Legal Definitions - cumis counsel

Cumis counsel refers to an independent attorney hired by an insurance company to represent an insured individual or entity in a lawsuit. This specialized representation becomes necessary when a significant conflict of interest arises between the insurance company and its policyholder.

Typically, when an insurance company provides a legal defense for its insured, it appoints a lawyer who represents both the insurer's financial interests and the insured's defense. However, if the interests of these two parties diverge substantially, the policyholder has the right to "cumis counsel." This independent attorney's sole responsibility is to protect the insured's best interests, ensuring that the defense strategy is not influenced by the insurance company's potentially conflicting financial goals. The concept of cumis counsel originated from the California case San Diego Federal Credit Union v. Cumis Ins. Society.

Here are some examples illustrating when cumis counsel might be appointed:

• Lawsuit Exceeding Policy Limits: Imagine a small business owner, insured for $1 million in liability, is sued for $5 million after a serious accident on their property. The insurance company's maximum financial exposure is limited to the $1 million policy. While the insurer might be inclined to aggressively litigate the case, even risking a large verdict, the business owner faces personal financial ruin if a judgment exceeds $1 million. In this scenario, cumis counsel would be appointed to prioritize negotiating a settlement within the $1 million policy limits, if possible, or developing a defense strategy that minimizes the insured's personal exposure, even if the insurer might prefer a different, more aggressive approach that could lead to a higher verdict but no additional cost to them.

• Claims for Both Covered and Uncovered Damages: Consider a homeowner who is sued after a party, with claims for both property damage (which is covered by their policy) and intentional emotional distress (which is typically not covered by standard homeowner's insurance). The insurance company's primary interest is to minimize its payout on the covered property damage claim, and it might try to allocate more of the potential damages or settlement to the uncovered emotional distress claim. However, the homeowner is personally responsible for any judgment related to the uncovered claim. Cumis counsel would ensure that the defense strategy and any settlement negotiations are structured to minimize the homeowner's overall liability, particularly for the claims not covered by their insurance, rather than simply shifting the financial burden away from the insurer.

• Allegations of Punitive Damages: Suppose a driver, insured for negligence, is sued after an accident where the plaintiff also alleges gross negligence and seeks punitive damages, which are generally not covered by auto insurance policies. The insurance company will defend against the negligence claim (compensatory damages) because they are obligated to cover those. However, they have no financial stake in the punitive damages claim, as they won't pay for it. The insured driver, conversely, faces significant personal financial risk from punitive damages. Cumis counsel would be appointed to ensure the defense strategy vigorously addresses and attempts to mitigate or eliminate the punitive damages claim, even if it means a different approach than what the insurer might prefer for the covered compensatory damages.