Nevada Supreme Court Adopts Cumis Independent Counsel Rule, But Refuses To Hold That Reservation Of Rights Letter Always Presents A Conflict

Answering two certified questions, the Nevada Supreme Court has adopted the independent counsel rule first laid down in San Diego Navy Federal Credit Union v. Cumis Insurance Society, Inc.,1 holding:

When a conflict of interest exists between an insurer and its insured, Nevada law requires the insurer to satisfy its contractual duty to provide representation by permitting the insured to select independent counsel and by paying the reasonable costs of such counsel.

The case is State Farm Mutual Automobile Ins. Co. v. Hansen.2

The Hansen court declined, however, to place Nevada in the ranks of the jurisdictions that find an automatic right to independent counsel whenever a reservation of rights letter is issued:

Therefore an insurer is obligated to provide independent counsel of the insured's choosing only when an actual conflict of interest exists. A reservation of rights does not create a per se conflict of interest.3

So, for example, "there is no conflict if the reservation of rights is based on coverage issues that are only extrinsic or ancillary to the issues actually litigated in the underlying action."4

This makes good sense. It's one thing to say that a conflict exists when the coverage issue is being litigated in the underlying suit - negligence v. intentional misconduct, for example - but quite another to say that a conflict exists when, say, the coverage issue is late notice, or misrepresentation in the application for the policy.

The Mississippi analog to Cumis, Moeller v. Am. Guar. & Liab. Ins. Co.,5 is almost twenty years old. The Mississippi...