Conflict of Interest - Right to Independent Counsel
Employers Ins. of Wausau v. California Water Service Co., No. C-06-03002 RMW, 2008 WL 3916096 (N.D. Cal. Aug. 25, 2008) (Whyte)
Judge Whyte issued an order in which he clarified that the concepts of estoppel and waiver were insufficient to penalize an insurer who failed to readily announce, with its appointment of appointed counsel, the insured’s rights to independent counsel where such existed. In essence, the issue was whether there was an affirmative duty by the insurer to advise its insured of its right to independent counsel at such point as counsel were appointed. The court side-stepped this issue but seemed to intimate that
such right did not arise as a matter of law. Notably, attorney Riddle, in his letter to the insured, claimed that as appointed counsel he represented only the insured and only received payment from the insurer Wausau but had no legal duties to them. This of course is not in accord with the applicable rules at stake in the tripartite relationship. Several years later, because of a change in applicable law, Wausau discontinued providing a defense for Cal Water due to the fact that there was no civil action but only an administrative agency notice respecting the environmental cleanup duties of the insured. After a suit was filed, a defense was provided through the same attorney thereafter, at the insurer’s expense but subject to reservation of rights. The court found that the attorney had become the attorney of the insured as of the date of the filing of suit and thus it was not denied representation by an attorney of its choice.
The trial court side-stepped the issue of whether the initially retained Riddle, when provided by the insurer, was other than appointed counsel even though he purported to have no legal relationship to Wausau at the time. The court concluded that:
[E]ven were the court to decide that Riddle was appointed by Wausau and that there was an actual conflict significant enough to require Wausau to inform Cal Water of its right to independent counsel, it would not find estoppel to be appropriate. Riddle viewed himself as Cal Water’s representation and there is no evidence that Riddle acted other than in the best interest of Cal Water.
Id. at *6.
The court then analyzed a series of issues regarding the duty to defend and found it owed, ruling that the sudden and accidental exception to the pollution exclusion was implicated. The court found no bad faith, however.
