Swanson v. State Farm General Insurance

Filed 9/23/13
CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

TERRY ANN SWANSON, B240016

Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. EC055177)
v.

STATE FARM GENERAL INSURANCE
COMPANY,

Defendant and Respondent.

APPEAL from a judgment of the Superior Court of Los Angeles County, Laura A.
Matz, Judge. Affirmed.
Blasco & Hawekotte General Counsel Services and Richard E. Blasco for Plaintiff
and Appellant.
Robie & Matthai and Kyle Kveton for Defendant and Respondent.

____________________
 INTRODUCTION

An insurer agrees to provide a defense with a reservation of rights and approves
independent counsel selected by the insured to represent the insured in an underlying tort
action, pursuant to Civil Code section 2860 and San Diego Federal Credit Union v.
Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358 (Cumis). The insurer subsequently
withdraws all reservations of rights and coverage defenses that give rise to the insured‟s
right to Cumis counsel.1 Must the insurer continue to pay the insured‟s Cumis counsel
after the insurer‟s withdrawal of the Cumis-triggering reservations eliminated the conflict
that created the need for Cumis counsel? We answer this question in the negative.
Plaintiff Terry Ann Swanson appeals from a judgment entered after the trial court
had granted a motion for summary judgment in favor of defendant State Farm General
Insurance Company (State Farm). The trial court determined that State Farm did not
breach its insurance contract with Swanson by refusing to pay any attorneys‟ fees
incurred by her Cumis counsel after State Farm withdrew its reservation of rights. We
affirm.

FACTUAL BACKGROUND

State Farm issued Swanson Homeowners Insurance Policy No. 71-71-9553-0 (the
Policy) that provided personal and general liability coverage for her real property in La
Crescenta, for the period of May 12, 2004 to May 12, 2006. The Policy provided that if a
third party brought a suit against an insured for damages for covered “bodily injury” or
“property damage” caused by an “occurrence,” State Farm would “provide a defense at
our expense by counsel of our choice.” (Bold omitted.)

1 Courts often refer to the independent counsel hired by the insured as “Cumis
counsel,” a term we will use in this opinion. (See The Housing Group v. PMA Capital
Ins. Co. (2011) 193 Cal.App.4th 1150, 1152, fn. 1.)

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 On October 21, 2005 Swanson‟s personal attorney, Richard E. Blasco, requested
that State Farm defend and indemnify Swanson in an action on a cross-complaint by her
neighbors, Mark and Patricia Bitetti (the Bitetti Action), which alleged claims for
premises liability and negligence in connection with an incident that occurred on
January 10, 2005. Blasco was already representing Swanson in the underlying lawsuit on
her claims against the Bitettis for damage to her property and for personal injury caused
by failure of the Bitettis‟ retaining wall after the La Crescenta area experienced
substantial rainfall in December 2004.
On November 4, 2005 State Farm wrote to Swanson and stated that it was
accepting “the defense of the lawsuit subject to our reservation of rights.” State Farm
tentatively accepted Swanson‟s choice of Blasco as her Cumis counsel, subject to his
compliance with the requirements of Civil Code section 2860.2 State Farm asserted that
there was “a question whether we have a duty, under the terms of the policy, to defend or
indemnify” Swanson for the loss alleged in the Bitetti Action. The rights reserved by
State Farm involved questions regarding whether some of the claimed damages “would
qualify as bodily injury or property damage as defined by the policy,” whether they
“arose out of an occurrence as defined by the policy,” and whether they were excluded
from coverage by policy provisions excluding certain bodily injury or property damage.
(Bold omitted.) State Farm also advised Swanson that it was “reserving the right to
supplement or amend this reservation of rights to add or remove any policy defenses,” as
well as “the right to withdraw this defense if we determine there is no duty to defend or
indemnify you.” State Farm also reserved the right “to submit any disagreement over
[defense attorney] fees to arbitration as outlined in C[ivil] C[ode section] 2860.”
On December 5, 2005 Blasco responded that the terms of State Farm‟s
November 4, 2005 letter were generally acceptable, except for State Farm‟s proposed

2 Civil Code section 2860 sets forth qualifications and hourly rate limits for
independent counsel paid by an insurer along with related provisions governing some
aspects of the relationship between independent counsel chosen by the insured (i.e.,
Cumis counsel) and counsel chosen by the insurer. (See fn. 9, post.)

