NEVADACUMISCOUNSELARTICLE
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NEVADA ADPOTS
CUMIS COUNSEL
REQUIREMENT - WHO ’ S NEXT ?
AUTHOR : Patrick C . Gorman EMAIL : pgorman @ jshfirm . com BIO : jshfirm . com / patrickcgorman
In September 2015 , the Nevada Supreme Court issued a decision in State Farm Mut . Auto . Ins . Co . v . Hansen , 131 Nev . Adv . Op . 74 , which held that Nevada law requires an insurer to provide independent Cumis counsel when there is an actual conflict of interest between the insured and the insurer . Cumis counsel derives from the seminal California case San Diego Navy Fed . Credit Union v . Cumis Ins . Society , Inc . ( 1984 ), which similarly held that an insurer must retain , at its own expense , independent counsel for the insured where there is a conflict of interest . Hansen is a new branch of common law that will lead to new litigation in Nevada , as well as possibly affect jurisdictions outside of Nevada that have not directly addressed whether an insurance company must retain separate counsel when there is a conflict of interest between itself and the insured .
State Farm Mutual Insurance Company v . Hansen
Hansen was a first-party claim where the insured alleged that State Farm breached its contractual obligations by refusing to provide independent counsel to its insured . In the underlying case , State Farm ’ s insured was sued for intentional torts and negligence following an incident at a house party and successive car accident . State Farm defended under a reservation of rights , but refused to provide independent counsel to its insured . In subsequent coverage litigation , the United Stated District Court for the District of Nevada considered the issue of whether State Farm breached its contractual duty to defend because it did not provide independent counsel to its insured . After its initial ruling , the District Court reconsidered and certified the issue of whether independent counsel needed to be appointed to the Nevada Supreme Court .
Concluding Remarks
Following Cumis , the Nevada Supreme Court held that “ counsel may not represent both the insurer and the insured when their interests conflict and no special exception applies .” The Nevada Supreme Court found that a conflict of interest exists if the insurerprovided counsel has “ control over an issue in the case that will also decide the coverage issue ,” and the reservation of rights is not
“ extrinsic or ancillary to the issues actually litigated in the underlying action .” The Court rejected the notion that a per se conflict of interest exists in every case in which a reservation of rights letter is issued . Instead , Nevada courts must ask whether an actual conflict exists on a case-by-case basis .
Effect of Hansen Outside and Inside of Nevada
With the decision , Nevada joined California , along with several other jurisdictions , requiring an insurer to not only retain , but pay for , independent counsel . While there are no defined patterns in jurisdictions adopting or rejecting a Cumis counsel requirement , Hansen provides non-precedential authority and reasoning to consider when adopting or rejecting Cumis . Western states , such as Arizona or New Mexico , could examine the Cumis case to determine if it would be appropriate to adopt in modern insurance litigation .
Within Nevada , collateral litigation related to the appropriate billing rate will likely occur . In addition , by failing to clarify when a conflict necessitating independent counsel arises , the Nevada Supreme Court established a standard that may be difficult for insurers and appointed defense attorneys to apply . Furthermore , when independent counsel is not appointed , insurance companies will face allegations of a breach of the duty to defend and the duty of good faith and fair dealing .
Insurers must be aware of the potential consequences of the Hansen decision , in order to fulfill the duties to defend and indemnify . Within Arizona , there are immediate issues that will arise due to Nevada ’ s adoption of Cumis counsel . For example , must an insurer appoint Cumis counsel for a Nevada insured when the lawsuit is in Arizona ? Arizona courts have previously held that an insured is entitled to seek independent counsel when a reservation of rights is issued , and protect against the threat of personal liability by entering into Morris agreement . Whether insurers are required to provide that counsel is an issue that is likely to be addressed by Arizona courts .
ABOUT THE AUTHOR PATRICK GORMAN
Patrick practices in bad faith , insurance coverage , and professional liability . He has served in a variety of capacities for the DRI Young Lawyers Subcommittee , including currently serving as the Vice Chair of Marketing . He is also active in the Papago Men ’ s Golf Association .
Contact Patrick at 602.263.1761 or pgorman @ jshfirm . com