Gafcon, Inc. v. Ponsor & Associates (98 Cal. App. 4th 1388, 2002)

Court of Appeal of the State of California 2002-06-05

Citations

Full opinion text

Opinion

O’ROURKE, J.

Gafcon, Inc. (Gafcon) sued its liability insurer Travelers Property Casualty Corporation (Travelers), Travelers’ in-house law firm Ponsor & Associates, and Ponsor lawyer Roger von Kaesborg (collectively Ponsor) seeking, among other relief, a judicial declaration that (1) Travelers’ use of employee attorneys to defend its insureds constitutes the unauthorized practice of law; (2) insurance companies in general improperly exercise control over their employee attorneys so as to interfere with their independence and professional judgment in representing insureds; (3) Travelers in the present case operated under a conflict requiring it to pay for independent Cumis counsel; and (4) insurance companies derive an illegal profit from use of in-house counsel in representing insureds. Travelers and Ponsor moved for summary judgment; the court granted the motions.

On appeal, Gafcon asks us to broadly decide as a matter of law that insurance companies engage in the unauthorized practice of law when they use employee attorneys to defend their insureds. Gafcon additionally challenges the court’s summary judgment ruling on grounds that (1) disputed issues of fact exist as to whether Ponsor illegally split fees with Travelers and operated under a conflict of interest in representing Gafcon in the underlying negligent construction litigation; and (2) Travelers did not address Gafcon’s unfair business practices cause of action in its motion. Gafcon finally contends the court erred in refusing to grant its requests for additional discovery in the case.

With respect to Ponsor, we conclude it demonstrated the absence of a present and actual controversy appropriate for declaratory relief, and therefore the court correctly granted summary judgment in its favor. With respect to Travelers, we conclude under the undisputed facts of this case, Travelers’ use of Ponsor to represent Gafcon did not amount to the practice of law. In reaching this conclusion, we necessarily hold an insurance company does not engage in the practice of law due to the mere employment relationship between the insurer and the attorneys defending its insured against third party claims. Our holding is in part based on the recognition that in these instances, and absent conflicts of interest giving rise to independent counsel, the attorney represents both insurer and insured. We also conclude Gafcon failed to raise disputed issues of fact preventing summary adjudication of its request for declaratory relief as to Ponsor’s fee splitting and as to its cause of action for unfair competition. Because Travelers failed to meet its threshold summary judgment burden to establish the absence of a conflict of interest arising from Ponsor’s defense of the underlying lawsuit, however, the court could not properly deny declaratory relief as to that cause of action. Accordingly, we affirm the judgment as to Ponsor, but reverse the judgment as to Travelers with directions set forth below.

Factual and Procedural Background

The Underlying Collection/Negligent Construction Litigation

In 1995, the Palm Desert Resorter Homeowners Association (the Association) retained Gafcon, a construction management firm, to manage reconstruction work at the Palm Desert Resorter planned community. After a dispute arose over fees, Gafcon retained Stuart M. Eppsteiner and his then law firm Gibbs & Eppsteiner and sued the Association for unpaid fees. The Association cross-complained against Gafcon alleging, among others, causes of action for negligent supervision and advice; breach of contract and express and implied warranties; strict liability; and nuisance.

Gafcon tendered the Association’s action to its general liability insurer, Travelers, which accepted the defense but reserved its rights to allocate any payment of judgments or settlement between covered and noncovered claims and seek reimbursement for such payments and expenses. In particular Travelers pointed out its insurance did not apply to claims falling within an endorsement entitled “Exclusion—Testing or Consulting Errors and Omissions.” That provision excluded from coverage any claim for bodily injury, property damage, personal injury, or advertising injury arising out of “[a]ny error, omission, defect or deficiency in any test performed, or evaluation, a consultation [sic] or advice given by or on behalf of any insured” or “[t]he reporting of or reliance upon any such test, evaluation, consultation or advice.” Travelers assigned one of its staff counsel, Ponsor & Associates, to represent Gafcon.

In May 1999, Ponsor lawyer von Kaesborg met with Eppsteiner about the litigation. Among other things, Eppsteiner advised von Kaesborg that he felt Ponsor operated under a conflict of interest in representing both Travelers and Gafcon. In response to these assertions, von Kaesborg advised both Eppsteiner and Gafcon principal Yehudi Gaffen that while his law firm was a unit of Travelers Indemnity Company’s staff counsel organization and its lawyers were Travelers employees, it was not retained to represent Travelers or its interests but was retained solely to represent Gafcon. Von Kaesborg advised Gaffen and Eppsteiner that Ponsor & Associates would not put Travelers’ interests above Gafcon’s and was not involved in making coverage determinations.

Several months later, von Kaesborg learned Ponsor & Associates had a potential conflict of interest representing Gafcon in the Association lawsuit. A technical specialist with Travelers called Eppsteiner and left several messages offering to retain his firm at Travelers’ standard hourly rate. When Eppsteiner failed to respond to those messages, von Kaesborg advised Gaffen of the potential conflict and notified it he had arranged for one of Travelers’ outside panel counsel, Selski, Sturgeon and Wehbe, to represent Gafcon in the Association’s case. Although Ponsor thereafter sought to withdraw from the matter with Gaffen’s permission, Gaffen never responded to Ponsor’s request that it execute a substitution form.

The Present Litigation

In October 1999, less than a month after Ponsor advised Gaffen it had a conflict of interest requiring its withdrawal, Gafcon served Travelers and Ponsor with the complaint in the present action. Approximately a month later, Ponsor obtained a court order relieving it as Gafcon’s counsel of record.

In spite of Travelers’ retention of outside counsel to represent Gafcon’s interests, Gafcon proceeded with its action. In April 2000, it filed its second amended complaint naming Travelers, Ponsor and several other insurers, alleging causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing, unfair business practices under Business and Professions Code section 17200, as well as declaratory relief. In addition to damages, injunctive relief and restitution, Gafcon sought three judicial declarations applicable to both Ponsor and Travelers: (1) the practice of insurance companies, and specifically Travelers, in hiring staff counsel to represent their insureds, constitutes the unauthorized practice of law, and that when staff counsel represent the insured they are aiding insurance companies in the unauthorized practice of law; (2) Gafcon had the right to independent counsel of its own choosing to defend the Association’s cross-complaint; and (3) “insurance companies derive an illegal profit off the representation of the insured through staff counsel.” As to Travelers and the other insurers, Gafcon sought a fourth declaration: that it “had the right to independent counsel who charges for attorney fees at the rate at which the market would dictate, for counsel retained in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended, were it not for insurance companies engaging in the unauthorized practice of law.”

