of the insurer's additional liability." (Cal. Code Regs. § 2695.4 (ellipses omitted).)

7) A liability insurer must promptly pay independent counsel to defend &Client& on the &Plaintiff& lawsuit. "Civil Code, section 2860 codifies the holding in Cumis, which concluded that an insurer is responsible to pay the reasonable cost for hiring independent counsel for the insured when the insured and insurer have divergent interests due to the insurer's reservation of its right to deny coverage." (Seltzer v. Barnes (2010) 182 Cal.App.4th 953, 966 (ellipses omitted).)

32.	A present and actual controversy exists between the &Client& and &InsCo& regarding the nature and scope of &InsCo&'s duties to &Client& in the &Plaintiff& lawsuit pursuant to the Policy and law. &Client& has no adequate remedy at law to resolve these controversies. &Client& seeks declarations from this court in &Client&'s favor and against &InsCo& that the rights and duties of the parties be adjudged by the court that &InsCo& owes to &Client& each of the following duties:

1) to defend &Client& immediately and entirely;

2) to delegate its contractual promise to defend (&InsCo& is not licensed to practice law) to ethical defense counsel;

3) to refrain from asserting any inadequate, untimely, or unlawful reservation of rights;

4) to determine objectively whether its purported reservations of rights create any disqualifying conflict of interest for &DependentCounsel&;

5) to initiate disclosure to &Client& of any disqualifying conflict of interest;

6) to initiate an offer to provide independent counsel to defend &Client& in the &Plaintiff& lawsuit; and

7) to promptly pay independent counsel to defend &Client& on the &Plaintiff& lawsuit.

33.	On or about &date&, &Client& emailed &InsCo& explaining the "&Blank&"

SECOND CAUSE OF ACTION

(Declaratory Relief Against &DependentCounsel& and Does 1-200 re: Duties Owed)

&DependentCounsel&'s Duties

34.	&Client& realleges foregoing paragraphs 1 through 33 and incorporate them herein by reference.

35.	&DependentCounsel& has all of the following duties to &Client& in the &Plaintiff& lawsuit: 1) a duty of competence; 2) a duty of full disclosure; 3) a duty of confidentiality; 4) a duty of undivided loyalty; 5) a duty to determine whether &InsCo& reserved any rights to deny coverage to &Client&; 6) a duty to analyze potential conflicts of interest to determine whether &InsCo&'s reservation of rights creates any disqualifying conflicts of interest; 7) a duty to make written disclosure to &Client& of any potential conflicts of interest; 8) a duty to obtain &Client&'s informed written consent to representation before accepting employment; 9) a duty to advise &Client& of its right to independent counsel; and 10) a duty to respond to inquiry.

36.	&DependentCounsel& breached fiduciary duties to &Client&, which breaches have caused prejudice, loss, and damage to &Client&.

37.	On information and belief, &Client& alleges that &DependentCounsel& knew or should have known all of law cited in this complaint, including the following:

1) lawyers owe to policyholders a duty of competence. "(A) A [lawyer] shall not fail to perform legal services with competence. (B) 'competence' in any legal service shall mean to apply the 1) diligence, 2) learning and skill, and 3) mental, emotional, and physical ability reasonably necessary for the performance of such service." ( Rule 3-110 (ellipses omitted).);

2) lawyers owe to policyholders a duty of full disclosure. Lawyers have "the obligation to render a full and fair disclosure to the [client] of all facts which materially affect his rights and interests. Where there is a duty to disclose, the disclosure must be full and complete, and any material concealment or misrepresentation will amount to fraud." (Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 188-89 (ellipsis omitted).) "Adequate communication with clients is an integral part of competent professional performance as an attorney." (Calvert v. State Bar (1991) 54 Cal.3d 765, 782.);

3) lawyers owe to policyholders a duty of confidentiality. "It is the duty of an attorney to maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client." (State Bar Act, Bus. & Prof. Code. § 6068(e)(1) (ellipsis omitted));

