Employers Ins. of Wausau v. Albert D. Seeno Const.

Decision Date29 July 1988
Docket NumberNo. C-86-4890 EFL.,C-86-4890 EFL.
Citation692 F. Supp. 1150
CourtU.S. District Court — Northern District of California
PartiesEMPLOYERS INSURANCE OF WAUSAU, etc., Plaintiff, v. ALBERT D. SEENO CONSTRUCTION CO., et al., Defendants.

COPYRIGHT MATERIAL OMITTED

Dale I. Larson, Robins, Zelle, Larson & Kaplan, Minneapolis, Minn., Rogers, Joseph, O'Donnell & Quinn, San Francisco, Cal., for plaintiff.

H. Paul Breslin, Robert L. Sallander, Jr., Archer, McComas & Lageson, Walnut Creek, Cal., for defendants.

ORDER

LYNCH, District Judge.

This diversity case began as a declaratory judgment action by an insurance company seeking a declaration that it is not liable for third-party claims alleging faulty work by one of its insureds, a home construction firm and developer. Plaintiff has now moved to disqualify the primary defendant's lead counsel. Defendant has in turn cross-moved to disqualify plaintiff's main counsel. For the reasons discussed below, the Court denies both motions.

BACKGROUND

Defendant Albert D. Seeno Construction Company (collectively with associated defendants "Seeno") is a real estate developer that obtained various insurance policies from plaintiff Employers Insurance of Wausau ("Wausau") in connection with Seeno's construction of a large number of homes. Buyers of several hundred of those homes brought claims against Seeno for a variety of alleged construction defects. After Seeno submitted these claims to Wausau, dispute arose as to whether these claims are covered by Seeno's policies with Wausau and regarding the proper method of handling these third-party claims. Wausau reserved its rights to deny coverage, and in March 1986 Seeno exercised its rights to engage independent Cumis counsel paid for by Wausau.1 Seeno has requested that Wausau take responsibility for handling claims that have not yet reached formal litigation (the "unlitigated claims"), but Seeno's Cumis counsel have handled the claims that have reached litigation (the "litigated claims").

In August 1986, Wausau brought this declaratory judgment action seeking a declaration that it is not liable for the claims. Plaintiff also asserts that Seeno has breached its contractual obligations and duties of good faith and fair dealing and seeks recovery of the sums Wausau has advanced to the insured to defend and settle the third-party claims. Seeno has brought various counterclaims including breach of contract, bad faith, fraud, and violation of the California Insurance Code.

In the latest stage of this acrimonious litigation, Wausau has moved to disqualify Seeno's counsel, Archer, McComas & Lageson ("Archer"), and Seeno has responded by cross-moving to disqualify Wausau's primary counsel, Robins, Zelle, Larson & Kaplan ("Robins"). The arguments of the parties are considered in turn below.

DISCUSSION

The Court of course has the duty of supervising the conduct of attorneys practicing before it, and part of that duty is to disqualify counsel if necessary. See, e.g., Trust Corp. of Montana v. Piper Aircraft Corp., 701 F.2d 85, 87 (9th Cir.1983); Cable Oakland v. Wilson, 201 Cal.App.3d 530, 534, 247 Cal.Rptr. 778 (1988). Counsel practicing before this Court are expressly made subject to the ethical requirements applicable to attorneys practicing law in the State of California pursuant to the Local Rules of the Northern District.2 In addition to the Rules of Professional Conduct of the State Bar of California (the "California Rules"), these requirements include those contained in the American Bar Association Model Code of Professional Responsibility (the "Model Code"), because California courts look to the Model Code in determining issues not fully addressed in the California Rules. E.g., Paul E. Iacono Structural Engineer, Inc. v. Humphrey, 722 F.2d 435, 439-40 & n. 6 (9th Cir.), cert. denied, 464 U.S. 851, 104 S.Ct. 162, 78 L.Ed.2d 148 (1983); Atasi Corp. v. Seagate Technology, 847 F.2d 826, 830 & n. 4 (Fed. Cir.1988) (applying 9th Circuit law); see, e.g., Cable Oakland, 201 Cal.App.3d at 537-38, 247 Cal.Rptr. 778; Cumis, 162 Cal. App.3d at 366-67, 370, 374-75, 208 Cal. Rptr. 494.

