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Written By: Sezen Z. Oygar, Esq.

Neil, Dymott, Frank, McFall & Trexler APLC

San Diego, California

There is a unified theme between a physician (the “insured”), his or her liability insurance company (the “insurer”) and retained defense counsel: minimizing or eliminating liability. Defense counsel hired by the insurer essentially represents two clients, the insurer and the insured; a fiduciary duty is owed to both. When one or more causes of action (or claim for punitive damages) fall outside of the insured’s coverage, when should the tripartite relationship end with the addition of cumis counsel?

Cumis counsel is independent counsel employed by the insured, but paid by the insurer, when an actual, significant conflict of interest arises between the insured and his or her liability carrier. An example of a potential conflict of interest may arise when the insured’s policy covers one claim (such as negligence), but fails to cover the other (such as one for intentional misconduct). The potential conflict arises because the insurer may be motivated to steer the outcome of the case towards a noncovered claim, while the insured will argue his or her potential liability is covered.

The standard practice of an insurer is to defend under a reservation of rights where the insured will not be entitled to indemnity for liability on non-covered claims. The duty to defend is much broader than the duty to indemnify. In 1984, the California Court of Appeals, Fourth District, addressed the ethical dilemmas that arise with joint representation. The court endorsed the appointment of independent counsel for an insured’s tort defense in San Diego Navy Federal Credit Union v. Cumis Insurance Society, Inc., (1984) 162 Cal. App. 3d 358. In Cumis, the court concluded, counsel hired by an insurer to defend an insured has a duty to explain to the insured and the insurer the implications of joint representation where the insurer has reserved rights to deny coverage. (San Diego Navy Federal Credit Union v. Cumis Insurance Society, Inc. (1984) 162 Cal. App. 3d 358, 375). When an actual conflict exists, counsel hired by the insurer must fully disclose to both the insured and insurer the areas of diverging interests and the implications of the joint representation. Written consent of the continued representation is required. If consent to the continued representation is not provided, the insured has a right to independent counsel. Further, the holding in Cumis solidified the insurer is obligated to pay the reasonable costs of independent counsel. (Id.).

When Does a Conflict Vest?

The California Legislature, like other states, limited and codified the holding of Cumis in Civil Code section 2860. The reason is because the Cumis rule is based on the ethical duty of an attorney to not represent clients with conflicting interests. Despite the statutory language which does not state exactly when the right to cumis counsel vests, generally, if an insurer reserves rights to deny coverage for compensatory damages for intentional, willful or reckless conduct, or accompanied by an award of punitive damages, the physician is entitled to cumis counsel. Similarly, a physician may be entitled to cumis counsel when plaintiff makes a demand in excess of policy limits. As a general rule to determine if a physician has a right to cumis counsel, one should ask “Can defense counsel’s theory of a case control or affect the underlying coverage dispute between the insurer and insured?” (Civ. Code, § 2860 subd. (b).; See also Golden Insurance Co. v. Foremost Ins. Co., (1993) 20 Cal. App. 4th 1372). If the answer is yes, the insured is entitled to cumis counsel.

Selection, Control and Cooperation of Counsel

Civil Code, section 2860 limited the insured’s unfettered right to selection of cumis counsel. Section 2860 allows the insurer to insist on certain minimum qualifications and to require counsel have valid errors and omissions coverage. The statute, however, leaves open the possibility that the insurance contract may address the issue of retention of independent counsel. (Mower & Schratz, The Other Side of the Cumis Coin: The Insurer’s Ability to Select Associate Defense Counsel Under Civil Code Section 2860(f)(1993) 20 W. St. U. L. Rev. 569, 577).

Despite the aforementioned limitations, if an insured is entitled to cumis counsel, the insured is entitled to control the defense of the case. (Cumis, supra, 162 Cal.App.3d at 369; See also Tomerlin v. Canadian Indemnity Co. (1994) 61 Cal.2d 638, 648). Section 2860, Civil Code, does not, however, take away all strategic control from the insurer. Both the counsel hired by the insurer and cumis counsel are allowed to participate in all aspects of the litigation. (Civ. Code, § 2860 subd. (f).). Moreover, experienced insurance defense counsel are often better equipped to evaluate the true exposure of the insured. They can be especially helpful in retaining experts and formulating cohesive and effective litigation plans.

The insured that opts for cumis counsel has an obligation to cooperate with the insurer and its counsel. Cumis counsel and the insured have a duty to disclose to the insurer all information concerning the action except privileged material relevant to coverage disputes, and to inform and consult with the insurer on all matters relating to the action. (Civ. Code, § 2860 subd. (d).). Any claim of privilege asserted is subject to in camera review in the appropriate law and motion department of the superior court. Should cumis counsel fail to timely disclose, inform, consult or cooperate with the insurer, the insurer may have a lawsuit against cumis counsel for breach of the statutory duties defined in Civil Code, section 2860.

Who is Responsible for Paying Cumis Counsel?

If cumis counsel is chosen, his or her fees are limited to the rates which are actually paid by the insurer to defense counsel in the defense of similar actions in the community where the claim arose, or is being defended. (Civ. Code, § 2860 subd. (c).). What insureds often do not understand is the cost of proceeding with cumis counsel. While statutes such as Civil Code, section 2860 require the insurer to pay the fees of cumis counsel, often cumis counsel’s rates far exceed those required by the statute. Attorneys hired by the insurance company often charge lower rates than those of independent counsel. Defense counsel hired by the insurer are chosen because of a great amount of experience in the medical malpractice arena, which has enabled them to not only effectively represent the insured, but to do so efficiently. Should the rates of the chosen cumis counsel exceed those of the rates paid by the insurer, the choice to obtain cumis counsel forces the insured to bear a significant cost of the defense. Unless cumis counsel is willing to work at a rate similar to the insurer’s counsel, the insured is subject to a real cost in electing to proceed with cumis counsel. Any dispute concerning attorney fees to be paid to cumis counsel must be submitted to arbitration unless an alternative dispute resolution procedure is required by the insurance policy.

The decision to waive or proceed with cumis counsel is one that should be carefully considered and evaluated by the insured, and discussed with the attorney advising the insured. While one may perceive the need for cumis counsel to be necessary, as a matter of practicality, the insured should opt for cumis counsel only when the perceived benefits outweigh the costs.

Sezen Z. Oygar is an associate in the San Diego office of Neil, Dymott, Frank, McFall & Trexler. Her practice areas include healthcare and professional liability litigation. For more information Ms. Oygar can be reached at (619) 238-1712 or

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