You own a business and have just received a Summons and Complaint naming your business as a defendant. You are insured and you send these to your insurance agent to report the claim to your insurance carrier.
Such litigation is stressful and disruptive. For corporate clients it often involves interviews with employees, production of records, and takes your employees away from their job. How do you ensure that the defense attorney retained by your insurer to represent you will efficiently defend the company?
Once the insurance company retains defense counsel, the client is not guaranteed that it will ultimately be protected for any judgment in the underlying litigation. There may be a reservation of rights letter or financial exposure beyond your insurance policy limits.
Unfortunately for policy holders, liability policies typically grant the insurer the right to control the defense, and do not grant a policyholder the right to select their own attorney. If there is no policy provision giving you the right to select your attorney, it is the insurance company that assigns their own attorney, who then controls your litigation and your financial interests.
So how does a client get involved in selecting their own trusted defense attorney within their business liability policy? Generally, since any settlement monies come from the insurer, the insurer wants to control the defense, control the costs, and work with their own selected counsel.
When attempting to persuade the insurance carrier to use the law firm desired by you, the insured, you should argue that your personal law firm already knows the nature of your business, knows the company’s policies and procedures, knows the key principals and employees involved, and also knows the jurisdiction and judges likely to be involved in your case. You can argue that defense costs will be reduced because of your law firm’s pre-existing knowledge and familiarity with the client. These are great arguments, but often are ignored by the insurance company.
How to Ensure Choice of Counsel
When you are renewing your business comprehensive general liability insurance policy, D&O coverage, or professional line coverage, you or your broker should request a “selection of counsel endorsement” for your policies. If granted, your law firm and the insurance carrier can then negotiate the terms of the retention, including the hourly rate to be paid.
And the best news is that it does not cost you any more premium dollars to include a “selection of counsel endorsement” in your policies.
The services of an experienced and well-informed insurance broker are vital in negotiating and procuring both the coverage and the “selection of counsel endorsement.” Frequently, negotiation of these terms can take months, not weeks or days, and you should speak to your broker well before the expiration date of your current liability policies – and this also applies to your automobile, business and homeowners insurance policies. You should advise your broker of your desire to use your own attorney as your defense counsel based on their knowledge of the company, its policies and procedures, and the cost-savings, removing the expensive learning curve for a new insurance-appointed counsel to learn about your company. Your insurance broker or agent will be your best advocate for a “selection of counsel endorsement.”
Most insurance policies include a self-insured retention (SIR) or deductible. This means that if there is a settlement or jury verdict rendered against you, the payment from dollar zero to your SIR limit will be payable by you before the insurance company must pay. The higher the SIR or deductible, the more likely the insurance company will allow the insured to select defense counsel. Frequently, the goal of the insurance company and the goal of the client are at odds. An insurance company may want to dispose of the case quickly and cheaply, but you may have financial reasons to do otherwise. Similarly, cases that threaten the company’s reputation or very existence provide a compelling reason for your choice of a defense attorney who is familiar with you and your business, and your specialized needs, and market niche.
Choosing counsel is even more important if the company conducts business in many states and requires coordination of discovery and the company’s “position” concerning particular issues. A company would not want the deposition testimony of one of its employees to be used against the company in a case in another jurisdiction where there are different litigation tactics and strategies involved in these cases.
What to do?
Most insurance brokers and agents are very familiar with the “selection of counsel endorsements” and the benefits they provide to their clients. Talk to your broker well before renewal dates of your liability insurance policies to express your concerns and to protect your personal and business interests. See case study below to illustrate:
Hypothetical Case Study
In this case, the client sold its manufacturing facility with all equipment to the purchaser as part of an Asset Purchase Agreement. The selling entity continued to monitor the buyer’s production to ensure continuity of name brand and quality control for other client-related entities in the supply chain. After the sale, there are multiple work-site injuries caused by the machinery on site. As a result of these accidents occurring over a several year period, multiple bodily injury claims are filed against the client.
Because the client used different insurers over the course of its operations, the insurers retained separate defense counsel to represent the client in these individual cases. Due to lack of communication between the insurer-retained counsel, there was no coordination of discovery. As a result, one entity answers discovery that an employee who monitored the site for continuity of business purposes was an employee of the selling entity. Because of this mischaracterization and inconsistent discovery, the client’s insurance company raised defenses for coverage of the claim.
Reservation of Rights
When initially retained, insurer-retained defense counsel defended the client under a Reservation of Rights because the insurance policy covered products liability claims, but not negligence claims. Because of the admissions by insurer-retained defense counsel in one case that the “inspector” was an employee of the seller, the insurer resisted covering the claim due to this purported employee’s negligent safety inspection.
To make matters worse, insurer-retained defense counsel was unaware that the New Jersey Products Liabiity Act subsumed negligence claims into the Products Liability action and allowed the negligence count of the complaint to go forward. This quandary could have been avoided if the client had a choice of counsel provision in their policy. Your personal counsel could have answered discovery consistently, has a better understanding of the key personnel and issues in the case and is mindful towards the coverage issues raised by the insurer. Wary of the coverage issues raised by the insurer, the attorney should have filed a motion for partial summary judgment to dismiss the negligence count, leaving the only remaining count in the case, i.e., products liability, covered by the policy of insurance.
Over the last several years insurers have become more aggressive with their reservation of rights letter demanding personal contribution by the insured when there are potential coverage issues. If an insurance company can extract $200,000 from the insured on a $1,000,000 policy limit due to catastrophic losses, it is the insurer, not the client that benefits. Selection of counsel protects the client from inconsistent legal positions taken in different matters or even jurisdictions, and ensures the client will be properly protected and defended in the case.