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hourly rate of $150. Blasco requested an hourly rate of $200, the same rate Swanson had
been paying him. Blasco also provided information about himself and his firm to
demonstrate his qualifications to serve as defense counsel under Civil Code section 2860.
On December 20, 2005 State Farm notified Blasco that he had met the requisite
statutory qualifications for Cumis counsel but advised him that the compensated hourly
rate would remain $150. The parties resolved the issue by Blasco agreeing to accept
payment from State Farm at the hourly rate of $150 and Swanson agreeing to pay Blasco
the $50 hourly rate difference.
On April 11, 2006 State Farm amended its original reservation of rights and
withdrew certain policy defenses it had previously asserted in its reservation of rights. It
is undisputed that State Farm‟s withdrawal of these reservations “eliminated the Cumis-
triggering conflict” between the insurer and its insured.3 State Farm informed Swanson
that it had chosen and retained an attorney from the firm of Procter, McCarthy and
Slaughter (Procter) to “take over the defense of” the Bitetti Action. State Farm also
advised Swanson that “elimination of the Cumis-triggering conflict” relieved it of its
obligation “to pay for independent counsel.” State Farm explained that “in the absence of
any obligation to provide independent counsel of the insured‟s choosing, State Farm had
the right to „provide a defense at our expense by counsel of our choice.‟”
Prior to the April 11, 2006 letter, State Farm had not asked for Swanson‟s consent
to turn control of the Bitetti Action over to Proctor or to have Proctor serve as defense
cocounsel with Blasco. Swanson subsequently agreed to add Proctor as cocounsel
without removing Blasco as her defense counsel. Proctor and Blasco then worked
together as cocounsel in the defense of the Bitetti Action. Blasco continued billing State
Farm and Swanson as he had been doing before State Farm withdrew the reservations of

3 In response to State Farm‟s undisputed material fact number 7, Swanson stated:
“Undisputed legal conclusion that: „The effect of the withdrawal of certain reservations
in the April 11, 2006 [letter] eliminated the Cumis-triggering conflict.‟”

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rights that had triggered Swanson‟s right to Cumis counsel. State Farm, however, did not
make any further payments to Blasco.4
The Bitetti Action went to trial in November 2006. Both Blasco and Proctor
defended Swanson. The jury found in favor of Swanson and did not award the Bitettis
any monetary damages.5 The trial court in the Bitetti Action entered judgment on
January 14, 2008.

PROCEDURAL BACKGROUND

Swanson filed this action in April 2009.6 Her first cause of action asked the court
to submit the dispute over Blasco‟s fees to arbitration pursuant to the terms of the Policy
and Civil Code section 2860. Her second cause of action for breach of insurance contract
sought damages in the amount of $60,384.76 for post-April 11, 2006 attorneys‟ fees
billed by Blasco for the defense of the Bitetti Action. Her third cause of action for breach
of the covenant of good faith and fair dealing sought damages for mental suffering and
emotional distress, as well as punitive damages.
In July 2009 Swanson filed a motion to compel arbitration of the Blasco fee
dispute.7 On August 28, 2009 the trial court denied the motion.

4 State Farm did pay Swanson in February 2009 all $10,116.54 in costs she incurred
in the Bitetti Action.
5 Swanson had settled her claims against the Bitettis for $300,000.
6 Swanson instituted this action by filing a petition asserting three causes of action:
(1) to compel arbitration pursuant to Civil Code section 2860, (2) breach of insurance
contract, and (3) tortious breach of insurance contract. On January 14, 2011 the trial
court converted the case from a petition to an unlimited civil action, and changed the Los
Angeles Superior Court case number from ES012997 to EC055177.
7 From the case summary for Swanson v. State Farm General Insurance Company,
Los Angeles County Superior Court Case No. ES012997, we take judicial notice on our
own motion of July 27, 2009 as the date Swanson filed the motion to compel arbitration.
(See Evid. Code, §§ 452, subd. (d), 459.)

