Nede Mgmt, Inc. v. Aspen American Insurance Company

• Published date: 14 October 2021
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation
• Law Firm: Lewis Brisbois Bisgaard & Smith LLP
• Author: Mr Michael Velladao

(Insureds Were Not Entitled To Independent Counsel For Defense Of Lawsuit Based On Insurer's Reservations Regarding Excess Exposure And Punitive Damages)

(October 2021) - In Nede MGMT, Inc. v. Aspen American Ins. Co., --- Cal. App.5th --- (September 20, 2021), the California Second District Court of Appeal affirmed the trial court's order dismissing a declaratory relief action filed by the owners of a property destroyed by fire, the Darwish family. The fire caused the death of a squatter and injuries to two tenants and two other squatters. Subsequently, the injury tenants, squatters, and the estate of the deceased squatter, filed a lawsuit against the Darwish family and the property manager for the property, Nede MGMT ("Nede") for wrongful death, negligence, premises liability, and conversion (the "Hall action"). The Hall action also alleged punitive damages. Thereafter, the Darwish family and Nede tendered the defense of the Hall action to the managing general agent, Deans & Homer ("D&H"), for Aspen American Insurance Company ("Aspen"). In response, Aspen issued a reservation of rights to the Darwish family related to no coverage for settlements and/or judgments in excess of policy limits and no coverage for punitive damages. In addition, Aspen initially reserved its rights to decline coverage of Nede to the extent that it was not acting as property manager for the property. Subsequently, Aspen withdrew its reservation of rights as against Nede on this issue. Ultimately, Aspen settled the Hall action without a contribution from the Darwish family or Nede.

Nonetheless, the Darwish family filed a declaratory relief action against Aspen contending that they were entitled to independent counsel. In response, Aspen filed a demurrer to the Darwish Family complaint arguing that its reservation of rights did not trigger a right to independent counsel, and the trial court agreed and sustained the demurrer without leave to amend.

In affirming the trial court's decision, the Court of Appeal explained the circumstances which create a right to independent counsel as follows:

Cumis and section 2860 are concerned with an attorney's dual representation of the insurer and insured when their interests conflict. "'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...