Cumis Counsel Appointment Letter

CUMIS COUNSEL APPOINTMENT LETTER

LETTERHEAD

[INSURED'S CURRENT COUNSEL]

[Law Firm Name]
[Address]
[City, State ZIP]
[Telephone]
[Email]

VIA CERTIFIED MAIL AND EMAIL
[__/__/____]

TO:

[CLAIMS REPRESENTATIVE NAME]
[TITLE]
[INSURER NAME]
[INSURER ADDRESS]
[CITY, STATE ZIP]

CC (via email):

[COVERAGE COUNSEL FOR INSURER]
[INSURER'S COVERAGE COUNSEL EMAIL]

[DEFENSE COUNSEL APPOINTED BY INSURER]
[APPOINTED COUNSEL EMAIL]

RE: DEMAND FOR INDEPENDENT COUNSEL (CUMIS COUNSEL)

• Claimant/Plaintiff: [_______________________]
• Insured: [_______________________]
• Policy Number: [_______________________]
• Case/Claim Number: [_______________________]
• Court (if filed): [_______________________]
• Underlying Action Caption: [_______________________]

I. INTRODUCTION

This firm represents [INSURED NAME] ("Insured") in connection with a claim/lawsuit arising out of [brief description of incident: e.g., "an automobile accident on [date]" or "an alleged premises liability incident at [location]"]. We write to formally invoke Insured's right to independent counsel (Cumis counsel) under California Civil Code § 2860 and the seminal decision in San Diego Navy Federal Credit Union v. Cumis Insurance Society, 162 Cal. App. 3d 358 (1984).

II. RESERVATION OF RIGHTS LETTER

On [__/__/____], Insured received [INSURER NAME]'s Reservation of Rights letter (attached as Exhibit A). That letter confirms that:

1. The Insurer is providing a defense to Insured under a reservation of rights;
2. The Insurer reserves the right to deny coverage for all or part of the claim based on [specify grounds: e.g., "alleged exclusion for intentional conduct," "dispute over covered cause of action," "coverage limits", etc.];
3. The Insurer appointed [DEFENSE COUNSEL NAME] and [FIRM NAME] to defend Insured.

This reservation of rights and the underlying claim allegations create a qualifying conflict of interest under Cal. Civ. Code § 2860(b).

III. CONFLICT OF INTEREST

A. Legal Standard

Under California Civil Code § 2860(b), a conflict of interest arises when:

"an insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim, a conflict of interest may exist."

Cal. Civ. Code § 2860(b) (emphasis added).

The California Courts of Appeal have consistently held that the conflict must be actual and significant—not merely theoretical or potential. Gafcon, Inc. v. Ponsor & Associates, 98 Cal.App.4th 1388, 1421 (2002); Centex Homes v. St. Paul Fire & Marine Ins. Co., 237 Cal.App.4th 23, 31-32 (2015).

B. Qualifying Conflict in This Case

A significant conflict exists because:

1. The Factual Allegations Directly Control Coverage

The complaint/claim allegations include conduct that, if established, would defeat coverage under the policy's exclusions or limits. Specifically:

• [Identify the coverage-controlling allegation(s) from the complaint—e.g.]:
• Allegations of intentional conduct or willful and wanton behavior (which would trigger the intentional acts exclusion);
• Allegations of failure to warn or negligent supervision (which counsel could characterize as negligence rather than intentional breach, thus supporting coverage);
• Allegations of non-covered causes of action (e.g., fraud, breach of contract) intermixed with covered negligence claims;
• Claims for punitive damages coupled with underlying negligence (coverage turns on proof of negligence vs. intent);
• [Other state-specific exclusions: e.g., professional liability exclusions; pollution exclusions; abuse/molestation exclusions.]