4) lawyers owe to policyholders a duty of undivided loyalty. "An attorney's duty of loyalty to a client is not one that is capable of being divided." (Flatt v. Superior Court (1994) 9 Cal.4th 275, 282.) "It is an attorney's duty to protect his client in every possible way, and it is a violation of that duty for him to assume a position adverse or antagonistic to his client without the latter's free and intelligent consent given after full knowledge of all the facts and circumstances. By virtue of this rule an attorney is precluded from assuming any relation which would prevent him from devoting his entire energies to his client's interests. Nor does it matter that the intention and motives of the attorney are honest." (Anderson v. Eaton (1930) 211 Cal. 113, 116 (citations omitted).);

5) lawyers owe to policyholders to determine whether &InsCo& reserved any rights to deny coverage to &Client&. "[A] lawyer who, while purporting to continue to represent an insured and who devotes himself to the interests of the insurer without notification or disclosure to the insured, breaches his obligations to the insured and is guilty of negligence." (Betts v. Allstate Ins. Co. (1984) 154 Cal.App.3d 688, 716);

6) lawyers owe to policyholders to analyze potential conflicts of interest to determine whether &InsCo&'s reservation of rights creates any disqualifying conflicts of interest. "Conflict of interest occurs when a person charged with looking after the interest of A and B is faced with an option whereby if he makes one choice it will of necessity hurt A and help B, and if he makes the other choice he will of necessity help A and hurt B." (Hartford Acc. & Indem. Co. v. Foster 528 So.2d 255, 268 (Miss. 1988).) "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." (Assurance Co. of America v. Haven (1995) 32 Cal.App.4th 78, 84 (ellipsis omitted).) "[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." (San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 375.) A lawyer has a duty to analyze potential conflicts of interest to be disclosed to a client. "Disclosure means informing the [policyholder] of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to the [policyholder]." (Rule 30-310(A).) "A [lawyer] shall not accept or continue representation of a [policyholder] without providing written disclosure to the [policyholder] where [t]he [lawyer] has a legal, business, [or] financial relationship with another entity [such as an insurer that] would be affected substantially by resolution of the matter." (Rule 30-310(B).) A liability insurer would be affected substantially be resolution of a matter because "[u]pon an indemnity against liability, the [policyholder] is entitled to recover upon becoming liable [to an injured plaintiff by entry of judgment]; " (Civil Code §2778(1) (ellipses omitted).) "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 30-31(C).);

7) lawyers owe to policyholders a duty to make written disclosure to &Client& of any potential conflicts of interest. "A [lawyer] shall not accept or continue representation of a [policyholder] without providing written disclosure to the [policyholder] where [t]he [lawyer] has a legal, business, [or] financial relationship with another entity [such as an insurer that] would be affected substantially by resolution of the matter." (Rule 3-310(B));

8) lawyers owe to policyholders a duty to obtain &Client&'s informed written consent to representation before accepting employment. "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 3-310(C));

9) lawyers owe to policyholders a duty to advise &Client& of its right to independent counsel. "[W]hether in the insurer-insured context or otherwise, the attorney who undertakes to represent parties with divergent interests owes the 'highest duty' to each to make a full disclosure of all facts and circumstances which are necessary to enable the parties to make a fully informed decision regarding the subject matter of litigation, including the areas of potential conflict and the possibility and desirability of seeking independent legal advice." (Betts v. Allstate Ins. Co. (1984) 154 Cal.App.3d 688, 716); and

10) lawyers owe to policyholders a duty to respond to inquiry. "A [lawyer] shall . . . promptly comply with reasonable requests for information and copies of significant documents when necessary to keep the client so informed." (Rule 3-500.) This includes the duty to promptly return a client's telephone calls. (In re O.S. (2002) 102 Cal.App.4th 1402, 1410-1411.) The duty may require the lawyer to disclose one's own malpractice. (See, Rest.3d Law Governing Lawyers § 20, Comment c.)