Both Ponsor and Travelers moved for summary judgment and alternatively summary adjudication. Travelers argued the trial court could summarily dispose of Gafcon’s causes of action under a 1987 ethics opinion of the California State Bar’s Standing Committee on Professional Responsibility and Conduct (State Bar Formal Opn. 1987-91, 1987 WL 109707, hereinafter State Bar Opinion No. 1987-91). This opinion concluded the employment of attorneys by insurance companies did not constitute the unauthorized practice of law. In addition, Travelers relied upon evidence that Ponsor never advised Travelers on the scope of insurance coverage, split fees with Travelers, or engaged in any unlawful, misleading or unfair business practice or deceptive advertising. Ponsor advanced the same arguments, but further maintained it was entitled to summary judgment because Gafcon had not sought any “direct relief or damages” against it.

In its motion, Travelers sought an adjudication that Gafcon’s declaratory relief causes of action had no merit in part because, as a matter of law, it did not “aid and abet in the unauthorized practice of law when it retained attorneys it employed to represent Gafcon in the [underlying] litigation.” It submitted the declarations of von Kaesborg and its senior technical specialist handling the case, Todd Lightbody. After setting forth the circumstances of his retention by Travelers, the fact of his employment with the company, and his later withdrawal from the underlying litigation, von Kaesborg averred generally that Ponsor “was not retained to represent Travelers” and at no time did he or the law firm place Travelers’ interests over Gafcon’s. According to von Kaesborg, he exercised his own professional judgment on Gafcon’s behalf at all times, and “Travelers never interfered with that judgment” nor did Travelers “in any manner limit or restrict our ability to represent Gafcon in the underlying litigation.” Finally von Kaesborg averred that while he was aware Travelers provided a defense under a reservation of rights, Ponsor & Associates had no responsibility for the coverage determination made by Travelers; that Ponsor & Associates “was not retained by Travelers, nor did [it] represent or advise Travelers, with respect to the scope of coverage for Gafcon, and [it] was not involved with any factual or legal investigation regarding the reservation of rights.” Lightbody similarly averred that Ponsor & Associates and its attorneys, including von Kaesborg, never had any responsibility regarding Travelers’ coverage determination. He stated Ponsor & Associates was never retained by Travelers regarding scope of coverage, and none of its lawyers were involved with any “factual or legal investigation regarding Travelers’ reservation of rights.” He averred, “Ponsor & Associates was retained for the sole purpose of representing Gafcon’s rights in the [underlying] litigation.”

Following the hearing on Ponsor’s motion, the parties stipulated to continue the hearing on Travelers’ motion in order to permit Gafcon time to conduct certain discovery and bring motions to compel discovery from Travelers before filing its opposition papers. Thereafter, in opposition to Travelers’ motion, Gafcon submitted its counsel’s declaration indicating Gafcon could not present certain evidence tending to establish facts relevant to the issues raised in its second amended complaint because the court had denied its various motions to compel.

The court granted summary judgment in favor of Travelers and Ponsor. Citing Cumis, supra, 162 Cal.App.3d 358, and Blanchard v. State Farm Fire & Casualty Co. (1991) 2 Cal.App.4th 345 [2 Cal.Rptr.2d 884] (Blanchard), it ruled as a matter of law the employment of attorneys by insurance companies does not constitute the unauthorized practice of law. The court also ruled Gafcon failed to raise material issues of fact to show Travelers or Ponsor engaged in or aided the unauthorized practice of law or had a conflict of interest requiring the appointment of Cumis. counsel under Civil Code section 2860. It entered judgment in Travelers and Ponsor’s favor. Gafcon appealed.

Discussion

I. Standard of Review

A defendant moving for summary judgment “bears the burden of persuasion that ‘one or more elements of’ the ‘cause of action’ in question ‘cannot be established,’ or that ‘there is a complete defense’ thereto.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 [107 Cal.Rptr.2d 841, 24 P.3d 493] (Aguilar), citing Code Civ. Proc., § 437c, subd. (o)(2).) A defendant may, but need not conclusively negate an element of the plaintiff’s cause of action; rather, “[a]ll that the defendant need do is to ‘show[ ] that one or more elements of the cause of action . . . cannot be established’ by the plaintiff.” (Aguilar, at p. 853, citing § 437c, subd. (o)(2).) In meeting its burden, the defendant must present evidence, in the form of affidavits, declarations, admissions, answers to interrogatories, depositions or matters of which judicial notice must be taken. (Aguilar, at p. 855; § 437c, subd. (b).) In addition to presenting evidence that negates an element of plaintiff’s cause of action, “[t]he defendant may also present evidence that the plaintiff does not possess, and cannot reasonably obtain, needed evidence—as through admissions by the plaintiff following extensive discovery to the effect that he has discovered nothing.” (Aguilar, at p. 855, fn. omitted.)

Once a defendant has met its burden of showing that a cause of action has no merit, “ ‘the burden shifts to the plaintiff ... to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto.’ ” (Aguilar, supra, 25 Cal.4th at p. 849.) The plaintiff may not rely upon the mere allegations or denials of its pleading to show a triable issue of material facts exists but instead shall set forth the specific facts showing that a triable issue of material fact exists. (§ 437c, subds. (c), (o)(2); Aguilar, supra, at p. 849; Parsons v. Crown Disposal Co. (1997) 15 Cal.4th 456, 464 & fn. 4 [63 Cal.Rptr.2d 291, 936 P.2d 70]; Scheiding v. Dinwiddie Construction Co. (1999) 69 Cal.App.4th 64, 69 [81 Cal.Rptr.2d 360].)

Summary judgment procedure includes declaratory relief actions “ ‘in a proper case.’ ” (National Exhibition Co. v. City and County of San Francisco (1972) 24 Cal.App.3d 1, 11 [100 Cal.Rptr. 757], citing Walker v. Munro (1960) 178 Cal.App.2d 67, 70 [2 Cal.Rptr. 737].) “ ‘ “[T]he propriety of the application of [summary judgment to] declaratory relief lies in the trial court’s function to render such a judgment when only legal issues are presented for its determination.” ’ [Citations.]” (Las Tunas Beach Geologic Hazard Abatement Dist. v. Superior Court (1995) 38 Cal.App.4th 1002, 1015-1016 [45 Cal.Rptr.2d 529].) When summary judgment is appropriate, the court should decree only that plaintiffs are not entitled to the declarations in their favor. (Spencer v. Hibernia Bank (1960) 186 Cal.App.2d 702, 712 [9 Cal.Rptr. 867], citing Essick v. City of Los Angeles (1950) 34 Cal.2d 614, 624-625 [213 P.2d 492].) Thus, in a declaratory relief action, the defendant’s burden is to establish the plaintiff is not entitled to a declaration in its favor. It may do this by establishing (1) the sought-after declaration is legally incorrect; (2) undisputed facts do not support the premise for the sought-after declaration; or (3) the issue is otherwise not one that is appropriate for declaratory relief.