2. Divergent Incentives

The Insurer-appointed defense counsel faces irreconcilable duties:

• Insurer's interest: Establish facts supporting coverage denial (e.g., prove Insured acted intentionally, deliberately, or recklessly).
• Insured's interest: Establish facts supporting coverage (e.g., prove conduct was negligent, accidental, or unintentional; prove proximate cause within policy scope).

If counsel pursues the Insurer's interests by emphasizing Insured's intentional, deliberate, or culpable state of mind, that same evidence will defeat coverage. Conversely, if counsel pursues Insured's defense by minimizing Insured's intent or blame, counsel undermines the Insurer's coverage investigation.

3. Outcome Control by Defense Counsel

Under Cal. Civ. Code § 2860(b), the coverage dispute outcome can be controlled by the Insurer-appointed defense counsel through:

• Choice of legal theories and fact development in the underlying litigation;
• Settlement negotiations and positioning;
• Witness examination and impeachment;
• Discovery tactics and disclosure;
• Trial presentation and burden allocation.

The Insurer-appointed counsel, not an independent coverage department, will shape the factual record on which the coverage determination ultimately rests.

IV. STATEMENT OF RIGHT TO INDEPENDENT COUNSEL

Under Cal. Civ. Code § 2860(a):

"If the provisions of a policy of insurance impose a duty to defend upon an insurer and a conflict of interest arises which creates a duty on the part of the insurer to provide independent counsel to the insured, the insurer shall provide independent counsel to represent the insured unless, at the time the insured is informed that a possible conflict may arise or does exist, the insured expressly waives, in writing, the right to independent counsel."

Insured has not waived the right to independent counsel. On the contrary, Insured exercises its right to select independent counsel to represent it in this matter, free from the conflicts that compromise the Insurer-appointed defense.

V. PROPOSED INDEPENDENT COUNSEL

A. Counsel Selection

Insured hereby notifies the Insurer that Insured has selected the following independent counsel to represent Insured in connection with the underlying claim/litigation:

B. Qualifications

The proposed independent counsel meets and exceeds the minimum qualifications set forth in Cal. Civ. Code § 2860(c):

1. Litigation Experience

Proposed counsel has at least five (5) years of civil litigation practice with substantial defense experience in claims involving [specify category: e.g., "construction defects," "employment liability," "property damage," "personal injury," "professional liability," etc.]. Proposed counsel's background includes:

• ☐ [Number] jury trials
• ☐ [Number] bench trials
• ☐ [Number] arbitrations and mediations
• ☐ [Number] appeals

2. Malpractice Insurance

Proposed counsel carries errors and omissions (professional liability) coverage in an amount not less than $[_______________________], with an aggregate limit of $[_______________________]. Exhibit B contains a certificate of insurance evidencing such coverage.

3. No Conflicts with Insured

Proposed counsel has no prior professional relationship with the Insured, the Insurer, or defense counsel that would compromise independent judgment.

VI. RATE ACKNOWLEDGMENT

A. Compliance with § 2860(c) Rate Limits

Insured acknowledges that the Insurer may require independent counsel's fees to comply with Cal. Civ. Code § 2860(c), which provides:

"The insurer's obligation to pay fees to the independent counsel selected by the insured is limited to the rates which are actually paid by the insurer to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended."

B. Proposed Rate Structure

Proposed independent counsel agrees to charge hourly rates consistent with the Insurer's customary rates for panel defense counsel in [JURISDICTION/COMMUNITY] for similar matters. Proposed rates are:

These rates are comparable to rates charged by [Reference firm or benchmark if known], representing panel counsel in similar matters in this community.

C. Billing and Dispute Resolution

• Independent counsel shall invoice the Insurer monthly, with detailed time entries consistent with industry standards.
• Any dispute regarding fees shall be resolved by final and binding arbitration by a single neutral arbitrator selected by the parties, pursuant to Cal. Civ. Code § 2860(c).

