Reservation Rights and Cumis Counsel in Insurance Disputes

When California policyholders face lawsuits, their insurers often step in to provide legal defense. But when insurers do this under Reservation Rights, policyholders need to stay alert. This action can seriously impact how the case unfolds and whether the insurer will ultimately cover any damages. At KAASS LAW, we help clients understand and assert their rights in cases involving Reservation Rights and the appointment of independent Cumis Counsel.

What Does Reservation Rights Mean?

When an insurer issues a Reservation of Rights letter, it agrees to defend you in a lawsuit but reserves the right to deny coverage later. In short, the insurer might fund your legal defense today, yet refuse to pay for a settlement or judgment tomorrow. This situation can place your defense attorney in a challenging position—one where they must represent you while being paid by an insurer with potentially conflicting interests.

Why Do Insurers Use Reservation Rights?

Insurers use Reservation Rights to protect themselves while fulfilling their legal duty to defend you. If a lawsuit includes both covered and uncovered claims, the insurer often proceeds with defense under a reservation. For example, if you’re sued for both negligence and intentional harm, your policy may cover negligence but exclude intentional conduct. The insurer defends the lawsuit but reserves the option to deny coverage for the intentional act.

This setup creates a conflict. Your legal defense could shape the outcome of both the lawsuit and the insurer’s coverage decision.

Conflict of Interest and Your Right to Cumis Counsel

California law recognizes that this kind of conflict undermines the fairness of your legal defense. When an insurer’s interests conflict with yours, you have the right to independent legal representation—known as Cumis Counsel.

The term “Cumis Counsel” stems from the 1984 case San Diego Navy Federal Credit Union v. Cumis Insurance Society, Inc. In that decision, the court ruled that an insurer must pay for independent counsel the insured chose whenever a significant conflict exists. This principle later became codified in California Civil Code § 2860.

When Are You Entitled to Cumis Counsel?

You may appoint Cumis Counsel when:

• The insurer covers some claims but not others.

• The facts needed to defend the case also affect coverage.

• The insurer might benefit from certain legal outcomes that would harm your case.

Let’s say your company faces allegations of both negligent hiring and intentional misconduct by an employee. The insurer agrees to defend but states that it won’t cover intentional acts. If the court finds the conduct intentional, you lose coverage. The insurer may favor this finding to avoid paying damages, even if it hurts your defense. That’s when Cumis Counsel becomes necessary.

Cumis Counsel and California Civil Code § 2860

Under Civil Code § 2860, your insurer must pay reasonable fees for your independent counsel if a conflict exists. You can’t choose just any attorney—your counsel must meet certain qualifications and agree to coordinate with the insurer. Cumis Counsel must:

• Share billing details with the insurer.

• Communicate status updates.

• Avoid unreasonable fees or delays.

Still, the core benefit remains: You now have a lawyer whose only duty is to defend your interests, not the insurer’s.

What to Do After Receiving a Reservation Rights Letter

1. Read It Carefully
   Don’t ignore a Reservation of Rights letter. It outlines your insurer’s legal position and may signal that coverage is at risk.

2. Consult with KAASS LAW
   Our attorneys will analyze the letter and assess whether the insurer’s position creates a conflict requiring Cumis Counsel.

3. Assert Your Right
   If a conflict exists, we help you formally request independent counsel and push the insurer to cover associated legal fees.

4. Stay Proactive
   Ongoing communication with your attorney and insurer ensures that your defense remains on track—and in your hands.

How KAASS LAW Supports You

At KAASS LAW, we regularly represent clients dealing with Reservation Rights disputes. Our legal team understands both the legal and strategic aspects of insurance defense. When we identify a conflict of interest, we help you assert your right to independent representation, push back against insurer overreach, and ensure that your defense serves your best interest, not the insurer’s financial motives.

We also monitor Cumis Counsel relationships, help you select qualified attorneys, and resolve disputes about fees, billing, and legal strategy.

Why This Matters to Your Case

When you rely solely on the insurer’s attorney under Reservation Rights, you may unknowingly weaken your legal defense. Insurer-assigned attorneys might steer the case in ways that support a coverage denial. Cumis Counsel prevents this by giving you control over your representation.

Imagine a scenario where your defense hinges on proving your actions were accidental. Meanwhile, the insurer benefits if the court rules you acted intentionally. The insurer’s attorney faces pressure to argue in ways that benefit their employer. Without independent representation, your personal and financial exposure could increase.

Call KAASS LAW Today!

Understanding Reservation Rights and the role of Cumis Counsel is crucial if you’re facing a lawsuit covered under your insurance policy. When insurers defend under a reservation, they may not have your best interests at heart. Fortunately, California law gives you the right to take control of your legal defense.

KAASS LAW stands ready to guide you through the process, assert your legal rights, and ensure that you receive the independent representation you deserve. If you’ve received a Reservation of Rights letter or suspect your insurer’s interests conflict with yours, don’t wait—contact us today for a consultation.