presents insured's right to independent counsel: emerging...

presents

Insured's Right to Independent Counsel: Emerging Issues

presents

Emerging IssuesResolving Policyholder and Insurer Disputes Over Selection of Counsel

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Today's panel features:James W. Bryan, Partner, Nexsen Pruet, Greensboro, N.C.

Seth B. Schafler, Partner, Proskauer, New YorkWilli G P t Sh h ld A d Kill & Oli k N Y k

Q&

William G. Passannante, Shareholder, Anderson Kill & Olick, New York

Tuesday, October 5, 2010

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RIGHT TO INDEPENDENTRIGHT TO INDEPENDENT COUNSEL?

James W. BryanNexsen Pruet P L L CNexsen Pruet P.L.L.C.

P.O. Box 3463Greensboro, North Carolina

[email protected]

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Does an insurance company’s reservation of rights to contestcoverage create a conflict of interest which gives thepolicyholder an automatic right to retain its own independentcounsel to defend a liability claim at the insurer’s expense?

This issue has been heavily litigated and result has not beenuniform Much depends on the jurisdiction you find yourselfuniform. Much depends on the jurisdiction you find yourselfin and the state’s law that governs the dispute.

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Common Scenario: Multiple ClaimspInsurer determines some are covered, some not. Duty to defend is triggered,insurer provides a defense under a reservation of rights and engages defensecounsel to defend the insured The policyholder claims a conflict of interest existscounsel to defend the insured. The policyholder claims a conflict of interest existsfor defense counsel and hires its own personal counsel for the defense. A disputeensues over who controls the defense and who pays the bills of the policyholder’spersonal counsel.p

In cases where the handling of the underlying litigation may affect whether theclaim is covered or not covered, the conflict of interests may be sufficiently clearand immediate that one attorney cannot represent the interests of both the insurerand the insured. . . .If the coverage dispute turns on issues that are independent ofh i i h d l i l i l l d b h i h dlthe issues in the underlying lawsuit, one lawyer selected by the insurer can handle

the underlying litigation, and the insured and insurer can resolve the coveragedispute separately.

Armstrong Cleaners, Inc. v. Erie Ins. Exchange, 364 F. Supp. 2d 797 (S.D. Ind.2005)

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Per Se Disqualification RulePer Se Disqualification Rule

The insurer’s simple act of a reservation of rights letter due to theThe insurer s simple act of a reservation of rights letter due to the existence of covered and non-covered claims is justification for the disqualification of insurance defense counsel and entitles the insured to independent counsel at the insurer’s expense.

“When the insurer defends under a reservation of rights, a potential conflict between insured and insurer may arise. … Even if no actualconflict between insured and insurer may arise. … Even if no actual conflict ever materializes, the threat of conflict is so great that a reservation of rights defense is often treated as an actual conflict.”

Hartford Cas. Ins. Co. v. A&M Associates, Ltd., 200 F.Supp.2d 84 (D.R.I.2002)

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Once the insurer tenders defense under reservation of rights, a conflict ofinterest is created, at which time the insured is free to control its defenseand select its own counsel at the insurer’s expense.p

Nowacki v. Federated Realty Group, 36 F.Supp.2d 1099 (E.D.Wis. 1999)American Family Life Assur Co v United States Fire Co 885 F 2d 826American Family Life Assur. Co. v. United States Fire Co., 885 F.2d 826 (11th Cir. 1989).

An insurer's obligation to provide independent counsel is not based onAn insurer s obligation to provide independent counsel is not based on Insurance law; but on the attorney’s duty of loyalty which prohibits him or her from representing conflicting interests.

James 3 Corp. v. Truck Ins. Exch., 111 Cal.Rptr.2d 181 (Cal. App. 2001).

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Premises for potential conflicts of interest

• The insurer may offer a less than vigorous defense if the insurer knowsthat it can later assert non-coverage, or if it thinks that the loss it isdefending will not be covered under the policydefending will not be covered under the policy.

• The insurer may steer the defense so as to make the likelihood of al i iff' di d i d hplaintiff's verdict greater under an uninsured theory.

• The insurer might gain access to confidential or privilegedinformation, which it might later use to its advantage in litigationconcerning coverage.