38.	&DependentCounsel& has not obtained &Client&'s informed written consent for &DependentCounsel& to represent &Client& in the &Plaintiff& lawsuit, nor to accept compensation from &InsCo& for representing &Client& in the &Plaintiff& lawsuit. Without written disclosure by &DependentCounsel&, &Client& is not capable of giving "informed written consent" to &DependentCounsel&'s representation of &Client&. &Client& has expressly withheld consent (Rule 3-310) and authorization for &DependentCounsel& to represent &Client& in the &Plaintiff& lawsuit. "[W]ithout authority appearing as attorney for a party to an action or proceeding constitutes a cause for disbarment or suspension." (Bus.&Prof. Cd. §6104.)

39.	On information and belief &Client& alleges that: 1) &DependentCounsel& has a financial relationship with &InsCo&; 2) The outcome of a coverage issue raised by &InsCo&'s reservation of rights can be controlled by &DependentCounsel&'s conduct of &Client&'s defense of &Plaintiff&'s lawsuit; 3) &DependentCounsel&'s representation of &Client& is less effective by reason of &DependentCounsel& representation of &InsCo&'s interests; 4) &InsCo& has interfered with &DependentCounsel&'s independence of professional judgment; 5) &InsCo& has interfered with &DependentCounsel&'s client-lawyer relationship with &Client&; 6) &DependentCounsel& have communicated &Client&'s confidential coverage information to &InsCo&; 7) &InsCo& has paid compensation to &DependentCounsel& to defend &Client& in the &Plaintiff& lawsuit for which &InsCo& claim's that &Client& is liable; 8) that &DependentCounsel& has accepted compensation from &InsCo& to defend &Client& in the &Plaintiff& lawsuit; 9) &DependentCounsel& has or had a financial interest in the subject matter of the representation to dissuade &Client& from being represented by independent counsel; and 10) &DependentCounsel& has represented &InsCo& as a party in matter(s) separate from the &Plaintiff& lawsuit.

40.	If &Client& must reimburse costs of defense to &InsCo&, &DependentCounsel& has the duty to disgorge to &Client& all costs of defense accepted by &DependentCounsel& from &InsCo& in violation of Rule 3-310(F).

THIRD CAUSE OF ACTION

(Declaratory Relief Against &DependentCounsel& and Does 1-200 re: Breach of Fiduciary Duties)

41.	&Client& realleges foregoing paragraphs 1 through 40 and incorporate them herein by reference.

42.	&DependentCounsel& has a fiduciary relationship with owes fiduciary duties to &Client&. &DependentCounsel& breached those duties causing prejudice, loss, and damage to &Client&.

43.	From and after &date&, &DependentCounsel& breached each of the following duties owed to &Client& in the &Plaintiff& lawsuit: 1) the duty of competence; 2) the duty of full disclosure; 3) the duty of confidentiality; 4) the duty of undivided loyalty; 5) the duty to determine whether &InsCo& reserved any rights to deny coverage to &Client&; 6) the duty to analyze potential conflicts of interest to determine whether &InsCo&'s reservation of rights creates any disqualifying conflicts of interest; 7) the duty to make written disclosure to &Client& of any potential conflicts of interest; 8) the duty to obtain &Client&'s informed written consent to representation before accepting employment; 9) the duty to advise &Client& of its right to independent counsel; and 10) the duty to respond to inquiry.

44.	&DependentCounsel&'s breach of fiduciary duties caused damage to &Client&. &DependentCounsel&'s failure to analyze potential conflicts, make written disclosure to and obtain informed written consent of &Client&, and &DependentCounsel&'s failure to respond to inquiry and advise &Client& of its right to independent counsel paid by &InsCo& caused &Client& to incur and pay attorneys fees and costs of independent counsel. &DependentCounsel&'s failures also caused &Client& to incur and pay attorneys fees and costs to require &InsCo& to pay for &Client&'s independent counsel.

FOURTH CAUSE OF ACTION

(Breach of Contract Against &InsCo& and Does 201-250 re: Refusal to Pay Independent Counsel)

45.	&Client& realleges foregoing paragraphs 1 through 44 and incorporate them herein by reference.