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 In October 2010 Swanson filed a motion for summary adjudication on all three
causes of action. In January 2011 the trial court denied the motion, noting that the court
had previously decided the arbitration issue in August 2009.
In September 2011 State Farm filed a motion for summary judgment or in the
alternative for summary adjudication. State Farm argued that when it withdrew all
Cumis-triggering reservations of rights regarding Swanson‟s defense on April 11, 2006,
Swanson was no longer entitled to independent Cumis counsel paid by State Farm. State
Farm argued that at that point it was entitled to appoint counsel of its choosing and had
no further obligation to pay for Swanson‟s personal attorney. Swanson filed an
opposition to State Farm‟s motion for summary judgment and a cross-motion for
summary adjudication on the issues in Swanson‟s previously-denied motion for summary
adjudication. State Farm argued on reply that the court could not consider Swanson‟s
cross-motion because she had filed it on only 14 days‟ notice in violation of Code of
Civil Procedure section 437c.
On January 17, 2012 the trial court granted State Farm‟s motion for summary
judgment and denied Swanson‟s cross-motion. The trial court stated: “The parties agree
that there is no disputed issue of material fact and that this motion presents purely an
issue of law of first impression. That issue is whether, after Cumis-triggering
reservations are withdrawn by an insurer, an insurer remains obligated to pay the
insured‟s personal counsel if the insured does not wish to be represented by panel counsel
on a going-forward basis.” The trial court concluded that “when State Farm ultimately
withdrew its Cumis-triggering reservations, plaintiff insured was no longer entitled to
independent Cumis counsel. Under the terms of the Policy, where there was no Cumis-
trigger, State Farm had the right to „provide a defense at our expense by counsel of our
choice.‟” The court rejected Swanson‟s claim that State Farm, Swanson, and Blasco had
created a modified insurance agreement when State Farm and Blasco agreed in 2005 to a
rate of reimbursement for his fees. The trial court stated: “Agreeing on the hourly rate
was the satisfaction of an obligation imposed by statute. Civil Code section 2860 does

6
not expand or broaden an insurer‟s duty to defend.” On February 2, 2012 the trial court
entered judgment in favor of State Farm. Swanson filed a timely notice of appeal.

DISCUSSION

The primary issue on appeal is whether State Farm had the right to take control of
the litigation with an attorney of its choosing and to cease paying Blasco, Cumis counsel
chosen by Swanson, after State Farm withdrew its Cumis-triggering reservation of rights.
We agree with the trial court that State Farm had such a right. As we explain below, an
insurer has a duty to provide Cumis counsel to its insured only while the insurer
maintains a Cumis-triggering reservation of rights. Thus, when State Farm withdrew its
Cumis-triggering reservation of rights, it no longer had an obligation to allow Swanson to
control the litigation or an obligation to pay the attorneys‟ fees of Swanson‟s Cumis
counsel.

A. Standard of Review
We review a trial court‟s order granting a defendant‟s motion for summary
judgment motion de novo. (Biancalana v. T.D. Service Co. (2013) 56 Cal.4th 807, 813;
Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 860; GreenLake Capital, LLC v.
Bingo Investments, LLC (2010) 185 Cal.App.4th 731, 735.) Code of Civil Procedure
section 437c, subdivision (c), provides that a “motion for summary judgment shall be
granted if all the papers submitted show that there is no triable issue as to any material
fact and that the moving party is entitled to a judgment as a matter of law.” A moving
defendant “„bears the burden of persuasion that there is no triable issue of material fact
and that he is entitled to judgment as a matter of law.‟” (Morgan v. United Retail Inc.
(2010) 186 Cal.App.4th 1136, 1141, quoting Aguilar, supra, at p. 850; see Code Civ.
Proc., § 437c, subds. (o), (p)(2).) If the moving defendant meets that burden, “the burden
shifts to the plaintiff . . . to show that a triable issue of one or more material facts
exists . . . .” (Code Civ. Proc., § 437c, subd. (p)(2); Aguilar, supra, at p. 849.) “We must

7
affirm where it is shown that no triable issue of material fact exists and the moving party
is entitled to judgment as a matter of law.” (Morgan, supra, at p. 1142.)