CHI of Alaska, Inc. v. Employers Reinsurance Corp., 844 P.2d 1113 (Alaska1993)N. County Mut. Ins. Co. v. Davalos, 140 S.W.3d 685 (Tex. 2004)y , ( )

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Cumis CounselThe underlying action included claims for tortious wrongful discharge and intentionalThe underlying action included claims for tortious wrongful discharge and intentional infliction of emotional distress. The insurer provided its own counsel to defend the insured, but reserved its rights to deny coverage for willful misconduct and disclaimed coverage for punitive damages. It was uncontested that the insurer’s defense counsel was aware of the i ’ i ti ti i t th l i d li t i ti th t ld idinsurer’s investigation into the claim and client communications that could provide information directly related to the coverage issue. In finding a conflict of interest existed, the Cumis court held that:

the Canons of Ethics impose upon lawyers hired by the insurer an obligation to explain to the insured and the insurer the full implications of joint representation in situations where the insurer has reserved its rights to deny coverage. If the insured does not give an informed consent to continued representation, counsel must cease to represent both. Moreover, in the absence of such consent, where there are divergent interests of the insured and the insurer brought about by the insurer's reservation of rights based on possible non-coverage under the insurance policy, the insurer must pay the reasonable costs for hiring independent counsel by the insured .... Disregarding the common interests of both insured and insurer in finding total nonliability in the third party action, the remaining interest of the two diverge to such an extent as to create an actual, ethical conflict of interest, warranting payment for the insured's independent counsel.

San Diego Navy Fed. Credit Union v. Cumis Ins. Soc’y, 208 Cal. Rptr. 494 (Cal. App, 1984) (the ruling ofCumis has been superseded in California by statute, Cal. Civil Code sec. 2860 which sets forth morespecific standards).

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• In Nandorf Inc v CNA Ins Co 479 N E 2d 998 (Ill App• In Nandorf, Inc. v. CNA Ins. Co., 479 N.E.2d 998 (Ill. App. 1985), the court noted that in determining whether a conflict exists, Illinois courts have considered whether the interest of the insurer would be furthered by providing a less than vigorous defense to the allegations of the injured party’s complaint. “An insurer's interest in negating policy p y p g g p ycoverage does not, in and of itself, create sufficient conflict of interest to preclude the insurer from assuming the defense of its insured ”defense of its insured.

• However, conflict of interest has been found where the underlying action asserts claims that are covered by the y g yinsurance policy and other causes which the insurer is required to defend but asserts are not covered by the policypolicy.

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In Northland Ins. Co. v. Heck’s Service Co., 620 F.Supp. 107 (E.D. Ark. 1985), the insured was suedpp ( )under a bailment theory and a negligence theory, andit would be to the insurer's benefit to defend the caseon the bailment theory and to the insured's benefit todefend the case on the negligence theory. The federaldefend the case on the negligence theory. The federaldistrict court found a conflict of interest existed andthe insured must be allowed to select its own legalthe insured must be allowed to select its own legalcounsel for defense of the underlying suit.

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Case by Case AnalysisA sizable number of jurisdictions reject the per sedisqualification rule.

An insurer complies with its duty to defend when, after it hasreserved its rights to contest its obligation to indemnify itreserved its rights to contest its obligation to indemnify, it fully informs the insured of the nature of the conflict and selects independent counsel to represent the insured in the underlying action The insured has no absolute right to selectunderlying action. The insured has no absolute right to select the attorney himself, as long as the insurer exercises good faith in its selection and the attorney selected is trulyindependentindependent.

Central Michigan Board of Trustees v. Employers Reinsurance Corp., 117F Supp 2d 627 (E D Mich 2000)F.Supp.2d 627 (E.D.Mich. 2000).

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The fact that the attorney is assigned by an insurance company does notalter the basic lawyer-client relationship, or the duty owed by lawyer toclient.

Bartels v. Romano, 407 A.2d 1248 (N.J. Super. 1979)

A reservation of rights letter in this case did not amount to an actualconflict of interest, …the mere fact of dual representation does not raise aconflict of interest and an insurer is free to select counsel of its choice torepresent its insured.