This court assesses the trial court’s ruling de novo, applying the same analysis as the superior court. (Johnson v. City of Loma Linda (2000) 24 Cal.4th 61, 65, 67-68 [99 Cal.Rptr.2d 316, 5 P.3d 874]; Norgan v. Upjohn Co. (1999) 21 Cal.4th 383, 404 [87 Cal.Rptr.2d 453, 981 P.2d 79]; Buss v. Superior Court (1997) 16 Cal.4th 35, 60, 65 [65 Cal.Rptr.2d 366, 939 P.2d 766]; Silva v. Lucky Stores, Inc. (1998) 65 Cal.App.4th 256, 261 [76 Cal.Rptr.2d 382].) We construe the moving party’s affidavits strictly and the opponent’s affidavits liberally and resolve any doubts as to the propriety of granting the motion in favor of the opponent. (Silva v. Lucky Stores, Inc., at p. 261.) On appeal from a ruling on a motion for summary judgment we are not bound by the trial court’s stated reasons for its ruling on the motion; we review only the trial court’s ruling and not its rationale. (D’Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 18-19 [112 Cal.Rptr. 786, 520 P.2d 10]; Bed, Bath & Beyond of La Jolla, Inc. v. La Jolla Village Square Venture Partners (1997) 52 Cal.App.4th 867, 873 [60 Cal.Rptr.2d 830]; El Centro Grain Co. v. Bank of Italy etc. (1932) 123 Cal.App. 564, 567 [11 P.2d 650].)

II. Ponsor’s Motion

We first conclude the court correctly granted summary judgment in favor of Ponsor given the lack of an actual, present controversy between it and Gafcon for which declaratory relief might have been appropriate. There is no dispute that as of November 1999, well before Gafcon filed its second amended complaint, Ponsor had been relieved as counsel and no longer represented Gafcon. Any relationship between Ponsor and Gafcon, and thus any controversy vis-a-vis those parties, had terminated by that time.

Gafcon’s second amended complaint sought only declaratory relief against Ponsor. The controversy that is the subject of declaratory relief “ ‘ “ ‘must be of a character which admits of specific and conclusive relief by judgment within the field of judicial determination, as distinguished from an advisory opinion upon a particular or hypothetical state of facts . . . .’ ” ’ ” (Bame v. City of Del Mar (2001) 86 Cal.App.4th 1346, 1355 [104 Cal.Rptr.2d 183].) “The judgment must decree, not suggest, what the parties may or may not do. [Citations.]” (Selby Realty Co. v. City of San Buenaventura (1973) 10 Cal.3d 110, 117 [109 Cal.Rptr. 799, 514 P.2d 111].) Moreover, declaratory relief “ ‘operates prospectively, and not merely for the redress of past wrongs. It serves to set controversies at rest before they lead to repudiation of obligations, invasion of rights or commission of wrongs; in short, the remedy is to be used in the interests of preventive justice, to declare rights rather than execute them.’ ” (Babb v. Superior Court (1971) 3 Cal.3d 841, 848 [92 Cal.Rptr. 179, 479 P.2d 379], quoting Travers v. Louden (1967) 254 Cal.App.2d 926, 931 [62 Cal.Rptr. 654].)

“ ‘The principle that courts will not entertain an action which is not founded on an actual controversy is a tenet of common law jurisprudence, the precise content of which is difficult to define and hard to apply. ... A controversy is “ripe” when it has reached, but has not passed, the point that the facts have sufficiently congealed to permit an intelligent and useful decision to be made.’ ” (Alameda County Land Use Assn. v. City of Hayward (1995) 38 Cal.App.4th 1716, 1722 [45 Cal.Rptr.2d 752], quoting California Water & Telephone Co. v. County of Los Angeles (1967) 253 Cal.App.2d 16, 22 [61 Cal.Rptr. 618], italics added.) Even where a particular matter is an inherently proper subject of declaratory relief, “ ‘ “ ‘a declaratory judgment may not be rendered in respect to [such a matter] in disregard of the customary limitations upon the granting of such relief.’ ” ’ ” (Bame v. City of Del Mar, supra, 86 Cal.App.4th at p. 1355, quoting Redwood Coast Watersheds Alliance v. State Bd. of Forestry & Fire Protection (1999) 70 Cal.App.4th 962, 968 [83 Cal.Rptr.2d 24].)

Gafcon’s declaratory relief claims were premised on its theory that Travelers’ use of in-house counsel constituted the practice of law by Travelers; that given the conflict created by Travelers’ use of Ponsor, Gafcon was entitled to independent counsel; and that Ponsor and Travelers engaged in improper fee splitting. As to Ponsor, Gafcon’s concern was that Ponsor would place Travelers’ interests over its own and operate under impaired judgment. Yet Ponsor’s actions could negatively impact Gafcon only so long as it acted on Gafcon’s behalf in the Association’s action. As for Gafcon’s request for independent counsel and reimbursement for its having to retain independent counsel, that controversy is between Gafcon and its insurer Travelers. When Ponsor was relieved as Gafcon’s counsel, any harm occurring to Gafcon resulting from Ponsor’s purported inadequate representation or assistance to Travelers ended. Because declaratory relief operates prospectively only, rather than to redress past wrongs, Gafcon’s remedy as against Ponsor lies in pursuit of a fully matured cause of action for money, if any exists at all. (Fireman’s Fund Ins. Co. v. Maryland Casualty Co. (1994) 21 Cal.App.4th 1586, 1593, fn. 5 [26 Cal.Rptr.2d 762].)

III. Travelers’ Motion

Our conclusion regarding the lack of an actual controversy appropriate for declaratory relief does not extend to the causes of action between Gafcon and Travelers. Their insurer/insured relationship did not end upon Ponsor’s withdrawal from the action, nor would it necessarily expire upon the conclusion of the underlying lawsuit. Moreover, declaratory relief is appropriate where “questions of public interest... are involved.” (Collier v. Lindley (1928) 203 Cal. 641, 645 [266 P. 526]; accord, Pacific Legal Foundation v. California Coastal Com. (1982) 33 Cal.3d 158, 170 [188 Cal.Rptr. 104, 655 P.2d 306].) The use of in-house or staff counsel by insurance companies to represent insureds has become more commonplace in recent years, and necessarily raises the issue whether the mere fact of such an employment relationship between counsel and insurer gives rise to the unauthorized practice of law by the insurer. We exercise our discretion to consider it here.

