INSURANCE-RELATED COURT CASES

Digested from case reports published online

COURT DECISIONS

Independent counsel denied

On July 4, 2015, a fire occurred on a property in Los Angeles controlled by the Darwish family. A squatter died. Two tenants, two surviving squatters, and the estate of the deceased squatter sued the Darwishes and their corporate entities, including Nede Management, Inc., which managed the property. The suit (the Hall action) alleged claims for wrongful death, negligence, premises liability, and conversion. The Hall action also alleged punitive damages.

The Darwish family’s insurer, Aspen American Insurance Company, and man-aging underwriter Deans & Homer (D&H), defended the action, which ultimately was settled without any out-of-pocket payment from the Darwish family or Nede.

The Darwish family nevertheless sued Aspen and D&H. They sought a declaration that a conflict of interest existed in the underlying case between them and Aspen and D&H, so they were entitled to so-called “Cumis” counsel at Aspen’s expense pursuant to section 2860 of a state statute. (Where an insurer is defending under a reservation of rights, a conflict of interest exists between the economic and litigation interest of the insurer and the insured. The traditional right of the insurer to select counsel and control the defense is lost. Instead, the insured selects counsel and controls the defense, but in California the insured can demand that the insurer pay the defense costs.)

The trial court sustained a demurrer without leave to amend and entered judgment for Aspen and D&H, holding that no conflict existed as a matter of law, so the Darwish family failed to state a claim for declaratory relief. (A demurrer is a response in a court proceeding in which the defendant does not dispute the truth of the allegation but claims it is not sufficient grounds to justify legal action.) The Darwish family appealed.

On appeal, the California court of appeal concluded that the demurrer was the incorrect procedural vehicle to resolve the Darwish family’s declaratory judgment claim against Aspen and D&H. The Darwish family suffered no prejudice, however, because the second amended complaint (SAC) did not allege a conflict of interest entitling them to independent counsel pursuant to the statute as a matter of law. The court modified the judgment to declare the rights adverse to the Darwish family and affirmed.

Nede Management, Inc., et al., v. Aspen American Insurance Company et al.—Court of Appeal of the State of California—September 20, 2021—No. B307470.