B. State Farm’s Duty To Defend and To Provide Cumis Counsel
The provisions of the standard general liability insurance policy impose on “the
insurer a duty to indemnify the insured, generally stating that the insurer „will pay all
sums that the insured becomes legally obligated to pay as damages‟ for harm proved
within coverage. [¶] [A secondary provision of] the standard policy imposes on the
insurer a duty to defend the insured, generally stating that the insurer has a „duty to
defend‟ the insured „in any suit seeking damages‟ for harm alleged within coverage.”
(Certain Underwriters at Lloyd’s of London v. Superior Court (2001) 24 Cal.4th 945,
957.)8 An “insurer‟s duty to defend is broader than its duty to indemnify.” (Buss v.
Superior Court (1997) 16 Cal.4th 35, 46.) “The insurer‟s duty to indemnify runs to
claims that are actually covered, in light of the facts proved. . . . [¶] By contrast, the
insurer‟s duty to defend runs to claims that are merely potentially covered, in light of
facts alleged or otherwise disclosed.” (Ibid.)
At the time an insurer accepts an insured‟s tender of defense, the insurer has an
incentive to reserve a broad spectrum of coverage defenses in order to preserve its right
to limit its obligation to indemnify to covered claims. (Blue Ridge Ins. Co. v. Jacobsen
(2001) 25 Cal.4th 489, 497-498.) By giving notice to its insured, “[a]n insurer may agree
to defend a suit subject to a reservation of rights. [Citation.] In this manner, an „insurer
meets its obligation to furnish a defense without waiving its right to assert coverage

8 The Policy provided: “If a claim is made or a suit is brought against an insured for
damages because of bodily injury or property damage to which this coverage applies,
caused by an occurrence, we will: [¶] 1. pay up to our limit of liability for the damages
for which the insured is legally liable; and [¶] 2. provide a defense at our expense by
counsel of our choice. We may make any investigation and settle any claim or suit that
we decided is appropriate. Our obligation to defend any claim or suit ends when the
amount we pay for damages, to effect settlement or satisfy a judgment resulting from the
occurrence, equals our limit of liability.” (Bold omitted.)

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defenses against the insured at a later time.‟ [Citation.]” (Id. at p. 498.) “„[I]f the insurer
adequately reserves its right to assert the noncoverage defense later, it will not be bound
by [any] judgment [against its insured]. If the injured party prevails, that party or the
insured will assert his claim against the insurer. . . . At this time the insurer can raise the
noncoverage defense previously reserved.‟” (J. C. Penney Casualty Ins. Co. v. M. K.
(1991) 52 Cal.3d 1009, 1017, fn. omitted, quoting Gray v. Zurich Insurance Co. (1966)
65 Cal.2d 263, 279; see State Farm General Ins. Co. v. Mintarsih (2009) 175
Cal.App.4th 274, 283 [“an insurer may provide the required defense under a reservation
of its rights to later assert its objections to coverage as to one or more of the claims
alleged against its insured”].)
When an insurer undertakes defense of its insured, an attorney selected by the
insurer provides dual representation to the insured and the insurer. An insurer that owes
“a duty to defend an insured, arising because there exists a potential for liability under the
policy, „has the right to control defense and settlement of the third party action against its
insured, and is . . . a direct participant in the litigation.‟ [Citations.] The insurer typically
hires defense counsel who represents the interests of both the insurer and the insured.
[Citations.] In this „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 the same.‟ [Citation.]” (Long v. Century Indemnity Co. (2008) 163 Cal.App.4th
1460, 1468.)
The benefits of dual representation give way to the need for independent Cumis
counsel for the insured, however, if an insurer reserves its rights to deny indemnification
on specific coverage issues, and the reservation creates a conflict of interest between the
insurer and its insured that precludes dual representation because of the attorney‟s ethical
obligations to refrain from representing conflicting interests. (Civ. Code, § 2860,
subd. (b); Long v. Century Indemnity Co., supra, 163 Cal.App.4th at pp. 1470-1471.) As
the court explained in Cumis, “the Canons of Ethics impose upon lawyers hired by the
insurer an obligation to explain to the insured and the insurer the full implications of joint

