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  • June 2022

    There is often confusion as to when an insurance company must pay for an insured’s choice of counsel. In a number of states, an insurer’s agreement to defend a lawsuit against an insured, while reserving the right to deny liability for the outcome of a lawsuit, can trigger an obligation to provide independent counsel (commonly referred to as “Cumis counsel”). The duty to provide independent counsel is typically due to a conflict of interest, which arises when: (a) the insurer reserves the right to deny liability for the outcome of the lawsuit against its insured, (b) the insurer can assert control over the defense of the lawsuit through its appointment of defense counsel, or (c) the outcome of the lawsuit can determine coverage. For instance, the insurer might avoid coverage for the outcome of a lawsuit if the insured is found by a judge or jury to have acted intentionally (which is typically not covered), instead of a finding that the insured acted negligently (which may be covered). If the insurer’s control of the defense through its choice of counsel might influence the outcome, the potential conflict of interest for the defense counsel would require that the insurer provide independent counsel chosen by the insured. In other words, the interests of the insured and the insurer are in conflict when the control over the defense and outcome of the underlying suit can affect coverage for a judgment.

    In the recent case Simonyan v. Nationwide (2022) Cal.App.LEXIS 417, the insured argued that the insurer’s contention that the insured was partially at fault triggered a conflict of interest and an obligation by the insurer to pay for the insured’s choice of counsel. In Simonyan, the Third Appellate District held that an insurer acted reasonably in refusing to appoint Cumis counsel based upon the insured’s argument that there was a conflict of interest which necessitated the appointment of independent counsel.

    Insurer Determines Insured was Partially at Fault

    The underlying dispute involved a three-car accident in which the insured, Nshan Simonyan (“Insured”), was the driver of the middle vehicle. The Insured retained counsel and filed suit against the driver of a truck who struck the Insured’s vehicle, causing the Insured to hit the car ahead of him. The driver of the lead vehicle sued the Insured.

    The Insured filed a claim with its carrier, Nationwide Insurance Company of America (“Insurer”), who internally found the Insured liable for the accident and raised the Insured’s premiums. Subject to the terms of the policy, the Insurer agreed to pay damages for “bodily injury” and “property damage” for which the Insured becomes legally responsible because of an auto accident. Further, the Insured agreed to settle or defend the Insured for any claim of suit seeking such damages and pay all defense costs incurred.

    The Insured requested that the Insurer appoint his choice of counsel as Cumis counsel on the grounds that the Insurer’s determination that the Insured caused the accident created a conflict of interest. The Insurer denied the conflict of interest but agreed to appoint an outside firm as defense counsel. The Insured denied that this corrected the conflict, arguing that defense counsel would investigate the case in a manner that would ensure future work from the Insurer. The Insured also argued that having both his personal counsel and the Insurer’s appointed defense counsel put him at a disadvantage. The Insurer refused to appoint Cumis counsel and pursuant to the policy, demanded that the Insured cooperate with the Insurer’s appointed defense counsel or face the risk of the Insurer declining to pay defense costs or judgments.  

    Shortly thereafter, the Insurer raised the Insured’s policy premiums and removed driver discounts because it determined he was at fault for the accident. The Insured filed suit against the Insurer for (1) breach of contract, and (2) breach of the implied covenant of good faith and fair dealing. The Insurer challenged the lawsuit by a demurrer to the Insurer’s complaint on the grounds that even if all facts alleged in the lawsuit were true, neither cause of action stated facts sufficient to constitute viable actions against the Insurer. The trial court agreed with the Insurer and entered judgment dismissing the complaint with prejudice. The Insured appealed.

    The Appeal

    Breach of Contract: The Insured argued that he pled breach of contract sufficiently based on the Insurer’s refusal to provide independent counsel.

    The Court of Appeal stated that the duty to provide independent counsel derives from the ethical duty of an attorney to avoid conflicts of interest, not from insurance law. The Court of Appeal described situations where it is appropriate for an insurer to provide independent counsel based on a conflict of interest: “(1) where the insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by the insurer’s retained counsel; (2) where the insurer insures both the plaintiff and the defendant; (3) where the insurer has filed suit against the insured, whether or not the suit is related to the lawsuit the insurer is obligated to defend; (4) where the insurer pursues settlement in excess of policy limits without the insured’s consent and leaving the insured exposed to claims by third parties; and (5) any other situation where an attorney who represents the interests of both the insurer and the insured finds that his or her ‘representation of the one is rendered less effective by reason of his [or her] representation of the other.” The Court of Appeal promptly concluded that the five circumstances, including the fifth catchall circumstance, did not apply to the Insured’s case.