VII. DISCLOSURE AND COOPERATION OBLIGATIONS

A. Information Sharing (Dual Counsel)

Both the Insurer-appointed defense counsel and independent counsel are authorized to participate in all aspects of the litigation. Pursuant to Cal. Civ. Code § 2860(f), counsel shall:

• Exchange all information concerning the action except privileged materials relevant to coverage disputes;
• Timely inform and consult on all matters relating to the action;
• Cooperate fully within the bounds of each counsel's ethical and legal obligations to Insured.

B. Coverage Dispute Privilege

Information disclosed by Insured or independent counsel is not a waiver of attorney-client or work-product privilege as to the coverage dispute. Any claim of privilege asserted shall be subject to in camera review in the appropriate law and motion department of the superior court, as provided in Cal. Civ. Code § 2860(d).

C. Insured's Cooperation Duty

Nothing in this letter shall relieve Insured of its obligation to cooperate with the Insurer under the terms of the insurance contract. Insured shall continue to:

• Provide timely information regarding the claim;
• Comply with policy conditions and notice requirements;
• Disclose non-privileged facts relating to the action to both counsel;
• Cooperate in settlement discussions and litigation strategy.

VIII. SCOPE OF INDEPENDENT COUNSEL'S ENGAGEMENT

A. Representation of Covered Claims

Independent counsel is retained to defend Insured in the underlying action to the extent coverage is owed under the policy. Independent counsel's duties include:

• ☐ Evaluate all coverage issues and factual allegations;
• ☐ Defend Insured against liability claims;
• ☐ Participate in settlement negotiations;
• ☐ Coordinate with Insurer-appointed defense counsel;
• ☐ Provide written coverage opinions as requested;
• ☐ Prepare for trial/arbitration if litigation proceeds.

B. Coverage Opinion Role

At the Insured's request, independent counsel may prepare confidential written opinions regarding coverage issues for provision to the Insurer or retained in attorney-client privilege. Such opinions shall address the conflict-creating allegations and whether the policy covers Insured's conduct as alleged.

C. Non-Scope Matters

Independent counsel does not undertake:

• Coverage counsel functions (that remains the Insurer's retained coverage counsel);
• Claims handling or investigation (beyond what is necessary for litigation defense);
• Settlement authority (all settlement decisions remain the Insurer's prerogative, subject to coverage determination).

IX. DEMAND FOR RESPONSE AND TRANSITION PLAN

A. Response Deadline

The Insurer shall provide a written response to this letter within fifteen (15) calendar days of receipt. The response shall:

• ☐ Confirm appointment and authorization of proposed independent counsel, or
• ☐ Specify any objection to proposed counsel based on qualifications under § 2860(c), with detailed explanation, or
• ☐ Propose alternative counsel if Insurer contends proposed counsel is unqualified.

Any objection must be in writing and must identify the specific qualification requirement that is not met.

B. Proposed Transition Plan

Upon the Insurer's confirmation, the parties shall implement the following transition:

1. Within 3 business days: Insurer-appointed defense counsel, independent counsel, and Insurer shall hold a conference call to coordinate transition and information exchange.

2. Within 7 business days: Insurer-appointed counsel shall provide independent counsel with copies of all file materials, including pleadings, correspondence, discovery, and claims file documents (except materials withheld on privilege grounds related to the coverage dispute).

3. Ongoing: Both counsel shall remain in communication and shall cooperate in the defense, with independent counsel having full access to litigation strategy, settlement discussions, and case management.

4. First Invoice: Independent counsel shall submit its first invoice within 30 days of engagement, with subsequent invoices as work progresses.

X. RESERVATION OF BAD-FAITH AND EXTRA-CONTRACTUAL CLAIMS

Insured expressly reserves all rights and claims relating to the Insurer's handling of this claim, including but not limited to:

• Bad-faith defense claims under Cal. Civ. Code § 3294 and common law (if the Insurer fails to provide adequate independent counsel or wrongfully denies coverage);
• Breach of the covenant of good faith and fair dealing under Cal. Civ. Code § 1668;
• Violations of Cal. Ins. Code § 790 et seq. (unfair claims settlement practices);
• Extra-contractual damages if the Insurer's actions cause detriment beyond policy limits.