9
representation in situations where the insurer has reserved its rights to deny coverage. If
the insured does not give an informed consent to continued representation, counsel must
cease to represent both. Moreover, in the absence of such consent, where there are
divergent interests of the insured and the insurer brought about by the insurer‟s
reservation of rights based on possible noncoverage under the insurance policy, the
insurer must pay the reasonable cost for hiring independent counsel by the insured. The
insurer may not compel the insured to surrender control of the litigation [citations].
Disregarding the common interests of both insured and insurer in finding total
nonliability in the third party action, the remaining interests of the two diverge to such an
extent as to create an actual, ethical conflict of interest warranting payment for the
insured[‟s] independent counsel.” (Cumis, supra, 162 Cal.App.3d at p. 375; accord,
James 3 Corp. v. Truck Ins. Exchange (2001) 91 Cal.App.4th 1093, 1099, fn. 1.)
In 1987 the Legislature codified the Cumis rule in Civil Code section 2860 (Stats.
1987, ch. 1498, § 4, p. 5779). (Compulink Management Center, Inc. v. St. Paul Fire &
Marine Ins. Co. (2008) 169 Cal.App.4th 289, 294.) Pursuant to Civil Code section 2860
if the insurance contract requires the insurer to provide a defense and a disqualifying
conflict of interest arises that creates a duty to provide the insured with Cumis counsel,
the insurer must provide Cumis counsel unless the insured waives the right to Cumis
counsel in writing. (Id., subds. (a), (e).) A disqualifying conflict of interest may arise
when the insurer reserves its rights with respect to a specific coverage issue “and the
outcome of that coverage issue can be controlled by counsel first retained by the insurer
for the defense of the claim” or claims involving the questioned coverage. (Id.,
subd. (b).)9 “„It is only when the basis for the reservation of rights is such as to cause

9 Civil Code section 2860 provides in pertinent part: “(a) If the provisions of a
policy of insurance impose a duty to defend upon an insurer and a conflict of interest
arises which creates a duty on the part of the insurer to provide independent counsel to
the insured, the insurer shall provide independent counsel to represent the insured unless,
at the time the insured is informed that a possible conflict may arise or does exist, the
insured expressly waives, in writing, the right to independent counsel. An insurance
10
assertion of factual or legal theories which undermine or are contrary to the positions to
be asserted in the liability case that a conflict of interest sufficient to require independent
counsel, to be chosen by the insured, will arise.‟” (Gafcon, Inc. v. Ponsor & Associates
(2002) 98 Cal.App.4th 1388, 1421-1422.) To be disqualifying, the conflict of interest
must be “„significant, not merely theoretical, actual, not merely potential.‟” (Gulf Ins.
Co. v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2000) 79 Cal.App.4th
114, 130; Dynamic Concepts, Inc. v. Truck Ins. Exchange (1998) 61 Cal.App.4th 999,
1007.)
Consistent with these principles, State Farm reserved coverage rights that the
parties agree created a disqualifying conflict of interest triggering State Farm‟s duty to
pay for Cumis counsel for Swanson. Swanson does not dispute that an insurer like State
Farm that reserves Cumis-triggering defenses can later waive some or all of those
defenses and that State Farm expressly reserved its right to make such a waiver in its
November 4, 2005 reservation of rights letter. Then, on April 11, 2006, after having
further considered coverage issues, State Farm gave Swanson notice that it was
withdrawing its broadest coverage reservations.
Swanson and State Farm agree that once State Farm waived its Cumis-triggering
defenses on April 11, 2006, the disqualifying conflict of interest no longer existed.

contract may contain a provision which sets forth the method of selecting that counsel
consistent with this section.
“(b) For purposes of this section, a conflict of interest does not exist as to
allegations or facts in the litigation for which the insurer denies coverage; however, when
an insurer reserves its rights on a given issue and the outcome of that coverage issue can
be controlled by counsel first retained by the insurer for the defense of the claim, a
conflict of interest may exist. No conflict of interest shall be deemed to exist as to
allegations of punitive damages or be deemed to exist solely because an insured is sued
for an amount in excess of the insurance policy limits.”
Civil Code section 2860 also provides that, if the insured selects Cumis counsel,
the insurer may continue to participate in the litigation and be represented by its chosen
attorney. (Id., subd. (f).) Cumis counsel and the insured must cooperate with the
insurer‟s counsel in the exchange of non-privileged information and other matters
relevant to the litigation and consult with the insurer “on all matters relating to the
action.” (Id., subds. (d), (f).)