46.	Pursuant to Civil Code §2778(4) "The [insurer] is bound, on request of the [policyholder], to defend actions or proceedings brought against [the policyholder] in respect to the matters embraced by the indemnity, but [the policyholder] has the right to conduct such defenses, if he chooses to do so" unless a contrary intention appears in the language of the policy. The &InsCo& Policy does not connote any intention of the parties that &InsCo& may control &Client&'s defense when &InsCo& asserts a reservation of rights that creates a disqualifying conflict of interest for its chosen lawyers.

47.	&Client& hired independent counsel to defend the &Plaintiff& lawsuit and incurred costs of defense incurred in good faith, and in the exercise of a reasonable discretion. &Client& requested that &InsCo& pay &Client&'s independent counsel and submitted invoices to &InsCo& for payment. &InsCo& refused to pay for &Client&'s defense through independent counsel.

48.	&InsCo&'s failure to pay invoices of &IndependentCounsel& interfered with &Client&'s right to conduct its own defense of the &Plaintiff& lawsuit.

49.	&InsCo& has breached the express terms of the Policy and duties under law by failing to provide the policy benefits described in the Policy.

50.	Plaintiffs have performed all the terms and conditions to be performed on its part pursuant to the Policy.

51.	As a direct and proximate result of &InsCo&'s breach of the Policy terms, Plaintiffs have been damaged in a sum in excess of the jurisdictional minimum of this court. Plaintiffs will seek leave of court to amend this complaint to state the amount of damages when they have been ascertained.

FIFTH CAUSE OF ACTION

(Bad Faith Against &InsCo& and Does 201-250 re: Delay and Failure to Pay Policy Benefits)

52.	&Client& realleges foregoing paragraphs 1 through 51 and incorporate them herein by reference.

53.	Wholly apart from the express terms of the Policy, they contain an implied-in-law covenant that &InsCo& will act in good faith and deal fairly with Plaintiff and will do nothing to interfere with the rights of Plaintiff to receive the full benefits of the Policy.

54.	&InsCo& has deprived Plaintiff of the Policy' benefits without proper cause.

55.	&InsCo& has unreasonably breached the terms of the Policy.

56.	&InsCo& has acted to protect its interests while sacrificing the interests of Plaintiff.

57.	&InsCo& has breached its implied duties under the Policy and under law by failing to promptly, fairly and reasonably pay unconditionally for Plaintiff's legal defense and disposition of the claims asserted by Plaintiff against them in this action and denying Plaintiff other policy benefits.

58.	As a result of each of &InsCo&''s breach of the insurance contracts, Plaintiffs have been required to obtain counsel in order to enforce Plaintiff's rights.

59.	As a direct and proximate result of &InsCo&'s failure to honor Plaintiff's claims promptly, fairly and equitably, Plaintiffs have incurred attorneys fees and costs.

60.	On or about &date&, &Client& emailed &InsCo& explaining the "the only question that divides us is whether &InsCo&'s dependent counsel is required to comply with the Canons of Ethics. We think the lawyers must comply ethically. Neither &Client& nor I want to fight with &InsCo& or any of its many lawyers. We ask humbly that you engage us in good faith dialogue to try to find a solution to the one question that divides us." Attached hereto as Exhibit 1 is a true and correct copy of this email. &InsCo& did not respond to this email. Also on or about &date& , &Client& emailed &DependentCounsel& explaining in part: "&Blank&" Attached hereto as Exhibit 2 is a true and correct copy of this email.

61.	On &date&, &InsCo& attorneys wrote to &Client& stating in part: "&Blank&"

62.	On &date&, &InsCo& claim agent emailed &Client& stating in part: "&Blank"

63.	As a direct and proximate result of &InsCo&'s failure to honor Plaintiff's claims promptly, fairly and equitably, Plaintiff will continue to incur fees and costs during the pendency of this action.