The Driggs Corp. v. Pennsylvania Manufacturers’ Association Ins. Co., 3F.Supp.2d 657 (D.Md. 1998) affirmed, 181 F.3d 87 (4th Cir. 1999)

I ffi i h F h Ci i id d i h h i bIn affirming, the Fourth Circuit sided with the insurer because, among other things, insurance defense counsel gave no coverage advice to the insurer and defended only the interests of the insured, not the insurer, in the underlying case.

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The Fifth Circuit Court of Appeals stated in National Union Fire Ins CoThe Fifth Circuit Court of Appeals stated in National Union Fire Ins. Co.v. Circle, Inc., 915 F.2d 986 (5th Cir. 1990) that an insurer “does notautomatically breach its duty to defend merely because it reserves theright to deny coverage under the policy.” The court ruled such an insurer“may nevertheless discharge its contractual obligation to defend itsinsured by engaging separate counsel to represent the insured.” If theinsured can prove that the defense counsel provided by the insurer was“objectively inadequate,” the insured would have a claim for breach of theduty to defend by the insurerduty to defend by the insurer.

Significantly, the court found no evidence to suggest that defense counselfell short of the duty and held that the insurer was not liable forreimbursing insured for its own counsel’s attorney’s fees.

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While a conflict of interest does not necessarily exist in a reservation of rights defense, the insurer has an “enhanced obligation of fairness towards its insured. To fulfill the enhanced obligation of fairness, the insurer must:

• Thoroughly investigate the claim• Retain competent defense counsel for the insured and both insurer and insured• Retain competent defense counsel for the insured and both insurer and insured

must understand that only the insured is the counsel’s client• Inform the insured of the reservation of rights defense and all developments

relevant to policy coverage and progress of the lawsuit• Refrain from any activity that would show a greater concern for its monetary

interest than for insured’s financial risk.

Defense counsel must understand that he or she represents the insured not theDefense counsel must understand that he or she represents the insured, not the insurer, and owes a duty to the insured to disclose conflicts of interest, all information relevant to the insured’s defense and all offers of settlement as they are presented. p

Johnson v. Continental Cas. Co., 788 P.2d 598 (Wash.App. 1990).See also Safeco Ins. Co. v. Butler, 823 P.2d 499 (Wash. 1992) (same analysis by SupremeC f W hi )Court of Washington)

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When an insurance company undertakes a defense pursuant toa reservation of rights, it does so under an “enhanceda reservation of rights, it does so under an enhancedobligation of good faith” toward its insured in conductingsuch a defense.

L&S Roofing Supply Co. v. St. Paul Fire & Marine InsuranceC 521 S 2d 1298 (Al 1988)Co., 521 So.2d 1298 (Ala. 1988)

The insurer is not liable for insured’s counsel’s fees, eventhough damages claimed were in excess of coverage, becauseinsurer fully defended the insured.

Roussos v. Allstate Ins. Co., 655 A.2d 40 (Md. App. 1995)

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Conflict of Interest Ethics RuleCo c o e es cs u eThis analysis is rooted in the view that the issue is governed by the Rules of Professional Conduct that address conflicts of interest where an attorney has multiple clients or where a third party is paying the attorney to represent a client.

For example, in Indiana, the governing Rule of Professional Conduct isRule 1.7(a) which provides that unless the client gives informed consent, a lawyer shall not represent a client if the representation involves ay p p“concurrent conflict of interest.” A concurrent conflict of interest exists if “there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client,will be materially limited by the lawyer s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.”

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As the Indiana court noted in Armstrong Cleaners Inc Inc vAs the Indiana court noted in Armstrong Cleaners, Inc. Inc. v.Erie Ins. Exchange, 364 F. Supp.2d 797 (S.D. Ind. 2005), theEthics rule 1.7(a)(2) does not impose a per se rule; it instead( )( ) p prequires a close look at the nature of the conflicting interests,the issues in the underlying litigation, and the risk that theattorney's relationship with the insurer will materially limithis representation of the insured. But the fact-intensive and

ifi f h i i d bli hcase-specific nature of the inquiry does not establish a per serule.

