Sometimes a policyholder can insist upon his own choice of defense counsel. And submit the bill to the carrier to pay.
I highly recommend this practice, especially in cases where a sophisticated defense is needed such as railroad, products liability, and airplane lawsuits. Here are four situations when choice of counsel is warranted:
1. The insurer has waived its right to select counsel. Courts are almost universal in finding a conflict of interest arises between the policyholder and the insurer when the insurer reserves its right to later deny a claim. In this situation, the policyholder can choose its own counsel and the insurer must foot the bill. See, United States Fid. & Guaranty Co. v. Roser, 585 F.2d 932, 938 n. 5 (8th Cir. 1978) [“Even the most optimistic view of human nature requires us to realize that an attorney employed by an insurance company will slant his efforts, perhaps unconsciously, in the interests of his real client (i.e.) the one who is paying his fee and from whom he hopes to receive future business(:) the insurance company.”]
2. The litigation is complex. Complex lawsuits require an attorney who specializes in the type of claim being litigated. Insurers have an interest in keeping defense costs down because such costs are usually paid in excess and over the limits of a standard CGL policy. Some defense costs can exceed 7 figures if the matter is complex and there are other parties involved. But a cheaper attorney is not always in the policyholder’s best interests. An adverse verdict can harm the good will of a company. This may affect stock prices or product sales. Even if the insurance company is footing the bill, its name is not on the caption of the case or in the papers if a policyholder loses the suit. If there is a potential after-effect of a bad judgment due to inexperienced counsel, push for your own experienced counsel to protect your long term interests and consequential effects of an adverse verdict.
3. There is a risk that an adverse verdict will exceed policy limits. If a policy covers only part of a potential loss, and the policy holder will foot the remainder of any bill, the policyholder should insist upon its own choice of counsel to protect its mutual interests. See, R.C. Wegman Const. Co. v. Admiral Ins. Co., 629 F.3d 724, 728 reh’g denied, 634 F.3d 371 (7th Cir. 2011) (The likelihood of a verdict that exceeds coverage will create a divergence and conflict of interests between an insurance company and the policyholder, throwing the interests of the two out of alignment. In such cases, the policyholder is entitled to its own counsel at the cost of the insurer).
4. Two or more defendants in the same suit are insured by the same insurer. If each defendants’ defense is diametrically opposed to the other, the insurance company should provide a vigorous and independent defense to both and allow choice of separate counsel. See, Murphy v. Urso, 88 Ill. 2d 444, 454-55, 430 N.E.2d 1079, 1084 (1981) (Insurer owes duty of good faith and fair dealing to each of its insureds, and cannot favor the interests of one insured over the other. “The insured has the right to be defended by counsel of his own choosing. A ruling that required an insured to be defended by what amounted to his enemy in the litigation would be foolish.”).