The term cumis counsel is taken from the case San Diego Federal Credit Union v. Cumis Ins. Society. Cumis counsel refers to an independent attorney hired by an insurance company to represent the defendant in cases with a strong conflict of interest. Unlike the standard legal counsel provided by an insurance company, cumis counsel solely represents the defendant.
Most insurance policies give the insurance company the right to appoint counsel and control any potential lawsuit for the insured. These provisions are included because the insurance company is typically the one at risk should the defendant lose the lawsuit. This counsel represents both the insurance company and the insured at the same time, thereby creating potential conflicts of interest if the duties the counsel owed to the two parties are in opposition. Cumis counsel requirements were developed to mitigate this issue in scenarios where the risk of misaligned incentives is particularly high.
The standard example of a conflict of interest between the insurer and insured, which would require cumis counsel, is when the insurance company defends with a reservation of rights. A reservation of rights occurs when an insurance company has suspicion to believe that the insured’s claim is not covered under the policy but decides to begin the process of defending the lawsuit anyway. In the event that later evidence proves the insurance company’s suspicions to be true, they are freed from their duty to indemnify. From the insurance company’s perspective, it is advantageous to prioritize fact finding and reject any settlement while reasonable suspicion of coverage exists. From the insured’s perspective, it is advantageous to accept any settlement early on to resolve the case as quickly as possible.
Cumis counsel helps to resolve this conflict of interest by ensuring that the insurance company cannot influence the appointed counsel to prioritize their own interests.
[Last updated in July of 2022 by the Wex Definitions Team]