The California Court of Appeal affirmed the trial court's denial of the insured's request for independent counsel. Centex Homes v. St. Paul Fire and Marine Ins. Co., 237 Cal. App. 4th 23 (Cal. Ct. App. 2015).

   Centex, a developer of single family residences, was sued by homeowners for alleged construction defects. Centex tendered the defense to Travelers, which accept the defense subject to a reservation of rights, including the right to choose defense counsel.

     Meanwhile, Centex sued its 57 subcontractors, alleging six causes of action for breach of contract to indemnify, defend, and obtain insurance, for equitable indemnity and for contribution and repayment. The complaint also sought declaratory relief from Travelers. The seventh cause of action alleged that the homeowners were suing for construction defects caused by subcontractors who were insured by Travelers and that Centex was a named additional insured. Centex alleged that Travelers reserved the right to reimbursement, requiring the allocation of Centex's defense fees and and costs in the underlying action to be determined.

   The eighth cause of action alleged that Travelers breached its duty to provide Centex with independent counsel because Travelers had a conflict of interest. Centex alleged that Travelers wanted to limit the scope of its coverage to the work of its named insured, Oak Leaf. Further, Travelers was competing with Centex by seeking recovery from other subcontractors and forcing Centex to share counsel with the subcontractors, while controlling and manipulating Centex's defense, particularly through the use of experts.

   The trial court granted Travelers' demurrer, finding that the seventh cause of action was not ripe and there was no actual present conflict requiring independent counsel requested in the eighth cause of action. 

   On appeal, Centex identified the following as disputed areas with Travelers: (1) whether Travelers had the right to be reimbursed by Centex for all defense fees that related to the work of subcontractors it did not insure; (2) whether Travelers had the right to be reimbursed for defense fees in proportion to the ultimate amount it paid for indemnity for the subcontractors it insured; and (3) whether Travelers had the right to reimbursement for all defense fees not related to property damage arising from the work of its named insured subcontractor, Oak Leaf. 

    The court found all these claims were anticipatory and not ripe. It was still unknown whether Oak Leaf's work caused the property damage claimed by the homeowners.The proportionate liability of all the subcontractors had also not been adjudicated. Nor had the amount of defense fees been established in the ongoing underlying litigation. Therefore, the trial court correctly determined that the seventh cause of action was not ripe. 

   Regarding the eighth cause of action, Centex argued that Travelers' appointed counsel could challenge the liability of Oak Leaf, creating a direct conflict of interest by enhancing Travelers' reimbursement claims against Centex. Again, however, these anticipated circumstances had not yet occurred in the underlying litigation. Further, Travelers had the same interest in defending the underlying claim as Centex. Therefore, the trial court properly sustained the demurrer to the eighth cause of action. 

    Thanks to my Damon Key blogging colleague, Robert Thomas (www.inversecondemnation.com), for flagging this case.