11
Swanson and State Farm also agree that under Swanson‟s Policy, “in the absence of any
obligation to provide independent counsel of the insured‟s choosing, State Farm had the
right to „provide a defense at our expense by counsel of our choice.‟” Swanson and State
Farm further agree that, pursuant to the Policy provisions regarding the duty to defend,
State Farm at any time could appoint counsel of its choice to represent Swanson and State
Farm.
As explained above, the duty to provide and pay for Cumis counsel arises only
where a disqualifying conflict of interest exists. (Civ. Code, § 2860; Long v. Century
Indemnity Co., supra, 163 Cal.App.4th at pp. 1468-1471; Cumis, supra, 162 Cal.App.3d
at p. 375; see Musser v. Provencher (2002) 28 Cal.4th 274, 282-283.) Otherwise, “„[t]he
insurer owes no duty to provide independent counsel . . . because the Cumis rule is not
based on insurance law but on the ethical duty of an attorney to avoid representing
conflicting interests.‟” (James 3 Corp. v. Truck Ins. Exchange, supra, at p. 1101, quoting
Golden Eagle Ins. Co. v. Foremost Ins. Co. (1993) 20 Cal.App.4th 1372, 1394.) Thus,
when the ethical bar to dual representation does not exist, the insurer has no duty to
provide and pay for Cumis counsel. We are not aware of any authority, and Swanson
cites none, holding that once an insurer provides and pays for Cumis counsel, the insurer
cannot take over control of the litigation and cease paying Cumis counsel if the
disqualifying conflict ceases to exist later in the litigation. Here, it is undisputed that the
disqualifying conflict of interest between State Farm and Swanson ceased to exist on
April 11, 2006. After that date, State Farm did not have a duty to continue to provide and
pay for Cumis counsel.10

10 Of course, an insurer‟s decisions to withdraw the reservation of rights that gives
rise to the need for Cumis counsel, to take control of the litigation, and to cease paying
Cumis counsel, as well as the timing of those decisions, are, like all of the insurer‟s
decisions, subject to the insurer‟s duty of good faith and fair dealing to its insured.

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 C. There Was No Relinquishment of a Right To Cease Paying Cumis Counsel
Swanson contends that even if State Farm had a unilateral right under the Policy to
stop paying for Cumis counsel, State Farm relinquished that right by modifying the
Policy in the exchange of letters among State Farm, Swanson, and Blasco in November
and December 2005. Swanson argues State Farm also waived its right to take control of
the defense and stop paying Cumis counsel by failing to reserve such a right. We reject
both of these arguments.11

1. There Was No Modification of the Insurance Contract
Swanson argues that the exchange of correspondence with State Farm in
November and December 2005 constituted a modification of the Policy. We find no such
modification. The November and December 2005 letters were the means by which State
Farm preserved its rights and fulfilled its duties under the Policy and applicable law. The
November 4, 2005 letter to Swanson satisfied State Farm‟s contractual duty to provide a
defense based on State Farm‟s initial position that at least some of the claims in the
Bitettis‟ cross-complaint were potentially covered. (See Horace Mann Ins. Co. v.
Barbara B. (1993) 4 Cal.4th 1076, 1081.) The letter also protected State Farm‟s interest
in not waiving, but rather preserving, its coverage defenses. (See Blue Ridge Ins. Co. v.
Jacobsen, supra, 25 Cal.4th at pp. 497-498; Long v. Century Indemnity Co., supra, 163
Cal.App.4th at p. 1470, fn. 9.) Similarly, State Farm‟s November 4, 2005 letter to Blasco
and the December 2005 letters exchanged between Blasco and State Farm implemented
the provisions of Civil Code section 2860 that authorized State Farm to require Blasco to
meet certain professional qualifications for Cumis counsel and to limit the amount State

11 Swanson also raises several evidentiary issues. Because we are able to resolve this
appeal without reaching the merits of these issues, we decline to address them. (See
Kaiser Foundation Health Plan, Inc. v. Superior Court (2012) 203 Cal.App.4th 696, 715-
716 [appellate court may “decline to review an issue that will have no effect on the
parties”]; Shaw v. County of Santa Cruz (2008) 170 Cal.App.4th 229, 259 [“we do not
see these matters as necessary to our appellate decision and we accordingly decline to
resolve them”].)

