## Facts

- An insurer issued comprehensive general liability policies to a homebuilder/developer that constructed hundreds of homes in Contra Costa County, California.
- Numerous homeowners asserted claims alleging construction defects and soil movement, including suits filed in court and claims not yet litigated.
- The insured tendered the claims to the insurer; the insurer accepted the tenders under a reservation of rights and disputed both coverage and claims-handling.
- The insured retained independent defense counsel at the insurer’s expense under California’s Cumis counsel doctrine for claims in litigation.
- The parties’ relationship deteriorated into a diversity declaratory-judgment action, with the insurer seeking coverage declarations and reimbursement, and the insured counterclaiming for contract and tort-based insurance misconduct.
- The insurer moved to disqualify the insured’s independent counsel, asserting conflicts based on alleged dual representation of insurer and insured.
- The insured cross-moved to disqualify the insurer’s counsel, asserting conflicts based on counsel’s involvement in both coverage litigation and homeowner-claim handling.

## Issues

1. Whether the insured’s independent Cumis counsel had a disqualifying conflict based on an alleged attorney-client relationship or fiduciary duties to the insurer.
2. Whether the insurer’s counsel had a disqualifying conflict based on an alleged attorney-client relationship with the insured arising from participation in claims handling.
3. Whether delay in raising a claimed conflict supported denial of disqualification.

## Decision

- The court denied the insurer’s motion to disqualify the insured’s independent counsel.
- The court denied the insured’s motion to disqualify the insurer’s counsel.
- The court found no attorney-client relationship between the insurer and the insured’s independent counsel, despite insurer payment of fees and coordination on defense matters.
- The court found no attorney-client relationship between the insured and the insurer’s counsel, including because the insurer’s counsel did not defend the insured in the litigated homeowner suits.
- The court treated the insurer’s delay in seeking disqualification as weighing against disqualification on the record presented.

## Legal Principles

- Under California’s Cumis counsel doctrine (as codified), independent counsel selected by an insured due to a reservation-of-rights conflict represents the insured, not the insurer, even when the insurer funds the defense.
- Payment of fees and participation in coordinating a defense do not, without more, create an attorney-client relationship between an insurer and the insured’s independent counsel.
- Disqualification requires a concrete showing of conflict grounded in duties arising from an attorney-client relationship or comparable fiduciary obligation; speculative or tactical allegations are insufficient.
- An insurer’s coverage counsel is not disqualified absent evidence that counsel undertook representation of the insured or that the insured reasonably believed such representation existed.
- Delay in asserting a claimed conflict may support denial of disqualification, particularly where the asserted ethical harm is not shown to be immediate or substantial.

## Conclusion

The court denied cross-motions to disqualify because neither side established the attorney-client relationships necessary to create disqualifying conflicts: the insured’s Cumis counsel owed duties only to the insured, and the insurer’s counsel represented only the insurer and did not defend the insured in the litigated homeowner actions.


Employers Ins. of Wausau v. Albert D. Seeno Constr. Co., 692 F. Supp. 1150 (N.D. Cal. 1988)