What’s a Reservation of Rights, and How Does It Affect My Insurance Claim?

What is a reservation of rights, and do I have a conflict of interest with my insurance?

When an insurance company agrees to defend an insured party against a claim, they may do so under a “reservation of rights.” This means that the insurer agrees to defend the insured, but reserves the right to later deny coverage if it is determined that the claim is not covered by the insurance policy.

In other words, the insurer is providing a defense to the insured while reserving the right to later determine that the claim is not covered by the policy and therefore not pay any damages that may be awarded.

The reason an insurer might issue a reservation of rights is because the insurer believes that there is a possibility that the claim may not be covered by the policy. This could be because the policy does not cover the specific type of claim being made, or because the insured party failed to meet certain requirements under the policy, such as reporting the claim in a timely manner.

How can Cumis counsel protect my interests in an insurance claim?

When an insurer issues a reservation of rights, it is important for the insured party to understand the potential implications. If the insurer ultimately determines that the claim is not covered by the policy, the insured may be responsible for paying any damages awarded in the claim, as well as the costs of their defense. This is why the right to obtain independent counsel under a Cumis counsel arrangement can be so important. The insured party can hire their own attorney to represent them and protect their interests, even if those interests conflict with those of the insurer.

“Cumis counsel” refers to independent counsel appointed by an insurance company to represent an insured party when there is a conflict of interest between the insured and the insurer. Under California Civil Procedure Code section 2860, when an insurance policy requires the insurer to defend an insured party against a claim, and the insurer reserves the right to deny coverage or defend the claim under a reservation of rights, the insured party has the right to retain independent counsel of their choice to defend them. This is known as “Cumis counsel.”

The term “Cumis counsel” comes from the California court case, San Diego Federal Credit Union v. Cumis Insurance Society, Inc. (1984), which established the right of an insured to select independent counsel when a conflict of interest arises between the insured and the insurer.

The purpose of Cumis counsel is to ensure that the insured’s interests are protected – even if they conflict with the interests of the insurer. The insurer is required to pay for the reasonable fees and expenses of Cumis counsel, subject to certain limitations.

If your insurance company is agreeing to defend your claim under a reservation of rights and you believe that you may have a conflict with your own insurance company, you may want to consider the possibility of getting your insurance to provide you with Cumis counsel. Please call the attorneys at Gallagher Krich APC at (858) 926-5797 or contact “info [at] tomgallagherlaw.com” today for further information.

ATTORNEY ADVERTISING. The responsible managing attorney is Tom Gallagher. This blog post is for informational purposes of California law for legal matters in the State of California only and should not be construed as legal advice or an attorney-client relationship which requires a written fee agreement. All communications with our firm are private and confidential and the substance of those communications should not be discussed with others. 

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