I. CROSS-MOTIONS TO DISQUALIFY UNDER CUMIS

Both parties bring motions to disqualify based on alleged breaches of the duties of counsel in the Cumis context, i.e., where the insured has exercised its right to select independent counsel paid for by the insurer because a conflict or potential conflict has arisen between the insurer and the insured. In brief, the insurer Wausau argues that the insured Seeno's choice of Cumis counsel, the Archer firm, has failed properly to represent Wausau's interests. Seeno, on the other hand, argues that the counsel chosen by Wausau, the Robins firm, has failed properly to represent Seeno's interests.

A. Wausau's Motion to Disqualify the Archer Firm

Plaintiff's first argument for disqualification of Seeno's counsel Archer is based on that firm's conceded double role as 1) Cumis counsel opposing liability in the underlying home buyers' claims, and 2) counsel asserting coverage by Wausau.3 Plaintiff argues that in its Cumis counsel role Archer is representing Wausau as well as Seeno, and that it is therefore an improper concurrent representation of adverse interests for Archer to represent Seeno in a coverage dispute such as the instant case, where Seeno's interests are directly adverse to Wausau.4

Plaintiff relies chiefly on cases stating that counsel retained by an insurer to defend an insured have both the insured and the insurer as clients. E.g., Bogard v. Employers Casualty Co., 164 Cal.App.3d 602, 609, 210 Cal.Rptr. 578 (1985) ("The attorney hired by the insurance company to defend in an action against the insured owes fiduciary duties to two clients: the insurer and the insured." (citations omitted)). Wausau argues that the Cumis line of decisions has not changed the dual duties of liability defense counsel; it simply allows the insured rather than the insurer to select such counsel. Cumis counsel thus always represents both the insured and the insurer.

Wausau views Cumis counsel as properly concerned only with minimizing liability to third parties, and as necessarily completely neutral with respect to any coverage dispute between its two clients, the insured and the insurer. Accordingly, Wausau asserts that Cumis counsel is "independent" not of the insurer but rather in the sense that such counsel seeks to minimize liability in a neutral fashion, independent of any regard for the coverage position of either client. According to this argument, as Cumis counsel chosen by Seeno, Archer represents Wausau as well as the insured, and it is therefore a patent conflict for Archer also to represent Seeno's interests against Wausau in this coverage action.

In order to decide the merits of this argument as well of that of defendant discussed below, it is necessary to examine the proper roles and duties of counsel under Cumis law, which has been undergoing a somewhat uncertain evolution. It is now beyond question that under certain circumstances an insurer is obligated to pay for "independent" counsel chosen by the insured. As noted above, the leading case, from which the name of such counsel is taken, is San Diego Navy Federal Credit Union v. Cumis Ins. Society, Inc., 162 Cal.App.3d 358, 208 Cal.Rptr. 494 (1984). In Cumis, the California Court of Appeal recognized that:

In the usual tripartite relationship existing between insurer, insured and counsel, there is a single, common interest shared among them. Dual representation by counsel is beneficial since the shared goal of minimizing or eliminating liability to a third party is the same. A different situation is presented, however, when some or all of the allegations in the third-party complaint do not fall within the scope of coverage under the policy. In such a case, the standard practice of an insurer is to defend under a reservation of rights where the insurer promises to defend but states it may not indemnify the insured if liability is found.

Id. at 364, 208 Cal.Rptr. 494.

In such situations, the court found, a conflict arises between the insurer and the insured, because it is in the insurer's interest for the third-party action to establish that any liability is outside the coverage of the policy, while it is in the insured's interest to show the opposite.5 After reviewing the ethical dilemma posed for counsel in this conflict situation, the Cumis court held that:

The Model Code Canons of Ethics impose upon lawyers hired by the insurer an obligation to explain to the insured and the insurer the full implications of joint representation in situations where the insurer has reserved its rights to deny coverage. If the insured does not give an informed consent to continued representation, counsel must cease to represent both. Moreover, ... the insurer must pay the reasonable cost for hiring independent counsel by the insured. The insurer may not compel the insured to surrender control of the litigation.

162 Cal.App.3d at 375, 208 Cal.Rptr. 494 (citations omitted).

Although the wisdom and cost of the Cumis decision6 have been debated, the California Supreme Court has not indicated any inclination to depart from it, and the legislature has recently codified and to some extent clarified the Cumis approach. See 1987 Cal.Stat. ch. 1498, § 4 (codified at Cal.Civ.Code § 2860 (West Supp.1988) hereinafter section 2860).7 It is therefore the law in California and applicable by the Court in diversity actions such as this. See, e.g., Previews, Inc. v. California Union Ins. Co., 640 F.2d 1026, 1027-28 (9th Cir.1981).

