Opinion
FROEHLICH, J.Petitioner State Farm Fire and Casualty Company (State Farm) petitions for a writ reversing the discovery order of the superi- or court, contending that such order violates the attorney-client privilege.
*1225The action in which the discovery order was made is an “insurance bad faith” case brought against State Farm by Robert and Diane Durant (the Durants). State Farm had issued a homeowners’ liability policy to the Durants. The Durants were subsequently sued by purchasers of their home who claimed damages for foundation defects. Durants tendered the defense of the case to State Farm, which accepted same but with a “reservation of rights.” It then asserted this reservation in an action for declaratory relief filed against Durants, in which it contended it had no obligation of indemnification. The underlying “bad faith” case is the Durants’ claim that State Farm committed torts and breaches of contract in denying coverage and in failing adequately to defend.
When State Farm interposed its “reservation of rights” it became obligated under the Cumis doctrine1 to provide independent counsel to the Durants in the defense of their liability action. This obligation was satisfied by State Farm’s agreeing to pay the fees of independent counsel, Dwight D. Worden, previously retained by the Durants. State Farm then retained other counsel, Haasis, Pope and Correll, to pursue its declaratory relief action to establish lack of coverage.
State Farm assigned as adjuster for the case its employee Ted Krempa (Krempa). Krempa communicated with the Worden office concerning the case, and was the only agent of the insurance company with whom Worden dealt. However, that Krempa represented State Farm’s position on liability was evidenced by the fact that he “continuously advised . . . that not one penny would be offered in settlement, that State Farm was only obligated to provide ... a ‘defense,’ because, in his opinion, there was no coverage under the policy.” (Quoted from the Worden memorandum of points and authorities submitted in superior court.)
Krempa was also the State Farm agent who communicated with Haasis, Pope and Correll, the coverage counsel. He therefore served in a dual capacity, assisting and communicating with counsel defending Durants in the liability case, and at the same time communicating with and assisting the State Farm counsel asserting lack of coverage in the declaratory relief case. Krempa maintained only one file.
*1226The writ petition derives from a discovery order made in the “bad faith” case. Durants sought production of all of the documents in Krempa’s file.2 Their contention, broadly put, is that the adjuster aiding in defense of the liability action is the agent of the insured and the insured’s Cumis counsel, that the Durants and their counsel are entitled to know everything their agent learns, and that they are hence privileged to see everything in his file. Since Krempa was Durants’ agent, it is argued, the sending of information or communications to him by Haasis, Pope and Correll constituted a waiver of any attorney-client privilege which might otherwise be available, just as if the communication had been sent directly to the Durants.
The Cumis rule requires complete independence of counsel when an insurance company interposes a reservation of rights, the basis of which creates a conflict of interest.3 Durants request that we add a layer of separation to this mandate, requiring that not only the counsel involved in the cases but the adjusters assigned to each case (the “liability” case as distinguished from the “coverage” case) be separate—that the files on each case be separate and apart—and indeed, as urged by amici curiae, that a veritable wall be erected between the insurance company’s administration of the two cases. We cannot subscribe to this proposition.
The relationship between an insurer and an insured is akin to a fiduciary relationship. The insurer is bound to conduct itself with the utmost good faith for the benefit of its insured. (Shultz Steel Co. v. Hartford Accident & Indemnity Co. (1986) 187 Cal.App.3d 513, 519 [231 Cal.Rptr. 715]; Gibson v. Government Employees Ins. Co. (1984) 162 Cal.App.3d 441, *1227444-446 [208 Cal.Rptr. 511].) However, the protection afforded by that relationship is not unlimited (Shultz Steel Co. v. Hartford Accident & Indemnity Co., supra, at p. 519), and the insurer has no duty totally to disregard its own interests when they conflict with the insured’s interests (Tomerlin v. Canadian Indemnity Co. (1964) 61 Cal.2d 638, 647 [39 Cal.Rptr. 731, 394 P.2d 571]; see also Merritt v. Reserve Ins. Co. (1973) 34 Cal.App.3d 858, 873-874 [110 Cal.Rptr. 511]).
The insured both by contract and by statute has a duty to cooperate in his defense and to disclose information and facts concerning the action. (Ins. Code, § 332; O'Morrow v. Borad (1946) 27 Cal.2d 794, 800 [167 P.2d 483, 163 A.L.R. 894].) Where statements are given the insurance adjuster for the purpose of defending against the liability claims, they are protected from third party discovery by the attorney-client privilege (Soltani-Rastegar v. Superior Court (1989) 208 Cal.App.3d 424, 425 [256 Cal.Rptr. 255]). This does not constitute the adjuster the insured’s agent for all purposes, however. The continuing potential adverse position of the adjuster is recognized, we believe, in recent legislation which affirms the principle stated in Cumis, that “privileged materials relevant to coverage disputes” need not be reported to the insurance company. (Civ. Code, § 2860, subd. (d) (eff. Jan. 1, 1988); San Diego Credit Union v. Cumis Ins. Society, supra, 162 Cal.App.3d at p. 366.)
