Hunton Insurance Recovery Blog

The Ninth Circuit has affirmed victory for New York Marine and General Insurance Co. in its legal battle with Amber Heard over the cost of defending defamation claims brought against the actress by ex-husband, Johnny Depp. New York Marine and Gen. Ins. Co. v. Heard, No. 23-3399 (9th Cir. Nov. 25, 2024). The decision, premised on Virginia law, rather than the policyholder’s favored California law, underscores the potential for choice of law to have case-dispositive implications.

Background

New York Marine insured Amber Heard under a liability insurance policy which, like most liability insurance policies, included a broad duty to cover the cost of Heard’s legal defense. Prior to notifying the New York Marine of the claims of defamation brought against her by ex-husband, Johnny Depp, Heard had retained the law firm of Cameron McEvoy PLLC. Upon receiving notice of the claims against Heard, the insurer agreed to defend the claims under a reservation of rights. Heard continued to use Cameron McEvoy for her defense, but claimed that the reservation of rights created a conflict of interest that required New York Marine to provide Heard with independent counsel. Heard eventually hired her own independent counsel and Cameron McEvoy subsequently withdrew from the litigation. 

Heard insisted that New York Marine cover the cost of her independent counsel because a conflict of interest arose when New York Marine reserved the right to deny coverage based on facts which, if proven, would undermine Heard’s legal defense. Heard based her argument on the rule of California law that requires an insurer to provide independent counsel when the insurer’s reservation of rights creates a potential conflict of interest with its insured. San Diego Navy Fed. Credit Union v. Cumis Ins. Soc’y, 50 A.L.R. 4th 913 (Cal. App. 1984); Cal. Civ. Code § 2860.

The Ninth Circuit rejected Heard’s argument, finding that despite the insurer’s reservation of rights, no conflict of interest existed sufficient to warrant appointment of independent counsel. The court reasoned that because the underlying defense in Depp v. Heard was litigated in Virginia, and because Heard’s counsel were members of the Virginia bar and, thus, bound by Virginia’s rules of ethics, no conflict of interest arose since, in Virginia, attorneys are ethically obligated to prioritize their client’s interests, which according to the court eliminated any potential conflict. As the court explained:

Unlike California, Virginia’s ethics rules provide that a lawyer appointed by an insurer owes a duty only to the insured, not to the carrier. . . . Potential disputes between an insurer and insured over indemnification therefore do not put Virginia lawyers in a conflicted position.

The court’s reasoning raises several issues. First, while it is unclear whether the court intended to draw an ethical dichotomy between California and Virginia, the decision suggests that attorneys in Virginia may be held to a higher ethical standard than in California. Regardless, the insurer’s reservation to exclude coverage based on facts that would likely be adduced through the defense of the underlying litigation seem to suggest a clear conflict where the policyholder’s counsel may develop the facts that ultimately defeat coverage. Second, although the Ninth Circuit’s decision turns on a difference among two states’ rules of professional conduct, the court never engaged in a true choice-of-law analysis to determine which states’ substantive law should control the parties’ respective duties under the insurance policy. Yet the court nevertheless decided the appeal in the face of conflicting jurisdictional outcomes. Even without conducting a choice of law analysis, however, the decision illustrates the potentially outcome-determinative consequences choice-of-law can have on an insurance coverage dispute, even where the dispute concerns what is otherwise considered a broad duty to defend.

Takeaways for Policyholders

The Ninth Circuit’s decision demonstrates the importance of understanding how application of one state’s law (and ethical rules) over another can affect the outcome of an insurance coverage dispute. The decision also illustrates the importance of engaging in a proper choice-of-law analysis, which apparently did not occur here. Indeed, knowing where the insurance policy was issued and where the allegedly injurious conduct occurred are among the most important factors when assessing which states’ law controls coverage. Policyholders would be well-served, therefore, to engage coverage counsel to assess choice-of-law alternatives and determine which variables might most greatly impact outcome.