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Farm had to pay Blasco to the rates State Farm usually paid counsel it retained.12
Swanson concedes that there is no signed modification of the Policy and that she did not
give additional consideration for any such modification. (See Buss v. Superior Court,
supra, 16 Cal.4th at p. 50 [“a separate contract supported by separate consideration”
would “supersede the [original] policy”].)
Swanson‟s reliance on Behnke v. State Farm General Ins. Co. (2011) 196
Cal.App.4th 1443, which she claims supports her modification argument and involved
“an almost identical set of facts as occurred in this case,” is misplaced. Behnke tendered
defense of an action against him to State Farm. State Farm agreed to defend, reserved
disqualifying coverage defenses, approved Behnke‟s selection of Cumis counsel subject
to Civil Code section 2860, and agreed to pay counsel at an hourly rate lower than
counsel‟s indicated rate. (Behnke, supra, at pp. 1448-1449.) State Farm then sent a
second reservation of rights letter withdrawing the Cumis-triggering reservation of
coverage defenses and instructing Behnke that another attorney, one selected by State
Farm, would be taking over the defense of the litigation. (Id. at p. 1449.) Behnke
objected to the change in attorneys and wanted to continue with the firm that had been
representing him as Cumis counsel. (Ibid.) So far, the facts in Behnke are similar to
those in this case.
In Behnke, however, State Farm then terminated the services of the attorney it had
selected and agreed to allow Cumis counsel to continue defending Behnke. (Behnke v.
State Farm General Ins. Co., supra, 196 Cal.App.4th at p. 1450.) A dispute arose

12 Civil Code section 2860, subdivision (c), provides in part: “When the insured has
selected independent counsel to represent him or her, the insurer may exercise its right to
require that the counsel selected by the insured possess certain minimum qualifications
which may include that the selected counsel have (1) at least five years of civil litigation
practice which includes substantial defense experience in the subject at issue in the
litigation, and (2) errors and omissions coverage. The insurer‟s obligation to pay fees to
the independent counsel selected by the insured is limited to the rates which are actually
paid by the insurer to attorneys retained by it in the ordinary course of business in the
defense of similar actions in the community where the claim arose or is being defended.”

14
between State Farm and Cumis counsel over the necessity and reasonableness of the
firm‟s fees. The Behnke court stated that, given the fee limitation and arbitration
requirement in Civil Code section 2860, subdivision (c), and State Farm‟s express
reservation of the right to arbitrate fee disputes, “State Farm‟s consent to Behnke‟s
decision to retain [the firm] as his independent defense counsel in the . . . action . . . must
be deemed an agreement or promise by State Farm to pay any Cumis counsel fees billed
by [the firm] . . . that were both reasonably necessary and reasonable in amount as
determined by an arbitrator in the event a fee dispute arose . . . .” (Behnke, supra, at
p. 1460.) The Behnke court concluded that “the factual allegations show that State Farm
agreed to pay only for those Cumis counsel fees that were both reasonably necessary and
reasonable in amount as determined by an arbitrator in the event of a dispute.” (Id. at
p. 1461.) Behnke says nothing about an insurer‟s duty to continue paying Cumis counsel
after waiving Cumis-triggering reservations of rights or about modification of an
insurance policy. Here, State Farm made the opposite choice of that made by the insurer
in Behnke. State Farm did not retain Blasco and refused to continue paying him after
waiving the disqualifying coverage defenses.

2. There Was No Waiver of the Right To Retake Control of the
Defense
Swanson also argues that State Farm waived its right to retake control of the
defense by counsel of its choosing because State Farm did not expressly reserve this right
in its November 4, 2005 letter. As noted above, however, an insurer‟s obligations under
Cumis and Civil Code section 2860 are “„not based on insurance law but on the ethical
duty of an attorney to avoid representing conflicting interests.‟” (James 3 Corp. v. Truck
Ins. Exchange, supra, 91 Cal.App.4th at p. 1101, quoting Golden Eagle Ins. Co. v.
Foremost Ins. Co., supra, 20 Cal.App.4th at p. 1394.) Swanson has not cited any
authority, and we are not aware of any, holding that an insurer may waive its rights under
Cumis and Civil Code section 2860 by failing to reserve them.

