San Gabriel Valley Water Co. v. Hartford Accident & Indemnity Co.

Civil Code section 2860, subdivision (c) provides in part that in cases of conflict of interest requiring an insurer to provide independent counsel to defend an insured, “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.” This case presents two questions regarding the application of section 2860(c). First, does the statute properly apply to actions commenced after its enactment where the underlying insurance policy preexisted that enactment? Second, in cases in which more than one insurer has reserved rights and is obligated to provide for independent counsel, does the statute provide for a single rate limit applicable to those insurers collectively, as opposed to requiring them each potentially to pay up to its own ordinary rate? We agree with the trial court that the answer to both questions is affirmative, and we therefore affirm the declaratory judgment granted in favor of defendants, liability insurers of…