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In U.S. Fidelity & Guaranty Co. v. Louis A. Roser Co., Inc., 585 F.2d 932 (8th Cir. 1978), the court found that an actual conflict required the insurer to pay for independent counsel for the insured. Where the case against the insured presented three theories of liability two that wereagainst the insured presented three theories of liability, two that were covered and one that was not. The court acknowledged that an attorney retained by an insurance company is required and expected to act

i i l d d ff i i B h i dconscientiously and to render effective service. But the court continued:

However, we cannot escape the conclusion that it is impossible for oned l d f i l i i li i i i hattorney to adequately and fairly represent two parties in litigation in the

face of the real conflict of interest which existed here. Even the mostoptimistic view of human nature requires us to realize that an attorneyemployed by an insurance company will slant his efforts, perhapse p oyed by su ce co p y w s s e o s, pe psunconsciously, in the interests of his real client - the one who is paying hisfee and from whom he hopes to receive future business - the insurancecompany.

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The South Carolina district court declined to apply a per sepp y pdisqualification rule despite a pertinent provision of the South CarolinaRules of Professional Conduct that governed a lawyer's ethical obligationwhen paid by an insurance company to represent an insured: “A lawyerp y p y p yshall not permit a person who recommends, employs, or pays the lawyerto render legal services for another to direct or regulate the lawyer'sprofessional judgment in rendering such legal services.”professional judgment in rendering such legal services.

As noted by the court, “a lawyer hired by an insurer to represent an insured owes an unqualified duty of loyalty to the insured and must act atinsured owes an unqualified duty of loyalty to the insured and must act at all times to protect the insured's interest.”

Twin City Fire Ins Co v Ben Arnold-Sunbelt Beverage Company ofTwin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Company of South Carolina, LP, 336 F. Supp.2d 610 (D.S.C 2004), affirmed 433 F.3d 365 (4th Cir. 2005).

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Other states rejecting the per se disqualification rule are Alabama,California, Hawaii, Illinois, Michigan, Maryland and Ohio.

Fed. Ins. Co. v. X-Rite Inc.,748 F.Supp. 1223 (W.D.Mich. 1990) (holding that conflict of, pp ( ) ( ginterest posed by reservation of rights did not automatically entitle insured to selectcounsel of its choice at insurer's expense)

Cardin v. Pac. Employers Ins. Co., 745 F.Supp. 330 (D.Md. 1990) (rejecting per sedisqualification where only possibility of conflict exists)disqualification where only possibility of conflict exists)

Finley v. Home Ins. Co., 975 P.2d 1145 (Haw. 1998) (holding reservation of rights does notautomatically entitle insured to counsel of its own choosing)

L & S Roofing Supply Co. v. St. Paul Fire & Marine Insurance Co., 521 So.2d 1298 (Ala.1988) (fi di th t i ' d i i t d f d d ti f i ht did t t1988) (finding that insurer's decision to defend under reservation of rights did not createa conflict of interest so as to entitle insured at the outset to engage defense counsel of itschoice at insurer's expense)

Red Head Brass, Inc. v. Buckeye Union Ins. Co., 735 N.E.2d 48 (Ohio. App. 1999) (holdingthat insurer defending under reservation of rights not required to pay for independentcounsel retained by insured)

Foremost Ins. Co. v. Wilks, 253 Cal.Rptr. 596 (Cal. App. 1988) (finding reservation of rightsletter alone not sufficient to trigger insurer's duty to pay for independent counsel)gg y p y p )

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The Supreme Court of Hawaii recognized the salutary effect of existing ethical requirements in this area:

i d h h b l i f i f i f i[W]e are convinced that the best result is to refrain from interfering with the insurer's contractual right to select counsel and leave the resolution of the conflict to the integrity of retained defense counsel Adequate safeguards are in place already to protect thecounsel. Adequate safeguards are in place already to protect the insured in the case of misconduct. If the retained attorney scrupulously follows the mandates of the Hawaii Rules of Professional Conduct (HRPC) the interests of the insured will beProfessional Conduct (HRPC), the interests of the insured will be protected. In the event that the attorney violates the HRPC, the insured has recourse to remedies against both the attorney and the insurer.

Finley v. Home Ins. Co., 975 P.2d 1145 (Haw. 1998)

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INSURER STRATEGIES

Before sending the reservation of rights letter, theinsurer should develop a good understanding of thecase law that may govern the issue of whether theinsured has a right to independent counsel. Theinsurer may choose not to reserve its right to contest

d ifi li i i i dcoverage under a specific policy provision in orderto avoid a conflict of interest situation, in which caseth i b bl t bl t th i d’ ff tthe insurer may be able to blunt the insured’s effortsto claim a right to independent counsel.