    The Insured also argued that a conflict of interest existed on the basis of Rule 1.7(b) of the Rules of Professional Conduct, which states that a lawyer shall not represent a client if there is “significant risk” that the representation would be “materially limited” by the attorney’s relationships. The Court of Appeal determined that Rule 1.7(b) was not applicable, noting that the comments to the Rules provide that the “mere possibility of subsequent harm” is not sufficient to establish a conflict of interest. Alleging anticipated circumstances that “have not occurred yet in the underlying litigation” is insufficient to state a claim that independent counsel is required.

    Finally, the Insured argued that a conflict of interest existed because the Insurer raised his premiums and removed his discounts as a result of the determination that the Insured was at fault. The Insured; however, cited no authority showing that the Insurer’s actions created a conflict of interest. The Court of Appeal noted that the Insurer agreed to defend the claim fully, did not provide a reservation of rights, and had an interest to prevail at litigation. Therefore, the Court of Appeal agreed with the trial court and determined that the Insured failed to establish a cause of action for breach of contract.

    Breach of Implied Covenant of Good Faith and Fair Dealing: The Insured argued that the Insurer breached the covenant by selecting defense counsel for representation rather than the Insured’s choice of counsel, who was already representing the Insured in his suit against the driver of the truck. Further, he contended having two law firms represent him would increase litigation fees and costs. He asserted that two law firms “would needlessly complicate the discovery process and trial presentation” and “create problems because the trial court would likely not allow two attorneys who both represent Insured to conduct voir dire, cross-examine a single witness, and deliver an opening statement and a closing argument.” The Court of Appeal stated that when Cumis counsel is provided along with the insurer-appointed defense counsel, many of these same issues exist. It concluded that the alleged harms the Insured claimed were not protected by the covenant of good faith and fair dealing. Therefore, the Court of Appeal agreed with the trial court and determined that the Insurer also failed to establish a cause of action for breach of the implied covenant of good faith and fair dealing.


    The Court of Appeal affirmed the trial court’s decision to dismiss the Insured’s lawsuit against the Insurer. Although the Insurer internally found the Insured partially at fault for the accident, the Insurer still had an interest in defending the underlying claim; thus, the Insurer’s actions did not amount to a conflict of interest sufficient to require the appointment of independent counsel.

    For more information contact:

    Ted L. Senet

    Theodore L. Senet is a partner of the firm. Since joining the firm, Mr. Senet’s areas of practice have been insurance, construction, environmental, and real property law. Mr. Senet has been involved in planning and construction of major projects, including high rise buildings, hospitals, airports, roadways, pipelines, power plants, refineries, and major commercial and residential developments. He currently represents private and public entities in project planning, insurance coverage disputes, complex construction defect and environmental litigation, construction delay claims, and class action litigation. He has taught courses on insurance, construction, and real property law, and has been a principal speaker at numerous seminars and industry conferences. He has published numerous articles and has been a contributing author on a number of books on construction and insurance law. Mr. Senet has been as an adjunct professor at Loyola Law School, Los Angeles, where he taught Construction Law and Sustainable Development.


    Missy L. Griffin

    Missy Griffin is an associate in the San Jose office of Gibbs Giden where she represents clients in the areas of construction claims and litigation in addition to business and commercial transactions. Ms. Griffin has worked on complex construction litigation, contract analysis, contract drafting, and mechanics lien and stop payment foreclosure actions. Ms. Griffin also has experience drafting and reviewing purchase agreements in connection with commercial and residential assets, corporate governance issues, entity formation, and data privacy and compliance matters. Ms. Griffin is an Adjunct Professor and a member of the Dean’s Council at Pepperdine Caruso School of Law, and an active member of the American Bar Association (ABA) Forum on Construction Law, the largest association of construction lawyers in the world.

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