A Win For Insurers: Nevada Supreme Court Adopts “Cumis” Rule
Answering a Certified Question from a Nevada District Court, the Supreme Court of Nevada held as follows in State Farm v. Hansen, No. 64484 (Nev. Sept. 24, 2015): “Nevada law requires an insurer to provide independent counsel for its insured when a conflict of interest arises between the insurer and the insured. Nevada recognizes that the insurer and the insured are dual clients of insurer-appointed counsel. When the insured and the insurer have opposing legal interests, Nevada law requires insurers to fulfill their contractual duty to defend their insureds by allowing insureds to select their own independent counsel and paying for such representation. We further conclude that an insurer is only obligated to provide independent counsel when the insured’s and the insurer’s legal interests actually conflict. A reservation of rights letter does not create a per se conflict of interest.”

In reaching this decision the Nevada Supreme Court made abundantly clear that it was following California’s “Cumis” Rule, discussing the decision at length and referring to it as “appropriate for Nevada” and “most compatible with Nevada law.”

But “Cumis” is generally considered a pro-policyholder decision. So a win for insurers? Really? Yes. The reality is that the rule from Cumis — if an insured can prove that a reservation of rights creates a conflict, and that’s a big if, then it is entitled to independent counsel — is already the majority rule nationally. So in that sense insurers didn’t suffer a big defeat. But by adopting the majority rule in the way that it did — with so many references to Cumis — the Nevada High Court has opened the door to a strong insurer argument that independent counsel may be paid no more than the insurer’s panel counsel. After all, that is a specific aspect of the codified Cumis rule. And the ability to pay independent counsel (sometimes asking for $500/hr. and up) the same rates as panel counsel is no small advantage for insurers. Lastly, the Nevada High Court could have held that a reservation of rights creates a per se conflict, thereby automatically entitling the insured to independent counsel, but it didn’t.

Supreme Court Addresses Really, Really Late Notice: Like, After Settlement
An insured settled a case and then gave notice to its insurer. As you may expect, the Supreme Court of Nebraska in Rent-A-Roofer, Inc. v. Farm Bureau Property & Casualty Ins. Co., No. S-14-895 (Neb. Sept. 11, 2015) did not deliver good news to the insured. On one hand, the court held that the insurer was still obligated to prove that it was prejudiced by the insured’s breach of the policy’s voluntary payments provision. But after that it went downhill fast for the insured. Addressing such proof of prejudice, the Supreme Court of Nebraska held: “We conclude that prejudice may be shown as a matter of law where the insured’s settlement deprived the insurer of the opportunity to protect its interests in litigation or participate in the litigation and settlement discussions. In this case, at the time the insured entered into an enforceable settlement agreement, it was too late for Farm Bureau to act to protect its interests. There was nothing left for Farm Bureau to do but issue a check. An insurer cannot fail in defending a suit that it has no knowledge of. In this case, we conclude that this complete denial of Farm Bureau’s opportunity to engage in the defense, take part in the settlement discussions, or consent to the settlement agreement was prejudicial as a matter of law to Farm Bureau and find that Farm Bureau is not liable for defense costs.”