The mere potential for excess liability or punitives may not, by itself, create conflicted interests between insurers
and insureds. The insurer hires defense
counsel, who works hard to defend the
policyholder; any liability assessed will be
the carrier’s responsibility. A lawyer also
works to prevent liability over the policy
limits and prevent punitive damages. Insurers and insureds have a common interest – defeating the plaintiff’s claim or
This differs from situations where one
claim is covered and one is not, and panel
counsel could “steer” the case toward excluded claims. The main point: Reserving rights does not always equal a conflict
entitling insureds to separate counsel.
3. Condition reassignment of the case
on your “silver linings playbook.” Set
reasonable conditions. Hourly rate is but
one concern about independent counsel.
The other: The time counsel bills. Inde-
pendent counsel may quote a reasonable
rate, but compensate by “billing heavy.”
Hourly rate is relevant, but only one
part of legal spend. Condition assignment
to counsel on them following reasonable
litigation guidelines. Focus areas are:
• Regular and thorough status updates;
• Litigation plans and budgets; and
• Case evaluations.
These should address questions like:
• Based on all you know, what is the
claim’s reasonable compromise settle-
• If the case is tried, what are the percentage odds of a defense verdict?
• If a plaintiff’s award occurs, what is
the likely verdict range?
If guidelines do not hamper an insured’s
defense, such requirements should pose
no problem. Carriers deserve information
from independent counsel, who should
follow the same reporting, communication, budgeting and case evaluation disciplines expected from any attorney.
4. Be strategic before opening the independent counsel “door.”
Sometimes insureds (especially com-
mercial accounts) have a preferred firm
with a high hourly rate, waiting to launch
when carriers reserve rights, triggering
a presumed entitlement to independent
counsel. The adjuster may have “paper”
grounds for reserving rights but the odds
of prevailing are dim, such as a “late no-
tice” in states, which make carriers prove
prejudice from delayed reporting. Or the
plaintiff pleads punitive damages as a
“kitchen sink” throw-in, and there’s little
chance of punitives being awarded.
The risk of losing control over the defense – and legal costs – may exceed the
risk of waiving “Hail Mary” coverage
defenses. The carrier may be wiser not
reserving rights on a theoretical coverage issue to retain control of the defense,
which goes beyond hourly rate. It includes settlement philosophy versus expensive, “scorched earth” litigation.
Settlement philosophy of panel counsel versus independent counsel is a huge
worry in relinquishing control of case
defense. It is not just about hourly rates
or how heavily independent counsel
5. Be cautious in dealing with “
monitoring counsel” and national coordinating counsel. Sometimes, insureds want
separate firms to oversee panel counsel’s
work. There is nothing wrong with this
unless the insured tries to bill the carrier
for the service.
An insured may face suits around the
country from the same product or oper-
ation and announce, “We need national
coordinating counsel!” Sometimes, in-
sureds are coached by a law firm which
tells them, “You need monitoring counsel
or national coordinating counsel.”
While monitoring counsel may comfort
an insured, nothing in the policy typically
obligates carriers to pay for a second set
of eyes, either in monitoring counsel or
national coordinating counsel. Some files
may warrant national coordinating coun-
sel. This is a judgment call. There is no
magic number of claims that triggers their
use. However, sometimes an insured has
multiple claims and announces it needs
national coordinating counsel.
Somewhere, the adjuster must draw the
line. The carrier must defend. That duty
may not extend to funding monitoring
counsel or national coordinating counsel
just because it comforts the insured.
6. Consider legitimate business rea-
sons for independent counsel, even
in non-conflict settings. Even without
reserving rights or conflicting interests,
adjusters may have sound reasons for
agreeing to independent counsel. A client
might make a cogent case why counsel of
its choice is familiar with its operations
and products, and has deeper subject
matter knowledge of the law. A policy en-
dorsement may give the insured the right
to pick counsel, or there may be existing
business or customer relations reasons.
Despite the default mode of panel coun-
sel, a large account might merit “cus-
tomer service” accommodations.
Always consider big picture reasons
that merit entertaining an insured’s desire for independent counsel. Sometimes,
business factors and customer relations
can favor assigning independent counsel.
Minimize bad-faith risks and runaway legal fees by heeding these tips to navigate
the independent counsel minefield.
Kevin Quinley CPCU, AIC, (kevin@
kevinquinley.com) is the principal of
Quinley Risk Associates LLC.
RESERVING RIGHTS DOES NOT ALWAYS
EQUAL A CONFLICT ENTITLING INSUREDS
TO SEPARATE COUNSEL.