Employers Insurance of Wausau v. Albert D. Seeno Construction Co.

Employers Insurance of Wausau (Wausau) (plaintiff) issued insurance policies to homebuilder Albert D. Seeno Construction Company (Seeno) (defendant). Hundreds of people who bought homes constructed by Seeno brought claims against Seeno for defective construction. Seeno submitted those third parties’ claims to Wausau, but Wausau asserted that the claims were not covered by Wausau’s policies. Wausau reserved its rights to deny coverage, and Seeno exercised its right under San Diego Navy Federal Credit Union v. Cumis Insurance Society, Inc., 208 Cal. Rptr. 494 (Cal. Ct. App. 1984), to obtain independent counsel (Cumis counsel), paid for by Wausau, to represent Seeno in the third-party actions. The Cumis decision gave insureds the right to select independent counsel at the insurer’s expense if an actual or potential conflict of interest had arisen between the insurer and the insured. Seeno selected the Archer law firm (Archer) as its Cumis counsel. Further coverage disputes arose between Wausau and Seeno, and Wausau brought an action in federal district court seeking a declaratory judgment that it was not liable for the third-party claims. Wausau moved to disqualify Archer from representing Seeno in the coverage dispute on the theory that as Seeno’s Cumis counsel, Archer represented both Wausau and Seeno. Wausau asserted that if Archer were to represent Seeno in both the third-party actions and in the coverage dispute, Archer would have to argue in the third-party actions that Seeno and Wausau had no liability on the construction-defect claims and at the same time argue in the coverage dispute that Wausau was liable to Seeno for coverage on those same claims. Wausau thus asserted that Archer could not properly represent Seeno in the coverage dispute because Seeno’s interests were directly adverse to Wausau’s. The district court considered the disqualification motion.