In Schaefer v. Elder the California Court of Appeal (Third Appellate District) held that the conflict of interest between the insurer and the insured required the appointment of an independent counsel to defend the insured in a negligence lawsuit. The court’s opinion was ordered to be published on June 12, 2013, and is available at www.courts.ca.gov
Kelly Elder, a contractor, was insured by CastlePoint National Insurance Company. The CastlePoint policy provided that it did not cover work performed by independent contractors unless Elder first obtained from the independent contractors an indemnity agreement and a certificate of insurance.
Elder was sued by Steve Schaefer who alleged that Elder was negligent in Elder’s design and work on Schaefer’s residence. CastlePoint appointed the Koeller law firm to represent Elder, subject to a reservation of rights. CastlePoint also filed a declaratory relief action to determine whether its insurance policy provided coverage for Schaefer’s claims against Elder. In its action, CastlePoint alleged that its policy did not cover Schaefer’s claims because the work on Schaefer’s residence was done by independent contractors retained by Elder.
Elder filed a motion for a ruling that he had a right to independent counsel. The trial court granted the motion and disqualified the Koeller law firm.
On appeal, CastlePoint relied on case law which holds that not every reservation of rights creates a conflict of interest requiring the appointment of independent counsel. The Court of Appeal did not disagree with the case law but ruled that there was a genuine conflict of interest in this case. In affirming the trial court’s judgment, the Court of Appeal concluded, “Put simply, the Koeller firm had an ethical duty to Elder to try to establish that the workers were employees and, at the same time, had an ethical duty to CastlePoint to try to establish that the workers were independent contractors. That conflict supported the trial court’s determination that Elder has the right to independent counsel.”