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If the reservation-of-rights letter draws an objection and demand forindependent counsel by the insured the insurer should consider theindependent counsel by the insured, the insurer should consider thefollowing factors:

• What is the extent of the business relationship with the insured?• What is the extent of the business relationship with the insured?• How has the insurer handled the demand in similar cases with other

insureds?• Is there a legitimate concerns about making unfavorable law in a• Is there a legitimate concerns about making unfavorable law in a

jurisdiction?• Is there a legitimate objective in obtaining a court ruling and reported

decision which might bring more certainty for the insurer in handlingg g y gthis and future claims?

If the insurer decides to hold the line and insist on insurance defensecounsel defending the liability claim, a written response to the insuredwould be in order. Retaining coverage counsel for advice may provide anoutside perspective that helps the insurer understand the options.p p p p

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Declaratory Judgment

Filing a declaratory judgment action may be appropriate or it may not be g y j g y pp p yappropriate. If the policyholder permits insurance defense counsel toproceed with the defense despite the objection, the liability claim may endup with a defense verdict, or a settlement with the insurer paying the lion’sp , p y gshare of the settlement, and thus filing a declaratory judgment action maynot have been a good choice.

Conversely, filing suit right away may be necessary if the insured firedinsurance defense counsel and brought in its own personal counsel todefend and the insurer has potentially significant exposure in the liabilitydefend and the insurer has potentially significant exposure in the liabilityclaim or may have future similar claims with the insured that warrant ajudicial determination on the subject now.

Short of filing suit, look for creative solutions with the insured that keepinsured and insurer on the same side and unified in the defense against theplaintiffplaintiff.

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What should insurance defense counsel do in the face of a dispute over independent counsel?p p

• Focus exclusively on the defense of the liability claim and not get involved in coverage issues. g

• Understanding the ethics rules on conflicts of interest in insurer-insured situations is of paramount importance.

• If the insured wants to talk coverage, tell the insured to talk directly to the insurer instead and let the insured know that you are trying to abide b hi l bli i h i d Th i l dby your ethical obligations to the insured. The insurer may also need an occasional reminder to keep you out of the loop on issues of coverage.

• If there is no way to avoid conflicts, counsel may have to withdraw from the case.

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As aptly put by the North Carolina State Bar in itsAs aptly put by the North Carolina State Bar in its guidance to counsel, “[t]he attorney should also keep the insured informed of his or her evaluation of thethe insured informed of his or her evaluation of the case as well as the assessment of the insurance

ith i t d i t th i d ithcompany, with appropriate advice to the insured with regard to the employment of independent counsel

h h f ll hiwhenever the attorney cannot fully represent his or her interest.”

North Carolina State Bar RPC 92 (January 17, 1991).

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ConclusionWhether you are the insured or insurer in the battle over the right toindependent counsel, reasonable minds can and do differ on the bestresolution of the conflict inherent in the tripartite relationship.p p

If you are in a jurisdiction with no precedent, the ground is fertile for bothsides to utilize case law from other jurisdictions to make their respectivej pcase. If your jurisdiction has adopted the per se disqualification rule, theparties will have more certainty in how to address the insured’s demandfor independent counsel.for independent counsel.

In those jurisdictions that have rejected the per se disqualification rule, thefact-intensive and case-specific nature of the inquiry will drive the battlefact intensive and case specific nature of the inquiry will drive the battleover whether the insurer’s reservation of rights creates the kind of conflictof interest which gives the policyholder the right to independent counsel atthe insurer’s expensethe insurer s expense.

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Insured's Right to Independent Counsel: Emerging IssuesCounsel: Emerging Issues

Resolving Policyholder and InsurerDisputes Over Selection of Counselp

Tuesday, October 5, 2010

S th S h fl Willi P tSeth Schafler William Passannante

DisclaimerDisclaimer

The views expressed by the participantsThe views expressed by the participants in this program are not those of the participants’ employers their clients orparticipants employers, their clients, or any other organization. The opinions expressed do not constitute legalexpressed do not constitute legal advice.

