Publications

(Article from Insurance Law Alert, November 2016)

For more information, please visit the Insurance Law Alert Resource Center.

A California federal district court ruled that an insurer did not breach its duty to defend and was not required to hire independent counsel for the policyholder because no actual conflict of interest existed.  St. Paul Mercury Ins. Co. v. McMillin Homes Construction, Inc., 2016 WL 5464533 (S.D. Cal. Sept. 29, 2016).

McMillin, a general contractor, was an additional insured under a St. Paul policy issued to a landscape company.  McMillan tendered defense of a construction defect suit to St. Paul, which it accepted subject to a reservation of rights.  After McMillin refused to accept St. Paul’s appointed counsel, St. Paul filed suit, seeking a declaration that it had the right to control the underlying defense and had no obligation to pay counsel retained by McMillin.  McMillin counterclaimed alleging that St. Paul breached its duty to defend by failing to provide an immediate defense upon tender and by ignoring a conflict of interest that warranted the appointment of independent counsel.  The court rejected these contentions and granted St. Paul’s summary judgment motion.

The court disagreed that the nearly five-month delay between tender and St. Paul’s acceptance of the defense constitutes a breach of St. Paul’s duty to provide a timely defense, explaining that the time period between tender and McMillan’s production of documents to St. Paul (in response to St. Paul’s claim investigation) is not considered in determining whether St. Paul provided a timely defense. The court explained that insurers are entitled to a reasonable period to investigate claims to determine coverage issues.  The record established that once McMillin turned over the relevant documents, St. Paul agreed to defend within five to seven weeks.  The court held that this delay was reasonable as a matter of law.  The court also held that St. Paul was not obligated to appoint independent counsel because McMillin failed to demonstrate an actual, significant conflict of interest and mere “[a]llegations that the insurer had theoretical incentives creating adverse interests ‘do not cause a conflict requiring independent counsel.’”