California Reservation of Rights Response Guide | Cumis Counsel Rights

📋 What is a Reservation of Rights Letter?

A reservation of rights (ROR) letter is a notice from your liability insurer stating that while they will provide a defense in a lawsuit against you, they reserve the right to later deny coverage or refuse to pay a judgment. This creates a conflict of interest: the lawyer your insurer assigns to defend you may have divided loyalties.

Why Reservation of Rights Letters Matter

When your insurer reserves rights, a dangerous conflict arises. The insurer-appointed attorney may be tempted to steer the case toward outcomes that allow the insurer to deny coverage - leaving you personally liable. California law addresses this conflict by giving you the right to independent counsel at the insurer's expense.

⚠ Coverage May Be Denied

The insurer is signaling they may refuse to pay any judgment against you

👥 Conflict of Interest

The insurer's lawyer may have divided loyalties between you and the insurer

✅ Cumis Counsel Right

You may be entitled to your own attorney - paid for by the insurer

📚 Civil Code 2860

California law codifies your right to independent defense counsel

Common Situations Triggering ROR Letters

Intentional acts allegations: The plaintiff claims you acted intentionally, but your policy only covers negligence
Excluded conduct: The lawsuit alleges conduct that may fall under a policy exclusion
Policy limits disputes: Damages may exceed your policy limits, exposing you personally
Coverage period issues: Dispute over when the incident occurred relative to policy dates
Late notice: The insurer claims you did not report the claim timely
Multiple policies: Disputes over which policy applies or priority of coverage

⚠ Do Not Ignore an ROR Letter

Receiving a reservation of rights letter requires immediate action. If you do nothing, you may lose your right to independent counsel and be stuck with an attorney whose interests conflict with yours. The stakes are high - you could end up personally liable for a judgment the insurer refuses to pay.

⚖ Legal Basis

California provides strong statutory protections for insureds who receive reservation of rights letters. These protections ensure you can obtain truly independent legal representation at your insurer's expense.

California Civil Code Section 2860

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Civil Code Section 2860 - Independent Counsel

This statute, enacted in 1988 following the landmark Cumis decision, codifies the insured's right to independent counsel when a conflict of interest exists. The statute provides that when an insurer reserves rights on a basis that could leave the insured personally liable, the insured has the right to select independent counsel and the insurer must pay for that counsel at prevailing rates.

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Civil Code Section 2860(a) - Conflict of Interest Standard

A conflict of interest exists when the insurer reserves rights "based on coverage issues that created the potential of coverage and yet reserves the insurer's right to deny coverage at a later date." This triggers the right to Cumis counsel whenever the outcome of the litigation could affect coverage.

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Civil Code Section 2860(c) - Fee Rates

The insurer must pay independent counsel at the rate "actually billed" by the attorney, subject to the limitation that the rate cannot exceed that which the insurer pays attorneys it regularly retains for similar work. In practice, this means prevailing market rates for insurance defense work in your geographic area.

The Landmark Cumis Decision

📖 San Diego Navy Federal Credit Union v. Cumis Insurance Society (1984) 162 Cal.App.3d 358

This landmark case established that when an insurer reserves rights on a basis that creates a conflict of interest with the insured, the insured is entitled to select independent counsel at the insurer's expense. The court recognized that an insurer-appointed attorney faces an inherent conflict when the insurer may later deny coverage - the attorney's fee source (the insurer) has interests adverse to the client (the insured). The "Cumis counsel" doctrine is now codified in Civil Code 2860.

📖 Dynamic Concepts, Inc. v. Truck Insurance Exchange (1998) 61 Cal.App.4th 999

Clarified that a conflict of interest entitling the insured to Cumis counsel exists when the insurer's reservation of rights creates a situation where the insurer may benefit from an outcome adverse to the insured. The insurer cannot defeat the right to independent counsel simply by offering to waive certain reserved rights.

📖 Foremost Insurance Co. v. Wilks (1988) 206 Cal.App.3d 251

Held that an insurer who fails to inform the insured of their right to Cumis counsel may be estopped from denying coverage. This case underscores the importance of the insurer's obligation to notify the insured of the conflict and their independent counsel rights.

💡 When Cumis Counsel is NOT Required

Not every reservation of rights triggers the right to independent counsel. Under Civil Code 2860(b), no conflict exists if:

The coverage issue is independent of the issues in the underlying litigation
The insurer's reservation relates solely to a coverage defense that cannot be affected by counsel's conduct
The reserved issue can be resolved by undisputed facts

However, these exceptions are narrow, and most significant reservations will trigger Cumis rights.