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 None of the cases Swanson cites supports her contention that State Farm waived
its right to retake control of the defense by failing to reserve its right to do so in its
November 4, 2005 reservation of rights letter. For example, Swanson argues that the
Supreme Court in Buss v. Superior Court, supra, 16 Cal.4th 35 held that if the insurer
wants to reserve the right to terminate Cumis counsel and take over control of the
litigation, the insurer must expressly say so in the same manner that the insurer reserves
the right to pursue coverage defenses in a reservation of rights letter. Buss does not say
this. The issue in Buss was whether an insurer could reserve the right to reimbursement
for costs of defense where some of the claims were potentially covered and some of the
claims were not. (Id. at pp. 49-50.) The Supreme Court held that an insurer cannot
reserve the right to reimbursement for the defense costs of potentially covered claims
because the insurer had no such right to reserve, but the insurer can seek reimbursement
for the defense costs of claims that were not even potentially covered. (Id. at pp. 49-53.)
There is no issue in this case about State Farm‟s right to reimbursement for defense costs,
nor any contention that the Bitetti Action involved only claims that were not potentially
covered by the Policy.
Swanson‟s reliance on Hamilton v. Maryland Casualty Co. (2002) 27 Cal.4th 718
is also misplaced. The court in Hamilton held that when an insured tenders a suit, the
insurer has but one “chance to be heard” with regard to issues material to liability and
“cannot reach back for due process to void” a settlement that the insured has entered into
“to eliminate personal liability.” (Id. at p. 728.) According to Swanson, Hamilton stands
for the proposition that State Farm in April 2006 could not “reach back” and revisit its
decision in November 2005 authorizing retention of and payment to Cumis counsel
selected by the insured. The Hamilton court‟s use of the phrase one “chance to be
heard,” however, referred to the opportunity an insurer has to reserve its rights with
respect to indemnification issues at the time the insurer first responds to an insured‟s
tender and request for a defense. (Ibid.) The court was explaining that when an insurer
denies that it has a duty to indemnify and defend a claim against the insured, the insured
may enter into a reasonable, noncollusive settlement without the insurer‟s consent and

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then seek reimbursement from the insurer.13 (Id. at pp. 728-729.) The insurer in
Hamilton provided the insured with a defense, and there was no issue regarding a breach
of the duty to defend or anything relating to Cumis counsel.

D. Summary Judgment Was Appropriate
Because State Farm had no duty to continue to allow Swanson‟s Cumis counsel to
control the Bitetti litigation or to continue to pay Cumis counsel after State Farm waived
the Cumis-triggering reservations of rights, there was no triable issue of material fact
regarding whether State Farm breached its duty to defend Swanson by refusing to pay
post-April 11, 2006 Cumis fees or by taking control of the litigation with counsel of its
choice. Moreover, because State Farm did not breach the insurance contract, it cannot be
liable for breach of the implied covenant of good faith and fair dealing. (See Brown v.
Mid-Century Ins. Co. (2013) 215 Cal.App.4th 841, 858; Minich v. Allstate Ins. Co.
(2011) 193 Cal.App.4th 477, 493.) Therefore State Farm was entitled to judgment as a
matter of law. (Code Civ. Proc., § 437c, subd. (c); Biancalana v. T.D. Service Co., supra,
56 Cal.4th at p. 813.) The trial court properly granted State Farm‟s motion for summary
judgment.

13 The issue in Hamilton was whether the amount of a stipulated settlement against
the insured was the proper measure of the insured‟s damages caused by the insurer‟s
breach of its duty to accept a reasonable settlement demand. (Hamilton v. Maryland
Casualty Co., supra, 27 Cal.4th at pp. 721-722.)

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 DISPOSITION

The judgment is affirmed. State Farm is to recover its costs on appeal.

SEGAL, J.*

We concur:

PERLUSS, P. J.

WOODS, J.

* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.

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