October 20, 2015 Practice Points

Nevada Supreme Court Adopts Cumis Rule

The court held that Nevada law requires the insurer to pay for independent counsel of the insured’s choosing when a conflict of interest arises in the defense of a case

by Howard J. Russell

The Nevada Supreme Court recently answered a certified question from the U.S. District Court on the application of the Cumis rule under Nevada law. In State Farm Mut. Auto. Ins. Co. v. Hansen, 131 Nev. Adv. Op. 74, 2015 WL 5656978 (Nev. 2015), the court held that Nevada law, which recognizes that defense counsel hired by an insurance company serves “dual clients,” requires the insurer to pay for independent counsel of the insured’s choosing when a conflict of interest arises in the defense of a case. Following the California Court of Appeal’s holding in San Diego Navy Fed. Credit Union v. Cumis Ins. Soc’y, Inc., 208 Cal. Rptr. 494, 506 (Ct. App. 1984), and adopting the same dual client analysis relied on by theCumis Court, the Nevada Supreme Court held: “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.” Citing RPC 1.7(a), and recognizing the insurer-appointed attorney owes obligations to both the carrier and the insured, the Court explained that a “conflict of interest may arise because the outcome of litigation may also decide the outcome of a coverage determination—a determination that may pit the insured’s interests against the insurer’s.” Under such circumstances, “an insurer must satisfy its contractual duty to provide counsel by paying for counsel of the insured’s choosing.”

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