CONFLICT OF INTEREST ALLEGATIONS
frequently arise in insurance claims when
adjusters hire attorneys to defend insureds who face suits from third parties.
When files include insurance cover-
age questions and carriers reserve rights,
many authorities hold that the defense at-
torney in the tripartite relationship has a
conflict of interest. Defense attorneys rely
on insurers for business and to pay their
bills. On the other hand, defense attor-
neys typically owe their main allegiance
to their policyholder or client. Those pol-
icyholders’ interests lie in having the cov-
erage that the carrier may be contesting.
Failure to recognize and navigate around
this touchy issue can expose adjusters,
insurers and TPAs to bad faith. How can
one navigate around this minefield?
Consider these six “practice tips” for
managing independent counsel.
1. Know the local case law on inde-
pendent counsel, or find out. Different
states’ case law address situations when
an insured may have off-panel, separate
defense counsel. If you’re handling claims
in a given state and reserve coverage
rights, assess how the case law in that
state treats reserving rights and if that en-
titles insureds to separate counsel.
If you do not know, contact local counsel
and ask. Before reserving rights, know the
risk of losing control of the defense, especially defense costs, in your jurisdiction. As
a witness on bad faith cases, I wince when
adjusters testify that they are unaware of the
state’s Unfair Claim Settlement Practices
Act and get no training on it.
This does not mean adjusters must
memorize every regulation. They should,
however, have a working familiarity with
the case law or “know what they don’t
know,” getting professional guidance to
assess what an insured is entitled to if a
carrier reserves coverage rights.
2. Don’t automatically equate reserving rights with a conflict of interest.
For example, carriers often send “excess
letters” just to be safe. Maybe a plaintiff
alleges punitive damages, even though
there is little chance of recovering them.
Perhaps the policy excludes punitives or
the state does not allow coverage for punitives on public policy grounds.
KEYS TO NAVIGATING
COUNSEL MINEFIELD 6BY KEVIN QUINLEY, CPCU, AIC