The insurance adjuster is the agent of the insurer. (See Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 576 [108 Cal.Rptr. 480, 510 P.2d 1032]; Doctors' Co. v. Superior Court (1989) 49 Cal.3d 39, 48 [260 Cal.Rptr. 183, 775 P.2d 508].) That the adjuster can under particular fact situations become also the agent of the insured is clear, and this most usually will occur when no issue as to coverage arises. Where coverage is in issue, however, it is obvious that the adjuster’s loyalties are divided and the insured and his counsel cannot reasonably expect that he represents only the interest of the insured. Indeed, it is to remedy this problem that the concept of the Cumis counsel has been created.
The existence of independent Cumis counsel adequately protects, we believe, the interests of the insured. In these days of ever-increasing costs in the processing of insurance settlements, we conclude it would be unwise to impose yet another layer of administration.
We do not, it must be noted, deal with the potential issue of misrepresentation of the status of an insurance adjuster. This is not a case in which an adjuster has taken advantage of misplaced or mistaken confidences. The adverse position of Krempa in terms of the claims of Durants against State *1228Farm was clearly stated and, presumably, well understood by the Worden law office. As Cumis counsel, it was Worden’s obligation to guard against improvident revelations to the insurance company, and since it dealt only with Krempa it must have assumed that communications to him were the same as communications to State Farm itself.
This is not a case of claim of damage by virtue of any occupation of dual role by Krempa. Durants do allege in their complaint that confidential information was transmitted to Krempa by Durants’ counsel and that this information was used adversely to Durants. Nowhere, however, is any specific injury alleged to have resulted from this broadly alleged breach of privilege. It appears to us that the reason for alleging transmission of confidences to Krempa was to support the contention that Krempa served as the agent for Durants. The thrust of the discovery motion, which gives rise to this proceeding, was not to prevent Krempa from passing information to his company or their attorneys or to sanction him for breach of confidences; it was to obtain information in Krempa’s files which he had obtained from the company’s coverage counsel.
Durants claim that because Krempa was acting in their behalf, communications made to him by other insurance company counsel must be deemed infected with a waiver of privilege. Officers and adjusters of insurance companies have long, we believe, occupied roles of divided loyalty when liability under policies is denied. The principle espoused by Durants would require that counsel representing an insurance company make sure, before discussing coverage concerns, that the individual in the company with whom he was talking was not also involved otherwise in the investigation of the claim. We believe such a requirement would be unreasonable and impractical.
We find that the communications between coverage counsel, Haasis, Pope and Correll, and Krempa are privileged under Evidence Code section 954 and are not discoverable. To the extent the superior court compelled the discovery of such confidential communications the order is vacated. The court is directed to enter a new order denying the motion to compel discovery of the privileged material.
Kremer, P. J., concurred.
San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358 [208 Cal.Rptr. 494, 50 A.L.R.4th 913]. When the insurer disputes liability for indemnification but continues to provide a defense for the insured against the claim, a potential conflict of interest arises. Assertions made to defeat the liability of the insurer under the policy may promote the claim of the third party against the insured. To remedy the conflict, Cumis held that the insurer is obligated to provide separate counsel for the insured in representation of the liability case, independent of the counsel utilized by the insurer in its coverage case.
Illustrative of the broad nature of the request is the following item: “The complete adjuster’s or administrators’ or investigator’s file(s) regarding all matters involving State Farm as it exists in the [sic] any and all offices of the Defendant, or in the personal possession of any Defendant or employees, agents, or persons having contracted with each Defendant, including, without limitation, Haasis, Pope & Correll, pertaining to the aforementioned policy or policies of insurance. . . .”
Cumis can be read to suggest that this conflict arises whenever the insurer asserts a reservation of its right to assert noncoverage, while still providing a defense to the liability action. (See San Diego Federal Credit Union v. Cumis Ins. Society, Inc., supra, 162 Cal. App.3d at pp. 361, 371, fn. 7.) This interpretation of Cumis would be erroneous, as pointed out in McGee v. Superior Court (1985) 176 Cal.App.3d 221, 227 [221 Cal.Rptr. 421]. It is only when the basis for the reservation of rights is such as to cause 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. The briefing in this special proceeding is insufficient to permit a determination whether such conflict was actually presented by State Farm’s reservation of rights. However, the fact of acceptance and compensation of the insured’s chosen counsel, thus constituting such counsel “Cumis” counsel, is a sufficient acknowledgement by the parties that the requisite conflict was created. We thus proceed upon the assumption that this is indeed a case in which Cumis counsel was required.