The District Court denied the insurer’s motion to dismiss the additional insured’s claim that the appointment of independent counsel was required. S. Cal. Edison Co. v. Travelers Prop. Cas. Co of Am., 2025 U.S. DIst. LEXIS 148495 (C.D Calif. July 15, 2025).
Southern California Edison Company (SCE) entered a Master Services Agreement with its contractor, SASCO whereby SASCO agreed to provide services concerning electrical pole repair and replacement. SASCO was required to obtain primary and excess general liability policies and to name SCE as an additional insured. SASCO obtained such policies from Travelers, naming SCE as an additional insured. The policies limited coverage for SCE to covered damages arising from SASCO’s work.
While repairing a streetlight pole, Lisa Ibarra allegedly sustained bodily injuries when her right foot became stuck in a damaged portion of pavement near the repair site. Ms. Ibarra sued the City of Montclair. The City filed a cross-complaint against SCE, alleging that SCE was responsible for Ms. Ibarra’s injuries.
SCE tendered the claim to Travelers. Travelers agreed to defend under a reservation of rights. The reservation of rights letter stated, in part, “Based on the investigative evidence to date, we fail to assess any acts or omission on SASCO to have contributed this this trip and fall occurrence.”
Travelers then appointed defense counsel. SCE responded, telling Travelers that its coverage reservations created a conflict of interest, which required independent defense counsel for SCE pursuant to a California statute. Travelers refused to allow SCE to retain independent counsel.
SCE sued and Travelers moved to dismiss.
The California statue stated that a conflict of interest may exist “when an insurer reserves its rights on a given issue and the outcome of that coverage issues can be controlled by counsel first retained by the insurer for the defense of the claim . . .”
Travelers argued that its general reservation of rights was insufficient to establish a conflict of interest. Travelers asserted that “Ms. Ibarra’s alleged injuries were caused by ‘the active negligence of SCE,’ which would not be covered by the policy.” SCE alleged that when it inquired whether Travelers would reaffirm/acknowledge its reservations or waive such rights, Travelers refused to respond. Therefore, SCE argued that these statements/reservations alleged in SCE’s complaint established a specific reservation of rights by Travelers.
The court found that SCE’s allegations plausibly stated a claim for appointment of counsel under the statute due to SCE’s and Travelers competing interests that created an ethical conflict for counsel. A conflict existed where the insurer could be tempted to shape its defense so as to place the risk of loss entirely upon the insured and independent counsel was necessary to protect the insured’s interests. Because Travelers’ appointed counsel could control the outcome of coverage for SCE by, among other things, steering liability away from Travelers’ named insured, SASCO, the court agreed that divergent interest would arise between Travelers and SCE. Therefore, SCE sufficiently alleged it was entitled to independent counsel.
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