A. Practice of Law by Travelers

Gafcon advances the broad proposition that insurance companies that employ lawyers to defend their insureds against third party claims engage in the unauthorized practice of law. It argues generally that absent qualification as a certified law corporation (Bus. & Prof. Code, § 6127.5), such a practice is barred by Business and Professions Code section 6125. In fact, its contention rests on the separate but related notion that a “lay” corporation cannot practice law or any other profession implicating duties of loyalty and confidentiality. In support of this contention, Gafcon cites People v. Merchants Protective Corp. (1922) 189 Cal. 531 [209 P. 363] (Merchants Protective), a 1922 California Supreme Court opinion, and subsequent cases that hold a corporation may not “employ competent attorneys to practice for it.” (People v. California Protective Corp. (1926) 76 Cal.App. 354 [244 P. 1089] (California Protective).) Under these authorities, Gafcon essentially seeks a per se prohibition against staff counsel acting on an insured’s behalf, on the theory they are agents of the insurance company and it is in effect the unlicensed insurance company that indirectly renders the services, not the licensed attorneys.

In response, Travelers concedes a corporation may not employ lawyers for customers where the corporation has no direct interest in the dispute at issue. It maintains its practice of employing lawyers to protect its own as well as its insureds’ interests is distinguishable and has gained acceptance as evidenced by State Bar Opinion 1987-91, which expressly concludes an insurance company’s in-house counsel may represent insureds in litigation without violating the prohibition against aiding the unauthorized practice of law, provided, among other things, the insurance company does not interfere with counsel’s professional independence or have in-house counsel also advise it on coverage issues concerning the insured. Travelers argues further that the undisputed facts demonstrate it did not engage in any conduct falling within any of the proscribed activities under State Bar Opinion 1987-91.

We reject the notion that an insurance company’s mere employment of attorneys to represent its insureds constituted the practice of law by the insurance company itself. Gafcon’s analysis ignores a critical element of the equation: the relationship between insurer, insured and counsel retained or employed by the insurer to act on the insureds’ behalf. When an insurance company in California arranges for a law firm to defend an insured under a contractual duty to do so under an insurance policy (regardless of whether that law firm is retained outside counsel or in-house counsel employed by the insurer), counsel is acting on the insurer’s behalf and representing the insurer’s own rights and interests as well as those of its insured. It is because of this distinction that we reach our limited holding in this case.

1. The Tripartite Insurer-Attomey-Insured Relationship

In California, it is settled that absent a conflict of interest, an attorney retained by an insurance company to defend its insured under the insurer’s contractual obligation to do so represents and owes a fiduciary duty to both the insurer and insured. (State Farm Mutual Automobile Ins. Co. v. Federal Ins. Co. (1999) 72 Cal.App.4th 1422, 1428-1429 [86 Cal.Rptr.2d 20]; National Union Fire Ins. Co. v. Stites Prof. Law Corp. (1991) 235 Cal.App.3d 1718, 1727 [1 Cal.Rptr.2d 570] [“So long as the interests of the insurer and the insured coincide, they are both the clients of the defense attorney and the defense attorney’s fiduciary duty runs to both the insurer and the insured.”]; Lysick v. Walcom (1968) 258 Cal.App.2d 136, 146 [65 Cal.Rptr. 406, 28 A.L.R.3d 368].) “It is a well accepted and oft repeated principle that the attorney retained by the insurance company for the purpose of defending the insured under the insurance policy owes the same duties to the insured as if the insured had hired the attorney him or herself.” (Bogard v. Employers Casualty Co. (1985) 164 Cal.App.3d 602, 609 [210 Cal.Rptr. 578]; see also Kroll & Tract v. Paris & Paris (1999) 72 Cal.App.4th 1537, 1542-1543 [86 Cal.Rptr.2d 78]; Lysick v. Walcom, supra, 258 Cal.App.2d at pp. 146-147.)

In American Mut. Liab. Ins. Co. v. Superior Court (1974) 38 Cal.App.3d 579, 591-592 [113 Cal.Rptr. 561], the court elaborated on the interests of the parties within this relationship: “In the insured-insurer relationship, the attorney characteristically is engaged and paid by the carrier to defend the insured. The insured and the insurer have certain obligations each to the other . . . arising from the insurance contract. Both the insured and the carrier have a common interest in defeating or settling the third party’s claim. If the matter reaches litigation, the attorney appears of record for the insured and at all times represents him in terms measured by the extent of his employment. [H In such a situation, the attorney has two clients whose primary, overlapping and common interest is the speedy and successful resolution of the claim and litigation. Conceptually, each member of the trio, attorney, client-insured, and client-insurer has corresponding rights and obligations founded largely on contract, and as to the attorney, by the Rules of Professional Conduct as well. The three parties may be viewed as a loose partnership, coalition or alliance directed toward a common goal, sharing a common purpose which lasts during the pendency of the claim or litigation against the insured. Communications are routinely exchanged between them relating to the joint and common purpose—the successful defense and resolution of the claim. Insured, carrier, and attorney, together form an entity—the defense team—arising from the obligations to defend and to cooperate, imposed by contract and professional duty. This entity may be conceived as comprising a unitary whole with intramural relationships and reciprocal obligations and duties each to the other quite separate and apart from the extramural relations with third parties or with the world at large. Together, the team occupies one side of the litigating arena.”

In certain circumstances (discussed more fully in pt. IDLC, post) a conflict of interest between insurer and insured will trigger the insured’s right to retain independent counsel at the insurer’s expense. (Civ. Code, § 2860, subd. (b).) But until such a conflict arises, the insurer has the right to control defense and settlement of the third party action against its insured, and is generally a direct participant in the litigation. (James 3 Corp. v. Truck Ins. Exchange (2001) 91 Cal.App.4th 1093, fn. 3 [111 Cal.Rptr.2d 181]; Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2000) ¶ 15:1086, p. 15-191 (rev. #1 2001).)