64.	The conduct of &InsCo& has been performed in conscious disregard of the rights of Plaintiff. Therefore, &InsCo& is liable to Plaintiff for exemplary damages imposed to punish it, to make an example of &InsCo&, and to deter it from similar conduct in the future.

65.	As a direct and proximate result of &InsCo&'s unreasonable breach of contract and violations of duties, Plaintiffs have suffered loss, costs and fees in an amount in excess of the jurisdictional minimum of this court. Plaintiff will seek leave of court to amend this complaint to state the amount of its damages when they have been ascertained.

66.	On information and belief &Client& alleges that &InsCo& did not adopted written standards for the prompt investigation and processing of claims, did not communicate to &ClmAgt& written standards for the prompt investigation and processing of claims, has not provided to &Client& a written statement listing all bases for decision to not then provide a defense of the &Plaintiff& lawsuit to its insureds and the factual and legal bases for each reason given for such decision then within &InsCo&'s knowledge.

67.	On information and belief &Client& alleges that &InsCo& was conscious that the &Plaintiff& lawsuit raised disputed issues of fact or law in common with disputed issues of fact or law raised by &InsCo&'s reservation of rights.

68.	On information and belief &Client& alleges that during the pendency of the &Plaintiff& lawsuit, &InsCo& was conscious that &DependentCounsel& had not complied with Rule 3-310 in representing &Client& in the &Plaintiff& lawsuit.

69.	On information and belief &Client& alleges that in handling or all aspects of the claim asserted by &Client& regarding the &Plaintiff& lawsuit, &InsCo& never considered the advice of its counsel.

70.	On information and belief &Client& alleges that during the pendency of the &Plaintiff& lawsuit &InsCo& knowingly failed to adopt and implement reasonable standards for the prompt investigation and processing of claims.

71.	On information and belief &Client& alleges that during the pendency of the &Plaintiff& lawsuit &InsCo& knowingly failed to begin any necessary investigation of the claim within 15 days.

72.	On information and belief &Client& alleges that during the pendency of the &Plaintiff& lawsuit &InsCo& knowingly failed to adopt and communicate to all its claims agents written standards for the prompt investigation and processing of claims.

73.	On information and belief &Client& alleges that &InsCo& knowingly failed to maintain a claims files regarding the &Plaintiff& lawsuit containing all documents, notes and work papers in such detail that pertinent events and dates by &InsCo& can be determined.

74.	On information and belief &Client& alleges that &InsCo& has no written materials regarding its standards for processing claims.

WHEREFORE, &Client& pray for judgment as to defendants &DependentCounsel& and Does 1 through 200, judgment as follows:

1.	For declarations of the parties' respective rights and obligations under the circumstances and as alleged above;

2.	For general damages in a sum in excess of the jurisdictional minimum of this court;

3.	For compensatory damages according to proof at the time of trial;

4.	For interest at the legal rate on amounts due to &Client&;

5.	For costs of suit herein; and

6.	For such other and further relief as the court deems just and proper;

&Client& also pray for judgment as to defendants &InsCo& and Does 201through 250, judgment as follows:

7.	For declarations of the parties' respective rights and obligations under the circumstances and as alleged above;

8.	For general damages in a sum in excess of the jurisdictional minimum of this court;

9.	For compensatory damages according to proof at the time of trial;

10.	For interest at the legal rate on amounts due to &Client&;

11.	For costs of suit herein;

12.	For attorneys' fees incurred herein;

13.	For punitive damages, according to proof; and

14.	For such other and further relief as the court deems just and proper.

Dated: December ___ 2016

By:______________________________

Attorneys for

VERIFICATION

BY Individual policyholder

I am a plaintiff on the Verified Complaint, of which this Verification is a part. Pursuant to Code of Civil Procedure §446, I state that the allegations set forth in the Verified Complaint are true of my own personal knowledge, except as to the matters which are therein stated on information or belief, and as to those matters, I believe them to be true.

I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct.

Executed this __ day of December, 2016, at __, California.

________________________

Individual policyholder