✅ Your Rights Under California Law

When you receive a reservation of rights letter, California law provides powerful protections. Understanding these rights is essential to protecting yourself.

✓

Right to Select Your Own Attorney

You have the right to choose an attorney you trust - not one selected by the insurer. This "Cumis counsel" or "independent counsel" works for you, with undivided loyalty to your interests.
✓

Right to Have the Insurer Pay

Under Civil Code 2860, the insurer must pay for your independent counsel at prevailing rates. You do not have to pay out of pocket for an attorney to defend you in the lawsuit.
✓

Right to Conflict-Free Representation

Your Cumis counsel owes duties only to you. Unlike insurer-appointed counsel, they have no financial relationship with - and owe no duties to - the insurance company.
✓

Right to Control the Defense

While the insurer retains some rights (like approving settlements within policy limits), your Cumis counsel makes litigation decisions in your best interest, not the insurer's.
✓

Right to Be Informed of Conflict

The insurer has a duty to inform you in writing of the conflict of interest and your right to independent counsel. Failure to do so can estop coverage defenses.
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Right to Reasonable Rates

The insurer must pay your attorney at rates comparable to what it pays panel counsel for similar work. Insurers cannot artificially depress rates to discourage quality representation.

👍 What Cumis Counsel Can Do For You

Defend the lawsuit with your interests - not the insurer's - as the priority
Avoid litigation strategies that could harm your coverage position
Protect confidential communications from the insurer
Advise you on the coverage dispute separately from the defense
Negotiate settlements that protect you from personal liability

⚠ Risks of Using Insurer-Appointed Counsel

Attorney may steer case toward outcomes benefiting the insurer's coverage position
Confidential information may be shared with the insurer
Settlement decisions may prioritize insurer's financial interests over yours
You may be left personally liable if insurer denies coverage after judgment

💡 Response Strategy

Responding effectively to a reservation of rights letter requires prompt, strategic action. Follow these steps to protect your interests.

Analyze the ROR Letter Carefully

Read the letter thoroughly. Identify exactly which coverage defenses the insurer is reserving. Determine if the reserved issues could result in personal liability to you. Note any deadlines mentioned.
Determine if Cumis Rights Apply

Assess whether the reservation creates a conflict of interest under Civil Code 2860(a). If the insurer's reserved rights could benefit from how the underlying lawsuit is defended, you likely have Cumis rights.
Respond in Writing Immediately

Send a formal written response asserting your right to independent counsel under Civil Code 2860. Do this promptly - delays can be used against you. Request confirmation that the insurer will pay your counsel's fees.
Select Qualified Cumis Counsel

Choose an attorney experienced in both the underlying litigation area AND insurance coverage disputes. Your Cumis counsel should understand how to protect both your defense and your coverage position.
Negotiate Fee Agreement with Insurer

Before significant work begins, establish the hourly rates the insurer will pay. Civil Code 2860(c) requires payment at rates comparable to insurer panel counsel. Get this agreement in writing.
Preserve All Communications

Document all interactions with the insurer. Keep copies of all correspondence. Your Cumis counsel should maintain a clear record to protect against later disputes about coverage or fee payment.

⚠ Do Not Accept Insurer-Appointed Counsel

If a conflict of interest exists and you accept the insurer's appointed attorney, you may waive your Cumis rights. Before accepting any defense attorney, evaluate whether independent counsel is appropriate. Once you agree to insurer-selected counsel, it may be difficult to switch.

📝 Sample Language

Use these sample paragraphs when responding to a reservation of rights letter. Customize the highlighted portions for your specific situation.

Acknowledgment and Cumis Demand

I am writing in response to your reservation of rights letter dated [DATE] regarding Claim No. [CLAIM NUMBER] and the lawsuit captioned [CASE NAME AND NUMBER]. I acknowledge receipt of your letter, which reserves the right to deny coverage based on [SUMMARIZE RESERVED ISSUES].

These reservations create a conflict of interest between [INSURANCE COMPANY NAME] and me, the insured. Pursuant to California Civil Code Section 2860 and the principles established in San Diego Navy Federal Credit Union v. Cumis Insurance Society (1984) 162 Cal.App.3d 358, I hereby exercise my right to independent counsel at your expense.