2. Corporate Practice Doctrine in the Context of Law Practice

The corporate practice prohibition generally seeks to discourage any layperson or entity’s interference in a profession requiring the utmost duties of loyalty and confidentiality to the client. In the context of the parallel doctrine of corporate practice of medicine, this court noted the “ ‘principal evils’ ” thought to spring from the doctrine are “ ‘the conflict between the professional standards and obligations of the doctors and the profit motive of the corporation employer.’ ” (Conrad v. Medical Bd. of California (1996) 48 Cal.App.4th 1038, 1041, fn. 2 [55 Cal.Rptr.2d 901], quoting People v. Pacific Health Corp. (1938) 12 Cal.2d 156, 158, 160 [82 P.2d 429, 119 A.L.R. 1284]; Steinsmith v. Medical Board (2000) 85 Cal.App.4th 458, 466 [102 Cal.Rptr.2d 115] [the basic rationale of the corporate practice prohibition is the potential for a secondary and divided loyalty to the patient].)

In furtherance of this policy and under the rationale that the practice of law is not a commercial business, in 1922, the California Supreme Court held corporations can neither practice law nor hire lawyers to practice law for it. (Merchants Protective, supra, 189 Cal. 531.) Merchants Protective was followed by other decisions repeating those concerns and reaching similar conclusions. (See California Protective, supra, 76 Cal.App. at p. 360 [a corporation providing legal services to its patrons for a fee constitutes the unauthorized practice of law; “[a] corporation can neither practice law nor hire lawyers to carry on the business of practicing law for it”]; see also Parker v. Board of Dental Examiners (1932) 216 Cal. 285, 298 [14 P.2d 67] [“That a corporation may not engage in the practice of the law, medicine, or dentistry is a settled question in this state. None of those professions which involves a relationship of a personal as well as a professional character, which has to do with personal privacy, can be placed in the same category as druggists, architects, or other vocations where no such relationship exists.”]; People v. Pacific Health Corp., supra, 12 Cal.2d at p. 158 [“It is an established doctrine that a corporation may not engage in the practice of such professions as law, medicine or dentistry.”]; Pacific Employers Ins. Co. v. Carpenter (1935) 10 Cal.App.2d 592, 595 [52 P.2d 992].)

As Travelers points out, the early cases involving the corporate practice of law dealt with circumstances where the corporate entity was created for the sole purpose of retaining counsel for its customers. In Merchants Protective, a quo warranto proceeding, the state challenged the practices of a corporate entity known as the Lawyers’ Institute of San Diego as constituting the practice of law. The corporation was specifically formed for the purpose of having individuals, other firms and corporations pay a set price for the services of a central organization that would appoint attorneys to handle collections and “ ‘render such other professional services as is needed and required by the various members and subscribers thereto.’ ” (Merchants Protective, supra, 189 Cal. at p. 532.) The court held the corporation, which employed attorneys as its agents and representatives to dispense legal advice and counsel, was indeed engaged in the practice of law. (Id. at p. 538.) Adopting the reasoning of the Washington Supreme Court in State ex rel. Lundin v. Merchants Protective Corp. (1919) 105 Wash. 12 [177 P. 694], it held: “ ‘The practice of law is not a business that is open to a commercial corporation. “Since, as has been seen, the practice of the law is not a lawful business except for members of the bar who have complied with all the conditions required by statute and the rules of the court, and as these conditions cannot be performed by a corporation it follows that the practice of law is not a lawful business for a corporation to engage in. As it cannot practice law directly it cannot do so indirectly by employing competent lawyers to practice for it, as that would be an evasion which the law will not tolerate.” ’ ” (Merchants Protective, 189 Cal. at p. 538.)

In California Protective, another quo warranto proceeding, the entity was incorporated for the purpose of “ ‘collecting] debts due to its members or clients. . . . employing] attorneys for its said members or clients, and . . . paying] for such legal services for and on behalf of its said members or clients.’ ”• (California Protective, supra, 76 Cal.App. at p. 358.) Its clientele paid yearly fees for the services of lawyers to, among other things, give “ ‘[l]egal advice and consultation on ail business, personal and private matters at the attorney’s office.’ ” (Id. at p. 359.) The court followed Merchants Protective and concluded the corporation was unquestionably engaged in the unlawful practice of law. (Id. at p. 360.) It reasoned: “It is true that individuals who are duly licensed members of the bar may ‘lawfully’ associate themselves in any unincorporated form of association, such as a partnership, for the practice of law. But such individuals may not associate themselves for the practice of law under the aegis of a corporation. Though all the directors and officers of the corporation be duly licensed members of the legal profession, the practice of law by the corporation would be illegal nevertheless. At any time those directors and officers, by death or by the transfer of their shares, might be succeeded by laymen none of whom possessed the right to practice law.” (Id. at pp. 360-361.)

Several premises underlie the corporate practice doctrine. One is that the corporation will always exercise impermissible control over the employee-attorney’s judgment and thus improperly interfere with his or her independence of judgment and loyalty to the client. Another is that the employee-attorney will necessarily be influenced by his or her employer and allow his or her judgment or independent decisionmaking to be impaired. The concern is that an attorney-employee will not be able to abide by his or her duties to remain loyal to his client and avoid conflicts of interest, protect client confidences and maintain independence of judgment. Such duties are of paramount importance in the practice of law. (In re Jordan (1974) 12 Cal.3d 575, 580 [116 Cal.Rptr. 371, 526 P.2d 523].) In Anderson v. Eaton (1930) 211 Cal. 113 [293 P. 788], the California Supreme Court laid down the framework of an attorney’s duties of confidentiality and loyalty in a case involving an attorney’s concurrent representation of a plaintiff in a wrongful death action on behalf of their son’s estate and of the insurance company representing the son’s employer in worker’s compensation proceedings: “One of the principal obligations which bind an attorney is that of fidelity, the maintaining inviolate the confidence reposed in him by those who employ him, and at every peril to himself to preserve the secrets of his client. [Citation.] This obligation is a very high and stringent one. It is also an attorney’s duty to protect his client in every possible way, and it is a violation of that duty for him to assume a position adverse or antagonistic to his client without the . . . knowledge of all the facts and circumstances. [Citation.] By virtue of this rule, an attorney is precluded from assuming any relation which would prevent him from devoting his entire energies to his client’s interests. Nor does it matter that the intention and motives of the attorney are honest. The rule is designed, not alone to prevent the dishonest practitioner from fraudulent conduct, but as well to preclude the honest practitioner from putting himself in a position where he may be required to choose between conflicting duties, or be led to an attempt to reconcile conflicting interests, rather than to enforce to their full extent the rights of the interest which he should alone represent.” (Id. at p. 116; see also Flatt v. Superior Court (1994) 9 Cal.4th 275, 288-289 [36 Cal.Rptr.2d 537, 885 P.2d 950].)

