18
Nov
2008

Strengthening The Slingshot

Corporate Counsel

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PUBLISHED ON: November 18, 2008

This article originally appeared in Anderson Kill's Policyholder Advisor (May/June 2008).

Policyholders in New York and other states have long had a right to independent defense counsel paid for by their liability insurance company when an insurance company's reservation of rights creates a conflict of interest. Such independent counsel often are termed "Cumiscounsel," after the 1984 California case ofSan Diego Navy Federal Credit Union v. Cumis Insurance Society, Inc., but the right to independent counsel was widespread long beforeCumis; for example, New York's highest court recognized it in 1956, inPrashker v. United States Guarantee Co., and Massachusetts followed suit in 1964 inMagoun v. Liberty Mutual Insurance Company.

Yet as long as this right has existed, insurance companies have tried to honor it mostly in the breach by leaving policyholders to their own devices to demand independent counsel when there is a conflict of interest giving rise to the right. Recently, inElacqua v. Physicians’ Insurers, a New York appellate court made clear that insurance companies not only must provide independent counsel, but also must inform policyholders of that right, at the risk of treble damages and other penalties.