Plaintiff Wausau does not challenge Cumis itself and indeed concedes the right and has paid the considerable cost of defendant Seeno to be provided with Cumis counsel to defend many of the home buyers' claims. However, Wausau asserts that because the Archer firm is Cumis liability counsel, it is impermissible conflict for Archer to serve also as Seeno's coverage counsel. This argument...

To continue reading

Request your trial
46 cases
  • Mosier v. Southern California Physicians Ins. Exchange
    • United States
    • California Court of Appeals Court of Appeals
    • May 8, 1998
    ...[supra ] 216 Cal.App.3d [at p.] 1226 , italics added.) This view has been most forcefully stated in [Employers Ins. of Wausau v. Albert D. Seeno Const. (N.D.Cal.1988) 692 F.Supp. 1150]: 'Cumis counsel represent[s] solely the insured....' (692 F.Supp. at p. 1157.)" (Assurance Co. of America ......
  • Assurance Co. of America v. Haven
    • United States
    • California Court of Appeals Court of Appeals
    • February 6, 1995
    ...c. 1498, §§ 1, 4; pp. 5777, 5779.) The section codifies and clarifies the Cumis doctrine (see Employers Ins. of Wausau v. Albert D. Seeno Const. (Seeno) (N.D.Cal.1988) 692 F.Supp. 1150, 1155), and provides in its "(a) If the provisions of a policy of insurance impose a duty to defend upon a......
  • AKH Co. v. Universal Underwriters Ins. Co., Case No. 13-2003-JAR-KGG
    • United States
    • U.S. District Court — District of Kansas
    • October 7, 2019
    ...38 Cal. Rptr. 2d 25, 29 (1995).173 Id. (citing Cal. Civ. Code § 2860 ).174 Id. at 29–31 (quoting Emp'rs Ins. of Wausau v. Albert D. Seeno Constr. , 692 F. Supp. 1150, 1158 (N.D. Cal. 1988) ); see also San Diego Fed. Credit Union v. Cumis Ins. Soc'y, Inc. , 162 Cal.App.3d 358, 208 Cal. Rptr.......
  • Alexander v. Primerica Holdings, Inc.
    • United States
    • U.S. District Court — District of New Jersey
    • May 6, 1993
    ...would result in prejudice to the non-moving party. Commonwealth Ins., 808 F.Supp. at 1208; Employers Ins. of Wausau v. Albert D. Seeno Constr. Co., 692 F.Supp. 1150, 1165 (N.D.Cal. 1988). In particular, consideration should be given and inquiry made as to whether the motion was delayed for ......
  • Request a trial to view additional results
3 books & journal articles
  • CHAPTER 11
    • United States
    • Full Court Press Zalma on Property and Casualty Insurance
    • Invalid date
    ...Fid. & Guar. Co. v. Louis A. Roser Co., 585 F.2d 932, 939 (8th Cir. 1978); Ÿ Employers Ins. Of Wausau v. Albert D. Seeno Constr. Co., 692 F. Supp. 1150, 1156 (N.D. Cal. 1988); Ÿ Southern Maryland Agr. Ass’n v. Bituminous Cas. Corp., 539 F. Supp. 1295, 1300 (D. Md. 1982); Ÿ Klein v. Salama, ......
  • CHAPTER 11 INDEPENDENT COUNSEL AND THE LAW OF UNINTENDED CONSEQUENCES
    • United States
    • Full Court Press Insurance Law Deskbook
    • Invalid date
    ...States Fid. & Guar. Co. v. Louis A. Roser Co., 585 F.2d 932, 939 (8th Cir. 1978) • Employers Ins. v. Albert D. Seeno Constr. Co., 692 F. Supp. 1150, 1156 (N.D. Cal. 1988) • Southern Maryland Agric. Ass'n v. Bituminous Cas. Corp., 539 F. Supp. 1295, 1300 (D. Md. 1982) • Klein v. Salama, 545 ......
  • CHAPTER 11 INDEPENDENT COUNSEL AND THE LAW OF UNINTENDED CONSEQUENCES
    • United States
    • Full Court Press California Insurance Law Deskbook
    • Invalid date
    ...States Fid. & Guar. Co. v. Louis A. Roser Co., 585 F.2d 932, 939 (8th Cir. 1978); • Employers Ins. v. Albert D. Seeno Constr. Co., 692 F. Supp. 1150, 1156 (N.D. Cal. 1988) • Southern Maryland Agric. Ass'n v. Bituminous Cas. Corp., 539 F. Supp. 1295, 1300 (D. Md. 1982) • Klein v. Salama, 545......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT