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Keywords

contractlawsuitbreach of contractattorneyliabilityappealtrial

plaintifflitigationattorneyliabilityappealtrial

Related Cases

Swanson v. State Farm General Ins. Co., 219 Cal.App.4th 1153, 162 Cal.Rptr.3d 477, 13 Cal. Daily Op. Serv. 10,674, 2013 Daily Journal D.A.R. 12,875

Facts

Terry Ann Swanson had a homeowners insurance policy with State Farm that provided liability coverage. After being sued by her neighbors, Swanson's attorney requested that State Farm defend her in the lawsuit. State Farm initially accepted the defense with a reservation of rights, allowing Swanson to choose independent counsel, Richard E. Blasco, under Civil Code section 2860. However, after State Farm withdrew its reservations of rights, it informed Swanson that it would no longer pay for Blasco's services, asserting that the withdrawal eliminated the conflict of interest that justified independent counsel. Swanson subsequently filed a lawsuit against State Farm for breach of contract and other claims.

State Farm issued Swanson homeowners insurance policy No. 71-71-9553-0 (the Policy) that provided personal and general liability coverage for her real property in La Crescenta, for the period of May 12, 2004 to May 12, 2006.

Issue

Whether State Farm had the right to cease paying for Swanson's independent counsel after withdrawing its Cumis-triggering reservations of rights.

The primary issue on appeal is whether State Farm had the right to take control of the litigation with an attorney of its choosing and to cease paying Blasco, Cumis counsel chosen by Swanson, after State Farm withdrew its Cumis-triggering reservation of rights.

Rule

An insurer's duty to provide and pay for independent counsel arises only when a disqualifying conflict of interest exists due to the insurer reserving rights that could affect coverage. Once the insurer withdraws such reservations, the obligation to provide independent counsel ceases.

An insurer's duty to provide and pay for Cumis counsel arises only where a disqualifying conflict of interest exists.

Analysis

The court analyzed the relationship between the insurer and the insured, noting that State Farm's withdrawal of its reservations of rights eliminated the conflict of interest that justified the need for independent counsel. The court emphasized that under the terms of the insurance policy, State Farm had the right to control the defense and appoint counsel of its choosing once the conflict was resolved. The court found that Swanson's claims regarding modifications to the policy and waiver of rights were without merit, as the correspondence exchanged did not constitute a modification of the policy.

The court explained, in 1 paragraph, how the court applied the rule(s) to the facts of the case.

Conclusion

The Court of Appeal affirmed the trial court's decision, concluding that State Farm did not breach its insurance contract with Swanson by refusing to pay for her independent counsel after withdrawing its reservations of rights.

The trial court concluded that when State Farm ultimately withdrew its Cumis-triggering reservations, plaintiff insured was no longer entitled to independent Cumis counsel.

Who won?

State Farm prevailed in the case because the court found that it had the right to withdraw its reservations of rights and cease paying for independent counsel once the conflict of interest was eliminated.

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