When named as a defendant in a lawsuit, you naturally want to be represented by an attorney that you trust, that understands the nuances of your business, and that will protect your company’s interest to the exclusion of all others. But when the defense to a lawsuit is being paid for by an insurance company, that insurance company frequently attempts to impose its designated counsel upon the policyholder. Many policyholders simply accept the counsel appointed by the insurer, and don’t understand that, in certain cases, it is the policyholder, not the insurer, that has the right to select counsel. Though insurers frequently dispute the point, when an insurer reserves its rights or when the interests of the policyholder and the insurer otherwise conflict, the control of the defense and the right to select defense counsel rest with the policyholder.

Conflicts of Interest Are Common

Consider a fairly simple situation: Your company is sued by a patron that was injured when she slipped and fell at your place of business. In her complaint, the patron alleges that the company’s conduct was intentional or, alternatively, that the conduct was at least negligent, resulting in her injury. If the jury in that case ultimately determines that the company acted intentionally, the insurer would not be required to pay the verdict because most policies exclude coverage for intentional acts. If the jury ultimately determined that the policyholder was negligent, however, the insurer would have to pay the claim. The insurer agrees to defend the claim, but reserves its right to later deny coverage if the policyholder’s conduct was intentional.

In the foregoing example, the interests of the policyholder and the insurer conflict. The policyholder, of course, would be best served if the jury returned a negligence verdict that would be indemnified by the insurer. The insurer, however, would be able to avoid coverage if the jury found that the policyholder acted intentionally. This inherent conflict between the insurer and the policyholder means that the policyholder gets to select its own counsel to defend it in the lawsuit.

An Insurer’s Refusal to Acknowledge the Policyholder’s Rights

Some insurers are reluctant to acknowledge a policyholder’s right to select counsel when the insurer has reserved rights or when the interests of the policyholder and insurer otherwise conflict. Many insurers will prefer to select counsel, in part because they have negotiated low hourly rates with certain “panel” counsel.

If an insurer remains insistent that it has such a right, in spite of the Ohio law to the contrary, the policyholder has a decision to make. If the policyholder is satisfied both that the insurer-selected counsel is competent to handle the matter and that such counsel understands he or she represents only the policyholder, then the policyholder may be comfortable acceding to the insurer’s choice of counsel. But if the policyholder is not satisfied on these points, or if other circumstances compel the policyholder to use defense counsel of its choice, the policyholder typically will be better served to decline the insurer’s choice, retain its own counsel, and sue the insurer for breach of contract and, if the circumstances are egregious enough, for bad faith.

The Takeaway

If there a potential conflict between you and the insurer, or another reason why you do not want to accept the insurer’s selection of counsel, consider the following:

  • Is the insurer-appointed counsel competent in the field?
  • Has the insurer-appointed counsel explicitly agreed that he or she represents solely the policyholder, and does not also represent the insurer, as required by the Ohio Rules of Professional Conduct?
  • Will the insurer-appointed counsel expressly agree that he or she will protect all interests of the policyholder, including interests in regard to any insurance coverage issues or disputes?
  • Has the insurer-appointed counsel agreed that he or she is prohibited from sharing any attorney-client or work product protected materials in the file?

Determining the answers to these questions will better equip you to decide whether you will accept, or decline, the insurer’s selection of counsel.

We are happy to welcome another guest blogger, Amanda Leffler, a partner at Brouse McDowell, who represents policyholders in insurance coverage matters. We hope that you enjoy her blog.