Identifying the Conflict of Interest

The conflict of interest arises because your reservation is based on coverage issues that are intertwined with the issues in the underlying litigation. Specifically, [EXPLAIN HOW THE RESERVED COVERAGE ISSUE RELATES TO THE LITIGATION - e.g., "you have reserved rights based on the allegation that my conduct was intentional, which is a central issue the plaintiff must prove to recover damages"]. An attorney selected and compensated by the insurer would face divided loyalties - potentially steering the defense toward findings that support the insurer's coverage denial while leaving me personally liable for any judgment.

Selection of Independent Counsel

Pursuant to my rights under Civil Code Section 2860, I have selected [ATTORNEY NAME] of the law firm [FIRM NAME] to serve as my independent counsel in the underlying litigation. [ATTORNEY NAME] is qualified and experienced in [RELEVANT PRACTICE AREA] matters. Please direct all communications regarding the defense of this lawsuit to:

[ATTORNEY NAME]
[FIRM NAME]
[ADDRESS]
[PHONE/EMAIL]

Fee Rate Confirmation Request

Under Civil Code Section 2860(c), you are obligated to pay my independent counsel at the rate "actually billed," subject to the limitation that such rate cannot exceed that which you pay attorneys you regularly retain for similar work in this geographic area. My counsel's hourly rate is $[RATE], which is consistent with prevailing rates for insurance defense work in [CITY/COUNTY].

Please confirm in writing within ten (10) days that you will pay my independent counsel's fees at this rate. If you contend a lower rate applies, please provide documentation of the rates you pay panel counsel for comparable work in this area.

Preserving All Rights

I do not waive, and expressly reserve, all rights under the policy, at law, and in equity, including but not limited to the right to pursue claims for breach of the implied covenant of good faith and fair dealing if coverage is wrongfully denied. Your reservation of rights is acknowledged but not accepted as valid. I reserve the right to contest any coverage denial you may later assert.

I expect your full cooperation with my independent counsel in the defense of the underlying lawsuit, including timely payment of defense costs. Please confirm your agreement to these terms in writing.

Closing and Deadline

Please respond to this letter within ten (10) days confirming: (1) that you acknowledge my right to independent counsel under Civil Code 2860; (2) that you will pay my independent counsel's fees at the rate specified above; and (3) that you will cooperate fully with my counsel in the defense of the underlying action.

Failure to respond or comply with your obligations under California law may constitute evidence of bad faith and will be addressed accordingly. Please direct all future correspondence regarding this claim to my independent counsel at the address above.

🚀 Next Steps

After sending your response demanding Cumis counsel, here is what to expect and how to proceed.

Expected Responses from the Insurer

✅ Best Case: Full Agreement

Insurer confirms Cumis rights and agrees to pay your counsel's fees at requested rates

🔄 Common: Rate Dispute

Insurer agrees to independent counsel but proposes lower hourly rates - negotiation required

❌ Worst Case: Denial

Insurer claims no conflict exists and refuses to pay for independent counsel - may require legal action

If the Insurer Refuses or Disputes

Document the Refusal
Keep written records of the insurer's position. This evidence is crucial for any later bad faith claim.
Consult with Your Cumis Counsel
Your independent attorney should advise on how to proceed. Options include proceeding with defense and seeking fee recovery later, or taking immediate action.
Consider a Declaratory Relief Action
If the dispute is significant, you may need to file a lawsuit seeking a court order confirming your Cumis rights and requiring the insurer to pay.
Preserve Bad Faith Claims
An insurer's wrongful refusal to provide Cumis counsel or pay reasonable fees may constitute bad faith. Document everything for potential future claims.

⚠ Statute of Limitations

Coverage disputes: Generally 4 years for contract claims
Bad faith claims: 2 years from the wrongful act

Track all deadlines carefully. The underlying lawsuit will have its own deadlines that your Cumis counsel must meet.

Need Legal Guidance?

Reservation of rights situations are complex and high-stakes. Get a 30-minute strategy call with an insurance attorney to discuss your specific situation and options.

Book Consultation - $125

California Resources

California Department of Insurance: insurance.ca.gov - File complaints and check insurer history
California Civil Code 2860: Full statutory text
State Bar Lawyer Referral: calbar.ca.gov - Find a certified insurance specialist
California Courts Self-Help: selfhelp.courts.ca.gov - Free forms and filing guides