The Nevada Supreme Court has adopted California’s independent counsel rules, holding that an insured is entitled to select its own counsel where an insurer’s coverage reservation creates an actual conflict of interest between the insurer and the insured. The court further held that the insurer must pay the independent counsel a “reasonable” rate.
In addressing the questions certified from the U.S. District Court for Nevada, the Nevada Supreme Court relied on the Rules of Professional Conduct. The court explained that Nevada is a “dual-representation state,” where insurer-appointed defense counsel represents both the insurer and the insured. Because the ethical rules prohibit counsel from representing both parties when their interests conflict, the court adopted California’s Cumis rule to address such conflicts. The court held that in a conflict situation, to fulfill its duty to defend, the insurer must provide and pay the reasonable costs for the insured’s independent counsel.
But the court also ruled that not every reservation creates a conflict. The court noted that Nevada permits joint representation as long as there “is no actual conflict” and “any conflict remains speculative.” Nev. Yellow Cab v. Eighth Judicial Dist. Court, 123 Nev. 44, 51 (2007). The court cited California law to articulate its rule for determining when an insurer must provide independent counsel: “’For independent counsel to be required, the conflict of interest must be significant, not merely theoretical, actual, not merely potential.’ [Fed. Ins. Co. v. MBL, Inc., 160 Cal.Rptr.3d 910, 920 (internal quotations omitted)]. Therefore, even when (1) there is a reservation of rights and (2) insurer-provided counsel has control over an issues in the case that will also decide the coverage issue, courts must still determine whether there is an actual conflict of interest. This means that there is no conflict if the reservation of rights is based on coverage issues that are only extrinsic or ancillary to the issues actually litigated in the underlying action. See id.” The court therefore concluded that a reservation of rights does not create a per se conflict.
The ruling differs from California law in one respect: the independent counsel is not subject to the same rate of pay as panel counsel. Nevada has not passed legislation similar to California Civil Code section 2860, which states that an insurer is not required to pay an hourly rate greater than that paid to panel counsel. Instead, the court held that the attorneys must be paid by the insurer at a “reasonable” rate. Although the decision does not address what constitutes reasonableness, the court has previously held that the method to determine a reasonable fee is subject to the trial court’s discretion, which is tempered “only by reason and fairness.” The factors relevant to making that determination include: (1) the attorney’s ability, training, education, professional standing and skill; and (2) the character of the work to be done – including its difficulty, intricacy and importance – and the time and skill required. See, Shuette v. Beazer Homes Holdings Corp., 121 Nev. 837, 864-865 & n. 100 (citations omitted).