WHAT DO ELVIS PRESLEY AND SECTION 2860 HAVE IN COMMON?

Posted by William (Bill) Ford, III 

In 1987 California enacted Civil Code §2860. This important statute deals with a very specific circumstance, namely, where [1] a policy imposes a duty to defend on an insurer and [2] a conflict of interest arises which creates a duty on the part of the insurer to provide independent counsel.

Hang in there.  Here comes the sexy part. 

Now, according to subsection “(f),” when the insured selects independent counsel (let’s call him “INDY”), both INDY and “the counsel provided by the insurer” (let’s call her “INSURER-SELECT”) “shall be allowed to participate in all aspects of the litigation.” Feels just like a Romeo and Juliet set up, right?

Subsection “f” goes on to say that INDY and INSURER SELECT have to sort of, well, get along. OK, actually they’re required to “cooperate fully in the exchange of information that is consistent with each counsel’s ethical and legal obligation to the insured.”

2860 (f) boils down to about five or six things—OK, exactly six things (if you’re a judge).

First, INDY has sole and exclusive control over the litigation. That’s the whole point of having “control,” right?  (Look up “control” in the dictionary…it means control.)    

Second, both INDY and INSURER SELECT are attorneys to the insured. As such, each is a fiduciary to the insured and each has full corresponding duties of loyalty to the insured. It couldn’t be otherwise, right? I mean a lawyer without loyalty is kind of  Elvis without hips, right?

Third, INDY has only one client—the insured. INSURER SELECT has two—the insured AND the insurer (her name says it all, right?)

Fourth, both INDY and INSURER SELECT have to comply with the California Rules of Professional Conduct, particularly Rule 3-310. This means they each have to be free of conflicts of interest. “DUH!” (Sorry, I couldn’t resist.)

Fifth, the insured has to “cooperate” with the insurer. This means the insured may not unreasonably withhold consent to INSURER SELECT’s legal representation after she’s made all the requisite disclosures under 3-310. This includes explaining the insurer’s reservations of rights letter. If the insurer has reserved “all” rights—INSURER SELECT has to disclose what that means—she can always ask her other client, right? 

Finally, INSURER SELECT has to exchange information “consistent with” her ethical obligation to the insured. This certainly means, at minimum, she can’t give coverage advice to the insurer and she sure as heck can’t give away information that might hurt her own client, the insured.

Have a very nice day. We’ll keep the light on.

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