Defined. "Cumis counsel" refers to an independent attorney appointed to represent the association or board members in cases where there is a conflict of interest with the association's insurance company. Instead of insurance appointed counsel, the association or its directors could have counsel of their own choosing as provided for in Civil Code §2860(a). The term originated in the case of San Diego Federal Credit Union v. Cumis Insurance Society, Inc.
Conflict of Interest. A conflict of interest often arises when the insurance carrier agrees to defend under a "reservation of rights." When that happens, a conflict of interest exists between the economic and litigation interest of the insurer and the association. If the conflict is significant, the traditional right of the insurer to select counsel and control the defense is lost. As a result, the association may select independent counsel and control the defense, but the insurer must pay the defense costs. Section 2860 of California's Code of Civil Procedure provides:
(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. An insurance contract may contain a provision which sets forth the method of selecting that counsel consistent with this section.
(b) For purposes of this section, a conflict of interest does not exist as to allegations or facts in the litigation for which the insurer denies coverage; however, 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. No conflict of interest shall be deemed to exist as to allegations of punitive damages or be deemed to exist solely because an insured is sued for an amount in excess of the insurance policy limits.
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