These basic and paramount obligations of an attorney to his or her client have not changed since our high court decided Merchants Protective and California Protective. And they are reflected in various statutes, as well as the State Bar Rules of Professional Conduct. (In re Jordan (1972) 7 Cal.3d 930, 940-941 [103 Cal.Rptr. 849, 500 P.2d 873]; Bus. & Prof. Code, § 6068, subd. (e) [every attorney has a duty “[t]o maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client”].) But other changes have taken place in the practice of law since these cases were decided. It is simply no longer true that lawyers may not practice in a corporate framework. (See Bus. & Prof. Code, §§ 6160, 6161, 6161.1.) Not-for-profit corporate entities provide legal services to third parties, and, therefore, under the reasoning of Merchants Protective, practice law. (See Corp. Code, § 10830.) Corporations employ in-house lawyers to defend their interests in and outside of court. Gafcon does not challenge the general proposition that a corporation may represent its own interests in court through counsel who is practicing law in a representative capacity. (See Woodruff v. McDonald’s Restaurants (1977) 75 Cal.App.3d 655, 657-658 [142 Cal.Rptr. 367] [“The record reflects that defendant, McDonald’s Restaurants, is a corporation. As such, it had no authority to appear in the superior court except through a licensed attorney.”]; see also Merco Construction Engineers, Inc. v. Municipal Court (1978) 21 Cal.3d 724, 730 [147 Cal.Rptr. 631, 581 P.2d 636] [“A corporation cannot in fact appear in court except through an agent.” (italics omitted)].) In Estate of Miller (1936) 5 Cal.2d 588 [55 P.2d 491], the California Supreme Court held the rendering of legal services by a county counsel to a public administrator in his official capacity did not constitute practice of law by a corporation, nor did it violate provisions of the State Bar Act. (Id. at p. 595.) The court reasoned that the county counsel is performing an official duty for the benefit of a county officer and is not representing a private individual or carrying on a private law practice for the benefit of the county. (Ibid.) “The county is no more practicing law in this case than when the County Counsel represents the county or a school district in court .... The County Counsel ... of course, practice^] law . . . but it is they who are practicing law, not the county.” (Id. at pp. 595-596.) Further, the court pointed out that the county has a material financial interest in estates handled by the public administrator. It concluded: “The prohibition against a corporation practicing law does not preclude a corporation from employing attorneys in any litigation in which it has a financial interest.” (Id. at p. 597.)

None of these evolutions permit lawyers representing corporate entities or performing legal services for third parties to violate or disregard obligations otherwise imposed by the Rules of Professional Conduct. (E.g., Corp. Code, § 10830 [corporation may not perform corporate purposes unless the attorneys furnishing professional services are acting in compliance with the Rules of Professional Conduct].) All lawyers, whether employed by a corporation or by an independent law firm that is retained by a corporate entity, are bound by the same fiduciary and ethical duties to their clients. (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1094 [95 Cal.Rptr.2d 198, 997 P.2d 511], citing General Dynamics Corp. v. Superior Court, supra, 7 Cal.4th at p. 1190 [32 Cal.Rptr.2d 1, 876 P.2d 487].) “Both [in-house and private counsel] are qualified to provide, and do provide, equivalent legal services.” (PLCM Group, Inc. v. Drexler, at p. 1094.) And all must comply with the Rules of Professional Conduct, including in those instances where counsel undertakes dual representation of the insurer and insured. For example, rule 1-600 of the Rules of Professional Conduct expressly addresses the concern arising from a nongovernmental entity that furnishes or pays for legal services, prohibiting any licensed attorney from belonging to any organization that interferes with his or her independent professional judgment. (Rules Prof. Conduct, rule 1-600 [“A member shall not participate in a nongovernmental program, activity, or organization furnishing, recommending, or paying for legal services, which allows any third person or organization to interfere with the member’s independence of professional judgment, or with the client-lawyer relationship, or allows unlicensed persons to practice law, or allows any third person or organization to receive directly or indirectly any part of the consideration paid to the member except as permitted by these rules, or otherwise violates the State Bar Act or these rules”].) It is true, the “discussion” section of rule 1-600 provides: “Rule 1-600 is not intended to override any contractual agreement or relationship between insurers and insureds regarding the provision of legal services.” (Discussion, 23 pt. 3 West’s Ann. Codes, Rules (1996 ed.) foll, rule 1-600, p. 340.) But we disagree with Travelers’ assertion that insurers and insureds are entirely exempted from this rule’s proscriptions. The clarification in the discussion section cannot be read to permit—in the context of an insurer/insured relationship—an unlicensed adjuster to practice law or the insurer to interfere with an attorney’s independence of professional judgment. (Discussion, 23 pt. 3 West’s Ann. Codes, Rules, supra, foll, rule 1-600, p. 340.)

Because the general ban on the corporate practice of law reflected in Merchants Protective and California Protective is subject to these exceptions, it is evident that the “chinks in the armor” of the corporate practice doctrine that this court found in the context of medical practice (Conrad v. Medical Board of California, supra, 48 Cal.App.4th at p. 1044) now extend to the legal profession. The California State Bar Standing Committee on Professional Responsibility and Conduct recognized this in 1987 when it issued its opinion noting the Merchants Protective and California Protective decisions had not “outlasted the evolution of prepaid medical and legal service programs which, under these authorities, would theoretically violate the prohibition against corporations practicing law.” (State Bar Opinion No. 1987-91, supra, 1987 WL 109707, *2.) The Committee summed up its opinion as follows: “In-house counsel for an insurer may represent insureds in litigation without violating the prohibition against aiding the unauthorized practice of law set forth in rule 3-101(A). However, the attorneys must be certain that the insurance company does not control or interfere with the exercise of professional judgment in representing insureds, that any fees are not split with the insurance company or any other third parties, that case[s] involving conflicts of interest are referred to outside counsel, and that the firm name used by in-house counsel is not false, deceptive or misleading.” (State Bar Opinion No. 1987-91, supra, 1987 WL 109707, *1.) More specifically, the committee found an insurance company’s use of salaried employee attorneys working within a “law division” to represent insureds does not violate the corporate practice doctrine as long as attorneys within the law division (1) do not permit the division to “become a front or subterfuge for lay adjustors or other unlicensed personnel to practice law”; (2) adequately supervise nonattomey personnel working under the attorneys’ supervision; (3) function as a separate law firm as much as possible; (4) take steps to guarantee that illegal fee splitting with the insurer does not occur; (5) cease representing the insured or insurer in the event of a conflict of interest absent their mutual consent; (6) never represent insureds while simultaneously advising the insurer on coverage aspects of the representation; or (7) use a law firm name without indicating the relationship between the firm and the law division on its letterhead. (State Bar Opinion No. 1987-91, supra, 1987 WL 109707, **4, 5, 6.)