952532v1©2010 Anderson Kill & Olick, P.C.

All Rights Reserved.31

DEFENSEDEFENSE

A Scope of Duty to DefendA. Scope of Duty to DefendB. Duty to Pay Defense CostsC. Practical Considerations



ETHICAL ISSUES IN DEFENSEETHICAL ISSUES IN DEFENSE• Who is the “client”

• Insurance Company• Policyholder• Policyholder

• Insurance Company Guidelines• ABA Formal Opinion 01-421 (2001)• Legal Fee Auditing Firms g g



DIFFERING VIEWSDIFFERING VIEWS

• No. Relationship is not automatically an attorneyNo. Relationship is not automatically an attorney client relationship between insurance company and defense counsel. Restatement (3d) of Law Governing Lawyers §134 (2000)Governing Lawyers §134 (2000).

• Yes. For conflict purposes, insurance company may have Attorney Client relationship with defensehave Attorney-Client relationship with defense counsel. State Farm v. Federal Ins. Co., 86 Cal. Rptr. 2d 20 (Cal. Ct. App 1999).

See Morgan, Whose Lawyer Are You Anyway?, 23 Wm. Mitchell L. Rev. 11 (1997)



TACTICAL ISSUESTACTICAL ISSUES

• Potential Waiver of Privilege in Defense• Potential Waiver of Privilege in Defense• Communications with Insurance

CompanyCo pa y• In Re Imperial Corporation of America Related Litigation, 167

F.R.D. 447, 451 (letter sent by counsel for officer to D&O claims handler not protected by attorney-client privilege) (S.D. Calif. 1995)

• Go Medical Industries Pty, Ltd. V. C.R. Bard, Inc., 1998 WL 1632525 (D. Conn 1998) (documents provided to patent insurance company no protected by attorney client privilegeinsurance company no protected by attorney client privilege because no ‘common interest’)

• In Re Pfizer Inc. Sec. Litig., 1993 WL 561125 at *8 (SDNY 1993)(disclosure to insurance company waived privilege)



1993)(disclosure to insurance company waived privilege)

PRACTICAL TIPSPRACTICAL TIPS

1. Defense Counsel Billing Records• protection of privilege• protection of privilege• avoid redactions

2. Regular Updates3 Involvement In Settlement3. Involvement In Settlement



TRIPARTITE RELATIONSHIPTRIPARTITE RELATIONSHIP

• Most jurisdictions recognize “tripartite• Most jurisdictions recognize tripartite relationship”

ABA F l Ethi O 96 403 N Z• ABA Formal Ethics Op. 96-403 N.Z (1996)

Whate er the precise nat re attorne s• Whatever the precise nature, attorneys must comply with rules of professional conductconduct

• ABA Formal Ethics Op. 00-421 (2001).



MODEL RULE 5 4 (c)MODEL RULE 5.4 (c)

A lawyer “shall not permit aA lawyer “shall not permit a person who recommends, employs, or pays the lawyer to render legal services for anotherrender legal services for another to direct or regulate the lawyer’s

fprofessional judgment. . .”



3 Approaches to the Right to Independent Counsel

• Per Se Rule: Right attaches when• Per Se Rule: Right attaches when insurer reserves right to deny coverageI t di t R l Ri ht tt h if• Intermediate Rule: Right attaches if certain types of conflicts of interest are

tpresent• No right to independent counsel



Intermediate ApproachIntermediate Approach

• Key Question: Is there a factual issue• Key Question: Is there a factual issue that bears both on the insured’s liability and the existence of coverage?and the existence of coverage?

• Yes: Maryland Cas. Co. v. Peppers, 64 Ill 2d 187 (Ill 1976) (i t ti lit fIll. 2d 187 (Ill. 1976) (intentionality of conduct)



Intermediate ApproachIntermediate Approach• Key Question: Is there a factual issue that bears both

on the insured’s liability and the existence ofon the insured s liability and the existence of coverage?

• No:– McGee v. Super. Ct., 178 Cal. App. 3d 221 (Cal. Ct. App.