This letter is NOT a waiver of any such claims and does not estop Insured from later pursuing coverage relief or bad-faith remedies.

XI. CONTACT INFORMATION AND FURTHER NOTICE

All notices relating to this matter shall be directed to:

XII. SIGNATURE BLOCK

This letter is executed on behalf of [INSURED NAME] by the undersigned, representing Insured in this matter.

Respectfully,

[INSURED'S COUNSEL SIGNATURE]

[PRINTED NAME]

[BAR NUMBER AND STATE]

[FIRM NAME]

[TELEPHONE]

[EMAIL]

ON BEHALF OF:

[INSURED NAME]

Date: [__/__/____]

XIII. SOURCES AND REFERENCES

Federal and State Statutory Authority

• California Civil Code § 2860 — Independent Counsel; Conflict of Interest
• California Civil Code § 3294 — Punitive Damages; Bad Faith
• California Insurance Code § 790 et seq. — Unfair Claims Settlement Practices
• California Code of Civil Procedure § 1668 — Covenant of Good Faith and Fair Dealing

California Case Law (Seminal and Controlling Precedent)

• San Diego Navy Federal Credit Union v. Cumis Insurance Society, 162 Cal. App. 3d 358 (1984) — Foundational Cumis doctrine; establishes the right to independent counsel when conflict of interest arises from insurer's reservation of rights.
• McGee v. Superior Court, 176 Cal. App. 3d 221 (1985) — Early application of Cumis principles; clarifies scope of conflict.
• Gafcon, Inc. v. Ponsor & Associates, 98 Cal. App. 4th 1388 (2002) — Requires that conflict be actual and significant, not merely theoretical; outcome must be controllable by defense counsel.
• Dynamic Concepts, Inc. v. Truck Insurance Exchange, 61 Cal. App. 4th 999 (1998) — Conflict must be significant, not merely theoretical; actual, not merely potential.
• Long v. Century Indemnity Co., 163 Cal. App. 4th 1460 (2008) — Reservations of rights do not automatically trigger Cumis right; there must be a genuine conflict.
• Centex Homes v. St. Paul Fire & Marine Insurance Co., 237 Cal. App. 4th 23 (2015) — Potential conflict insufficient; outcome control test applied; reservation of rights alone does not create conflict.

Illinois Case Law (Murphy Doctrine)

• Murphy v. Urso, 430 N.E.2d 1079, 88 Ill. 2d 444 (1981) — Establishes insurer's duty to provide independent counsel when actual conflict exists between insured and insurer.

Missouri and Louisiana Authorities

• Montrose Chemical Corp. v. Admiral Insurance Co., 913 S.W.2d 527 (Mo. 1995) — Missouri independent counsel doctrine.
• LaRue v. State Farm Insurance Co., 720 So. 2d 1072 (La. 1998) — Louisiana independent counsel requirements.

Secondary Sources and Articles

• "The Definitive Guide to Cumis Counsel," Burke Nadell & Sprackling LLP, https://bnsklaw.com/the-definitive-guide-to-cumis-counsel/
• "Debunking the Cumis Counsel Myths," Plaintiff Magazine (June 2013)
• California Legislative Information, Civ. Code § 2860, https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV&sectionNum=2860

APPENDICES AND EXHIBITS

• Exhibit A: Insurer's Reservation of Rights Letter (dated [__/__/____])
• Exhibit B: Certificate of Insurance (Professional Liability / Errors & Omissions) for Proposed Independent Counsel
• Exhibit C: Underlying Complaint or Claim Notification
• Exhibit D: Insurance Policy (relevant pages)
• Exhibit E: [Optional: Curriculum vitae or biography of proposed independent counsel]

END OF LETTER