Your Insurer Is Defending Under a Reservation of Rights: When a California Business Gets Cumis Counsel

Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).

A reservation of rights letter means the insurer will defend the lawsuit for now while keeping the right to deny coverage later. In California the business may choose its own lawyer at the insurer's expense only if a conflict of interest exists. A reservation can create one when the insurer reserves its rights on an issue and the lawyer it retained could control the outcome of that issue through the defense. (Civ. Code, § 2860, subd. (b).) Not every reservation does. Kolmogorov Law, P.C. represents insured businesses in these disputes.

Call (909) 235-6116 or contact us online to discuss a reservation of rights letter and who should defend your company.

What a reservation of rights letter is

The letter accepts the defense of the lawsuit and may name the law firm the insurer chose. It also lists the policy terms the insurer may rely on later to refuse payment of a judgment or settlement, or to ask for money back.

It is not a denial, and section 2860 sets no deadline for answering it. It still calls for prompt attention. The right described below can be given up in writing at the moment the insured is told a conflict may exist. (Civ. Code, § 2860, subd. (a).)

Our page on the duty to defend explains when an insurer must defend at all.

When the reservation gives you independent counsel

A conflict of interest may exist when an insurer reserves its rights on a given issue, and the outcome of that coverage issue can be controlled by the counsel the insurer first retained to defend the claim. Where a conflict creates the duty, the insurer must provide independent counsel to represent the insured. (Civ. Code, § 2860, subds. (a), (b).)

Apply the test ground by ground. Suppose the complaint alleges both careless and deliberate conduct, and the insurer reserves the right to deny coverage for deliberate acts. How the defense is run can influence which finding the case produces. That is an issue appointed counsel could control.

Now suppose the insurer reserves only on a question the lawsuit will not decide, such as whether the policy was in force on the date of the events. Defense counsel cannot steer that answer, so the statutory test points the other way.

There is no conflict as to allegations or facts for which the insurer denies coverage outright. Punitive damages allegations do not create one, and neither does a demand above the policy limits by itself. (Civ. Code, § 2860, subd. (b).)

The rules once independent counsel is in place

Qualifications. The insurer may require that the lawyer the insured selects have at least five years of civil litigation practice, including substantial defense experience in the subject of the case, and errors and omissions coverage.
Rates. The insurer's obligation is limited to the rates it actually pays lawyers it retains in the ordinary course of business to defend similar actions in the community where the claim arose or is being defended.
Fee disputes. A fee dispute that the policy's own methods do not resolve goes to final and binding arbitration before a single neutral arbitrator the parties select.

(Civ. Code, § 2860, subd. (c).)

Independent counsel and the insured must disclose to the insurer all information about the action except privileged material relevant to the coverage dispute. They must also inform and consult with the insurer in a timely way. Both the insurer's lawyer and independent counsel may participate in all aspects of the case, and the insured's duty to cooperate under the policy continues. (Civ. Code, § 2860, subds. (d), (f).)

The waiver form

An insured may waive the right by signing a statement that the statute quotes in full. It says the insured has been advised of the right to select independent counsel, has considered the matter fully, and freely waives the right. (Civ. Code, § 2860, subd. (e).) If a form with that language arrives with the letter, do not sign it until someone has compared the reserved grounds with the complaint.

What the insurer may ask for later

Defense costs. An insurer that reserved the right may later seek reimbursement of defense costs that can be allocated solely to claims that were never even potentially covered. Our duty to defend page covers that rule.

Settlement money. The California Supreme Court has held that an insurer defending under a reservation may settle over the insured's objection and then seek reimbursement for a reasonable settlement of noncovered claims. Three steps are required. The insurer must have made a timely and express reservation of rights. It must give express notice that it intends to accept the settlement offer. And it must expressly offer to let the insured assume its own defense. (Blue Ridge Ins. Co. v. Jacobsen (2001) 25 Cal.4th 489.) A letter that makes that offer should be answered with care.

Fees paid to independent counsel. In one case the Supreme Court allowed an insurer to seek reimbursement of allegedly excessive fees directly from independent counsel. The court tied its ruling to unusual facts, including a court order that had preserved the insurer's right to challenge the bills. The insurer has the burden of proving the fees were unreasonable. (Hartford Casualty Ins. Co. v. J.R. Marketing, L.L.C. (2015) 61 Cal.4th 988.)

What to do when the letter arrives

List each reserved ground and ask whether the lawsuit will decide the facts behind it.
Ask the insurer in writing whether it agrees that independent counsel is required, and request the rates it pays in similar cases.
Keep meeting the court's deadlines in the lawsuit. The coverage discussion does not pause them.
Send coverage correspondence through your own coverage lawyer, not through the defense lawyer the insurer appointed.

What to bring to the first meeting

The reservation of rights letter and any waiver form sent with it.
The complete policy, with declarations and endorsements.
The summons and complaint, and the date the response is due.
Your tender letter and all correspondence with the insurer, the broker, and appointed counsel.

Frequently asked questions

Our insurer is defending the lawsuit but sent a reservation of rights letter. Do we get to pick our own lawyer?

Only if a conflict of interest exists, and a reservation does not always create one. Under California Civil Code section 2860, a conflict may exist when the insurer reserves its rights on an issue and the lawyer it retained could control the outcome of that coverage issue through the defense. If so, the insurer must provide independent counsel of your choosing unless you waive the right in writing. A reservation on punitive damages does not qualify by itself.

What is Cumis counsel?

Cumis counsel is the independent defense lawyer a California policyholder may select, at the insurer's expense, when the insurer's reservation of rights creates a conflict of interest. The name comes from a 1984 Court of Appeal decision. The rules now appear in Civil Code section 2860, which defines the conflict, limits the rates the insurer must pay, and requires independent counsel to keep the insurer informed about the case.

Who pays for Cumis counsel in California?

The insurer pays, within limits. California Civil Code section 2860 caps the insurer's obligation at the rates it actually pays lawyers it retains in the ordinary course to defend similar actions in the same community. A fee dispute not resolved by a method the policy provides goes to binding arbitration before a single neutral arbitrator.

The insurance company wants to settle the lawsuit against our company and says it may ask us to pay part of it back. Can it do that?

In some circumstances, yes. The California Supreme Court has held that an insurer defending under a reservation of rights may settle over the insured's objection and seek reimbursement for a reasonable settlement of claims that prove not to be covered. It must have reserved its rights expressly and on time, told the insured it intended to accept the offer, and offered to let the insured take over its own defense. (Blue Ridge Ins. Co. v. Jacobsen (2001) 25 Cal.4th 489.)

Does a reservation of rights mean the insurer will deny coverage?

No. It means the insurer is defending while keeping open the question of whether it must pay a judgment or settlement. In California an insurer must reserve the right to recover defense costs spent on claims that were never potentially covered in order to assert it later.

Talk to a California insurance coverage attorney

If your insurer is defending under a reservation of rights, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is a business litigation firm in Irvine that represents companies and their owners in business, commercial, and intellectual property disputes, in court and in arbitration. The office is in Irvine, California.

Related reading: our insurance litigation page, insurance bad faith, and our business litigation practice.

This page provides general information about California law and is not legal advice. Outcomes depend on the policy, the complaint, the facts, and the court.