Commercial general liability policies regularly provide an insurance carrier with the express right to control the defense of litigation, but who selects the insured’s counsel to represent the insured in the litigation? Not only do liability policies routinely provide a carrier to control the defense, but typically policies do not expressly grant a policyholder the right to select their counsel to represent them in litigation.
Generally, jurisdictions traditionally support an insured’s right to select its own counsel, at the carrier’s expense, when there is a question of coverage based on the claims and, thus, creating a conflict of interest between the carrier and insured. A potential conflict of interest is a common occurrence which commences on the carrier’s decision to send a reservation of rights letter to its insured. A reservation of rights letter is intended to preserve the insurer’s ability to deny coverage on all, or part, of a claim brought against the insured, depending on how the allegations and facts develop in the underlying litigation.
When litigation involves serious allegations that threaten an insured’s reputation or existence, an insured needs to be able to retain counsel who is familiar with an insured’s business and has specialized expertise in the necessary area of law. Choosing counsel is particularly important to ensure that the defense of all litigation is handled with consistency and with the overall strategy of obtaining the best long-term results for an insured. Litigation may also impact an insured’s reputation among customers, competitors, and investors. Consequently, it is imperative that insureds manage the litigation not solely based on costs, but also with long-term strategies and business goals in mind.
Despite most insureds having preferred counsel, those lawyers or law firms are not always on a carrier’s approved list. As such, the carrier may hire counsel who may know little, if anything, about the insured’s business and industry regulations. As opposed to being assigned counsel by the carrier with whom the insured has no relationship, using counsel with an existing relationship with the insured during litigation will help to safeguard that counsel representing the insured understands the insured’s business goals and will generally be better suited to act in the insured’s best interest. One of the best ways to increase an insured’s control over managing litigation, while also ensuring long-term strategies and business goals are considered as part of the litigation strategy, is to request a choice of counsel endorsement that allows the insured, instead of the carrier, to choose defense counsel. When an insured is purchasing or renewing its insurance policies it should consider whether such an endorsement is appropriate and applicable to better protect its interests.
For additional information on this or any related topic, please contact any of the KDDK insurance law professionals.