We are not bound by an ethics opinion, and we need not adopt it in full for our holding in this case. It is sufficient here to recognize that (1) an insurance company has a direct pecuniary interest in the underlying third party action against its insured and (2) having such an interest, it is entitled to have counsel represent its own interests as well as those of its insured, as long as their interests are aligned. In the present situation, the insurer is representing its own interests through licensed attorneys who also happen to be its employees. Counsel’s status as a salaried employee of the insurer does not inherently create a temptation to violate or disregard ethical rules. We reject the argument that such a relationship supports the presumption that in-house counsel will always favor the insurer’s interests. Conflicts of interests may arise in such circumstances, but the same is true for an outside law firm that might be dependent upon a particular insurance company for a substantial amount of business.

3. The Record Demonstrates That Travelers Did Not Engage in the Practice of Law

Notwithstanding the breadth of the judicial declaration sought by Gafcon, the question presented is a narrow one, confined to the record before us. We decline to render an advisory opinion purporting to extend to all circumstances in which an insurance company utilizes employee attorneys to represent its insured in third party actions. Instead, we assess only whether the trial court could properly determine based upon undisputed facts that Travelers was not engaged in the practice of law due to Ponsor’s brief representation of Gafcon in this case.

Travelers’ evidence (the declarations of von Kaesborg and Lightbody) demonstrated that the only involvement or decisionmaking Travelers had with respect to Ponsor’s defense of the Association’s action was to designate that law firm as Gafcon’s counsel. Travelers did not influence or interfere with von Kaesborg’s professional judgment. It did not “limit or restrict” von Kaesborg’s ability to represent Gafcon in the underlying litigation or that of any other Ponsor & Associates lawyer. Von Kaesborg did not participate in any investigation or determination with regard to Travelers’ insurance coverage. There is no evidence Travelers directed or controlled Ponsor’s representation in any way. These undisputed facts lead us to conclude that Travelers met its burden to show Gafcon was not entitled to a judicial declaration that Travelers impermissibly engaged in the practice of law. The undisputed evidence demonstrates nothing more than Ponsor’s employment relationship and the agency status created by that relationship.

Gafcon sought to dispute von Kaesborg’s claim he was free to exercise his professional judgment by pointing to the fact he prepared a declaration that Travelers submitted “in opposition to Gafcon’s complaint” before he filed a declaration on his own behalf. Gafcon surmised in its separate statement that his declaration had to have been “required” by Travelers, and “thus” interfered with his professional judgment. Gafcon further argued that additional discovery would show Ponsor was required to follow “restrictions on the practice of law similar to those insisted upon by Travelers with respect to panel counsel.” Gafcon points to no evidence in support of these argumentative and vague assertions other than Travelers’ panel counsel manual and “Construction Defect Expert Retention and Billing Guidelines,” which, by Gafcon’s own concession, apply only to Travelers’ panel counsel. These documents are insufficient to create a dispute as to whether Travelers in some manner controlled Ponsor’s professional judgment.

B. Fee Splitting

Gafcon’s third cause of action sought a judicial declaration that insurance companies profit directly and indirectly by using staff counsel to represent its insureds, and that .Rules of Professional Conduct, rule 1-600 prohibited “the type of financial arrangement that exists between insurance companies and their staff counsel.” Gafcon contends Travelers’ practice of charging other insurance companies for the services of its staff counsel violates rules 1-600 and 1-320(A) of the Rules of Professional Conduct, which, respectively, prohibit attorneys from participating in any organization that “allows any third person or organization to receive directly or indirectly any part of the consideration paid to the member except as permitted by these rules . . .’’or “directly or indirectly shar[ing] legal fees” with a person who is not a lawyer.

We note preliminarily that Gafcon points out the trial court failed to address its claim regarding fee splitting. Interpreting this assertion as an argument that the judgment must be reversed for the trial court’s failure to address Gafcon’s request for declaratory relief on this point, we reject it. Because our review is de novo, the only question before us is whether the record establishes Gafcon’s entitlement to the declaration sought. (See Ruoff v. Harbor Creek Community Assn. (1992) 10 Cal.App.4th 1624, 1627-1628 [13 Cal.Rptr.2d 755]; cf., e.g., Hagen v. Hickenbottom (1995) 41 Cal.App.4th 168, 178 [48 Cal.Rptr.2d 197]; Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782 [31 Cal.Rptr.2d 162].)

Reaching the merits, we conclude Gafcon has not met its burden to raise a triable issue of material fact as to its claim Ponsor and Travelers illegally split fees through Travelers’ sharing of its costs with other insurers. In support of its motion, Travelers presented von Kaesborg’s declaration, in which he averred that “at no time” did he or his law firm split fees with Travelers. In opposition to this evidence, Gafcon pointed to deposition testimony by Dennis Ponsor in which he generally discussed instances where other carriers share in Travelers’ litigation expenses. Dennis Ponsor stated that in such cases, his law firm sends a bill to those other carriers who make out a check payable to Travelers and give it to Ponsor, which then records the information and forwards the bill to Travelers’ claims department. Gafcon also referred to a declaration from James DiVirgilio, Travelers’ deputy general counsel, in which DiVirgilio similarly averred that in instances where a Travelers insured is also insured by one or more other carriers, the expense of staff counsel is allocated between Travelers and those insurers. DiVirgilio explained the hourly rate for Travelers’ staff counsel was based on “an estimate of the actual cost of such staff counsel, including overhead” and this was the rate other carriers were charged when fees were allocated; that Travelers did not “markup” the cost of its staff counsel and made no profit from its use of their services. He asserted Travelers “under-recovered’ for its staff counsel expenses in 1998 and 1999.

Gafcon has not presented evidence demonstrating that Travelers’ sharing of Ponsor’s costs with other insurers constitutes the sharing of legal fees as opposed to simply contribution for the insurers’ respective defense cost obligations. The only conduct Travelers is engaged in is collecting reimbursement for Ponsor’s actual costs to Travelers, including overhead, from other responsible insurers. We disagree with Gafcon’s argument that Travelers’ receipt of those monies constitutes its receipt of “part of the consideration paid to the member” within the meaning of rule 1-600 of the Rules of Professional Conduct. That Ponsor acts as a conduit in collecting and forwarding the other insurers’ portion of its expenses does not convert those monies into legal fees, as opposed to Travelers’ costs, the sharing of which Gafcon concedes is authorized under Rules of Professional Conduct, rule 3-310(F).

