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Finley v. Home Insurance Co.6/4/1998
y reservation of rights automatically entitles an insured to select Cumis counsel to represent the insured in the underlying action. Instead, a reservation of rights can create a conflict of interest if "the insurer's reservation of rights on the ground of noncoverage based on the nature of the insured's conduct, which as developed at trial would affect the determination as to coverage." McGee, 176 Cal. App. 3d at 226, 221 Cal. Rptr. 423. When such a conflict of interest exists, the insurer is obligated to either obtain written consent of the insured to the conflict of interest, or the insurer must pay the reasonable cost for hiring independent counsel by the insured.
We now address the question of whether a conflict of interest existed in the immediate case to warrant reimbursement by HIGA for Bernstein's attorneys' fees. The record does not fully indicate all the claims initially raised against AP in the underlying wrongful termination action. The record also does not provide a copy of the reservation of rights letter that informed AP that HIGA would be defending the wrongful termination action under a reservation of rights. As such, based on the record, it is impossible to conclusively determine whether HIGA's reservation of rights was based on the nature of the insured's conduct, which as developed at trial would affect the determination as to coverage. Therefore, we cannot conclude one way or the other whether AP was entitled to independent counsel at the expense of HIGA. Accordingly, we vacate and remand for such a determination.
B.
Finally, we address the remaining issues raised by HIGA. First, HIGA argues that the Cumis doctrine does not apply because there are no outstanding attorneys' fees owed for work performed by Bernstein. This argument erroneously assumes that Cumis does not apply.
However, we point out that the record indicates that Bernstein performed approximately $197,993.44 in attorneys' fees which have not been reimbursed by HIGA. Thus, assuming AP was entitled to independent counsel at the expense of HIGA, there remains a genuine issue of material fact regarding the reasonableness of such fees. As such, we remand for a determination of this issue, if necessary.
Second, HIGA argues that if AP is entitled to Cumis counsel then it should only be responsible for those fees incurred after it received notice of the underlying lawsuit, pursuant to Great Am. Ins. Co. v. Aetna Cas. and Sur. Co., 76 Haw. 346, 876 P.2d 1314 (1994). However, the circuit court was never asked to rule on the factual question of whether AP waived their right to reimbursement of attorneys' fees incurred prior to HIGA receiving notice of the underlying wrongful termination action, pursuant to Great Am. Ins. We decline to address this issue on appeal because it was not raised before the circuit court in violation of Hawai'i Rules of Appellate Procedure Rule 28(b) (4). See also Craft v. Peebles, 78 Haw. 287, 294, 893 P.2d 138, 145 (1995) ("It is well settled that objections not raised or properly preserved at trial will not be considered on appeal.").
Third, HIGA argues that even if AP is entitled to Cumis counsel, AP waived any right to such counsel because it failed to demand Cumis counsel in a timely manner. We note at the outset that if Cumis counsel is appropriate, then that means a conflict of interest exists between insurer and insured. Therefore, HIGA is obligated to either obtain written consent to the conflict of interest or be responsible for Cumis counsel. Having apparently failed to obtain any written consent, HIGA is thus responsible for
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