1985) (resident relative clause)– N Y Marine & Gen Ins Co v Lafarge N Am Inc 599– N.Y. Marine & Gen. Ins. Co. v. Lafarge N. Am., Inc., 599

F.3d 102 (2d Cir. 2010) (exposure in excess of policy limit)Cal Civ Code § 2860(b) (punitive damages); but see Ill– Cal. Civ. Code § 2860(b) (punitive damages); but see Ill. Mun. League Risk Mgmt. Assoc. v. Seibert, 233 Ill. App.3d 864 (Ill. App. Ct. 1992); Parker v. Agric. Ins. Co., 109 Misc 2d 678 (N Y Sup Ct 1981)



109 Misc. 2d 678 (N.Y. Sup. Ct. 1981)

Intermediate Approach –Grey Areas

• Conflicting Trial Strategies: 69th St &• Conflicting Trial Strategies: 69th St. & 2nd Ave. Garage Assocs. v. Ticor Title Guar Co 207 A D 2d 225 (N Y AppGuar. Co., 207 A.D.2d 225 (N.Y. App. Div. 1995)L t ti ?• Late notice?

• Others?



Intermediate Approach –Selection of Counsel

• Insurer may have the right to participate in• Insurer may have the right to participate in selection of independent counsel– N.Y. State Urban Dev. Corp v. VSL Corp., 738N.Y. State Urban Dev. Corp v. VSL Corp., 738

F.2d 61 (2d Cir. 1984)– Fed. Ins. Co. v. X-Rite, Inc., 748 F. Supp. 1223

(W D Mi h 1990)(W.D.Mich. 1990)• Does this right need to be reserved in the

policy?policy?– Yes: Cunniff v. Westfield, Inc., 829 F. Supp. 55

(E.D.N.Y. 1993)



( )

Duty to InformDuty to Inform• In the event of a conflict, the insurer

h d t t i f i dmay have a duty to inform an insured about their right to independent counsel.– Elaqua v. Physicians’ Reciprocal Ins., 52 A.D.3d

886 (N.Y. App. Div. 3d Dept 2008) (there is a duty); but see Sumo Container Station, Inc. v. y); ,Evans, Orr, Pacelli, Norton & Laffan P.C., 278 A.D.2d 169 (N.Y. App. Div. 1st Dept 2000) (no duty)duty)

– Jones v. Nat’l Emblem Ins. Co., 436 F. Supp. 1119 (E.D. Mich. 1977) (there is a duty)



Right to Separate CounselRight to Separate Counsel

• Conflicts between insureds may give• Conflicts between insureds may give rise to a right of separate counsel.

M h U 88 Ill 2d 444 (Ill 1981)– Murphy v. Urso, 88 Ill. 2d 444 (Ill. 1981) (agency at issue)Olson v State Farm Fire & Cas Co 1996– Olson v. State Farm Fire & Cas. Co., 1996 U.S. App. LEXIS 23377 (9th Cir. 1996) (policyholders on opposite sides of suit)(policyholders on opposite sides of suit)



Practical SuggestionsPractical Suggestions• How should counsel for insured respond to insurer’s

discovery requests?discovery requests?– Continental Cas. Co. v. St. Paul Surplus Lines Ins. Co.,

265 F.R.D. 510 (E.D. Cal 2010) (duty to disclose all info except privileged material relevant to coverage disputes)except privileged material relevant to coverage disputes)

– D.C. Bar Formal Opinion 290 (can only release insured’s confidential information with insured’s informed consent)

– Consequences: • Parsons v. Continental Nat’l Am. Group, 113 Ariz. 223

(Ariz. 1976) (insurer waives policy defenses and is estopped from disclaiming liability under exclusionary clauses)

• Professional responsibility consequences



Resource GuideResource Guide

Wood, Bender & Shaneyfelt, CorporateWood, Bender & Shaneyfelt, Corporate Policyholders’ 50-State Guide: The

Right To Independent CounselRight To Independent Counsel(Anderson Kill 2009)



FacultyFaculty

James W. Bryan, PartnerN P t

William G. Passannante, Esq.A d Kill & Oli k P C

Seth B. Schafler, PartnerP kNexsen Pruet,

North Carolina (336) 373-1600 [email protected]

Anderson Kill & Olick, P.C., New York

(212) [email protected]

Proskauer, New York

(212) [email protected]



presents insured's right to independent counsel: emerging...

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