Moreover, there is no evidence the sharing of Ponsor’s expenses in this case offends the policies underlying the rules against improper fee splitting. (See, e.g., Emmons, Williams, Mires & Leech v. State Bar (1970) 6 Cal.App.3d 565, 573 [86 Cal.Rptr. 367] [listing the dangers of fee splitting prohibited by Rules of Prof. Conduct, former rule 3 and noting the rule seeks to bar both solicitation and the presence of a party demanding allegiance the lawyer owes his client].) One of those policies is to avoid instances of control over litigation by a layperson more interested in his or her own profit than the client’s fate. (See Gassman v. State Bar (1976) 18 Cal.3d 125, 131 [132 Cal.Rptr. 675, 553 P.2d 1147]; In re Arnoff (1978) 22 Cal.3d 740, 748, fn. 4 [150 Cal.Rptr. 479, 586 P.2d 960]; Utz v. State Bar (1942) 21 Cal.2d 100, 108 [130 P.2d 377] [rules against fee splitting prohibit arrangements where attorneys accept employment solicited by a layperson intermediary who has entered into an agreement with an injured person having a legal claim and where attorney and solicitor share on a contingent basis in the proceeds of the attorney’s employment].) Another is to avoid facilitating a layperson intermediary’s tendency to select attorneys who will compensate him and not the most competent attorney for the client. (See Linnick v. State Bar (1964) 62 Cal.2d 17, 21 [41 Cal.Rptr. 1, 396 P.2d 33].) As Gafcon acknowledges, these policies are concerned with ensuring the best interests of the client remain paramount.

We have already concluded Gafcon has not shown Travelers exerted any influence or control over Ponsor’s professional judgment or advice during its brief representation, and, as we explain more fully below (pt. III.D, post), Gafcon has not rebutted Travelers’ showing it did not profit from its use of Ponsor’s services in this case. The absence of economic benefit to Travelers in recovering Ponsor’s expenses in particular compels us to conclude it did not engage in fee splitting. It is now settled that a corporation may recover fees incurred by its in-house counsel. In PLCM Group, Inc. v. Drexler, supra, 22 Cal.4th 1084, the court held a corporation may recover fees for attorneys within its legal department under Civil Code section 1717 under prevailing market rates for attorney services. (PLCM Group, Inc. v. Drexler, supra, at pp. 1093-1094, relying in part on Garfield Bank v. Folb (1994) 25 Cal.App.4th 1804 [31 Cal.Rptr.2d 239], disapproved on other grounds in Trope v. Katz (1995) 11 Cal.4th 274, 292 [45 Cal.Rptr.2d 241, 902 P.2d 259].) In a concurring and dissenting opinion, Justice Chin urged the corporation’s fee recovery be limited to actual costs including overhead to avoid permitting a corporation to profit from its legal department, which would implicate the proscription against fee splitting. (PLCM Group, Inc. v. Drexler, supra, 22 Cal.4th at p. 1106 (cone. & dis. opn. of Chin, J.).) He pointed out that several state and federal courts have held a market rate fee award implicates these proscriptions to the extent it enables a corporation to profit from its legal department. (Ibid) As stated, Travelers’ recovery from other insurers is limited to actual cost plus overhead; indeed it recovered less than Ponsor’s actual costs to Travelers in 1998 and 1999. Its arrangement does not implicate the concerns over unethical fee splitting raised by Justice Chin.

Emphasizing that we limit our consideration of the question to the facts presented here, we conclude Gafcon’s evidence did not raise a triable issue of fact regarding any possibility of fee splitting between Travelers and Ponsor in connection with Ponsor’s work in the Association’s action. Accordingly, Gafcon is not entitled to its sought-after judicial declaration on this point.

C. Conflict of Interest Triggering Travelers’ Duty to Pay for Independent Counsel

Gafcon’s fourth cause of action sought a declaration as to whether the facts and claims within the underlying lawsuit presented a conflict of interest triggering Travelers’ obligation to pay for independent Cumis counsel. Gafcon contends it presented evidence raising a triable issue of fact that Ponsor at the outset operated under such a conflict in its dual representation of both Travelers and Gafcon in the Association’s lawsuit. We do not reach Gafcon’s contention because we conclude Travelers did not conclusively establish the absence of a conflict sufficient to support summary judgment in its favor.

Our analysis of an insurer’s duty to pay for independent counsel begins with Cumis, supra, 162 Cal.App.3d 358. In Cumis, this court held, “[wjhere there are divergent interests of the insured and the insurer brought about by the insurer’s reservation of rights based on possible noncoverage under the insurance policy, the insurer must pay the reasonable cost for hiring independent counsel by the insured.” (Id. at p. 375.) There, the underlying action included claims for tortious wrongful discharge and intentional infliction of emotional distress. (Id. at p. 361.) The insurer provided its own counsel to defend the insured, but reserved its rights to disclaim coverage for willful misconduct and denied any coverage for punitive damages. (Id. at p. 362.) Noting it was uncontested that the basis for the insured’s liability “might rest on conduct excluded by the terms of the insurance policy” and that the insurer’s own counsel were privy to investigation and client communication that could provide information directly relating to the coverage issue, we held a conflict of interest arises “once the insurer takes the view a coverage issue is present.” We explained: “In the usual tripartite relationship existing between insurer, insured and counsel, there is a single, common interest shared among them. Dual representation by counsel is beneficial since the shared goal of minimizing or eliminating liability to a third party is the same. A different situation is presented, however, when some or all of the allegations in the complaint do not fall within the scope of coverage under the policy. In such a case, the standard practice of an insurer is to defend under a reservation of rights where the insurer promises to defend but states it may not indemnify the insured if liability is found. In this situation, there may be little commonality of interest. Opposing poles of interest are represented on the one hand in the insurer’s desire to establish in the third party suit the insured’s ‘liability rested on intentional conduct’ [citation], and thus no coverage under the policy, and on the other hand in the insured’s desire to ‘obtain a ruling . . . such liability emanated from the nonintentional conduct within his insurance coverage’ [citation], . . . Although issues of coverage under the policy are not actually litigated in the third party suit, this does not detract from the force of these opposing interests as they operate on the attorney selected by the insurer, who has a dual agency status [citation].” (Id. at pp. 364-365, fns. omitted.) More generally, Cumis observed that an attorney having such dual agency status is subject to the rule that a “ ‘[c]onflict of interest between jointly represented clients occurs whenever their common lawyer’s representation of the one is rendered less effective by reason of his representation of the other.’ ” (Cumis, supra, 162 Cal.App.