The complex relationship of the insurance carrier, defense counsel and the insured is referred to as to the tripartite (or three-way) relationship. Insurance and the Tripartite Relationship: Conflicts Matthew P. Keris, Shareholder, Marshall Dennehey Warner Coleman & Goggin, Moosic, Pa. .. million went bankrupt and is currently being defended through the. attorney client relationship arises among the insurer, insured and counsel. ). ▷ Within the tripartite relationship, both insurer and the insured have a common interest in .. No: Maine, Michigan, Montana, Pennsylvania, Washington.
However, the defense lawyer frequently receives a large part, and sometimes all, of his work from one particular carrier. Thus, there is a real tension between wanting to satisfy the carrier and at the same time to defend the insured zealously and fully.
By the same token, the insured will often want the case settled regardless of the amount of the demand or its reasonableness, as long as insurance covers the payment. The carrier, on the other hand, wants to pay only what is absolutely necessary and reasonable, and not one penny more.
Such reports often require defense counsel to make careful distinctions in the information provided. For instance, what if one set of damages is clearly covered and another is clearly not?
Does the defense lawyer run a significant risk of malpractice if she characterizes the nature of the damages so that the carrier can deny some or all of the claim? All of these are traditional conflicts that bedevil defense counsel. Yet another conflict has been added recently. The decision, which may be altered in whole or in part upon re-hearing, creates significant new difficulties for defense counsel that are only now becoming understood.
The excess carrier participated in the defense of the underlying lawsuit subject to a reservation of rights. During the trial, the underlying plaintiff made a Stowers demand; that is, an offer to settle within policy limits that a reasonable person should accept. This, of course, is a scenario that has played itself out again and again in hundreds of cases.
The Texas Supreme Court held that if the insured demands that the carrier accept a settlement offer within policy limits, or expressly consents to the settlement, then the carrier may make the settlement payment without foregoing its coverage defenses. The carrier may then subsequently litigate its coverage defenses against the insured and, if there was no coverage, recover the settlement payment from the insured.
In other words, a significant risk of settlement has now shifted to the insured. For example, when the defense lawyer has to decide whether to recommend to the carrier and her client whether they should accept a settlement proposal, may she do so without advising the client the insured of the potential risks in a future coverage action?
Halliburton Co, So.
In an earlier case, Ringer represented Pierce who was sued for his role in an oil well "blow-out. Hartford initially denied coverage. Pierce then hired Ringer.
Later, Hartford relented and began paying Ringer's fees and expenses. This case is a dispute between Halliburton and Hartford arising from the same blow-out.
A three-way dilemma: Frank’s Casing and insurance defense
Ringer appeared for Halliburton. Hartford moved to disqualify Ringer, claiming it was a former client of Ringer. The trial judge denied the motion. The Mississippi Supreme Court affirmed. The court noted that ordinarily, where the insurance company retains defense counsel, the lawyer represents both the insured and the insurance company.
Not so in this case because Ringer had been hired by Pierce and not by Hartford. The fact that Hartford had ultimately paid Ringer's fees did not make Hartford a client. In this opinion the court held that an insurance defense lawyer has a relationship "tri-partite relationship" with the insurer such that the insurer can sue the lawyer for malpractice.
The lawyer claimed that two conflicts obviated that relationship. The first was the prospect of an excess verdict. The court found that the mere prospect of an excess verdict did not constitute a conflict or obviate the relationship. The second was a policy defense. The court rejected that claim, finding there was no policy defense and noting that the insurer did not issue a reservation of rights letter. Owner hired Contractor to build an addition to Owner's home.
Allegedly, Contractor failed to note that a window had earlier been installed by someone else incorrectly, leading to moisture damage. This case is a claim by Contractor against Contractor's insurance carrier "InsCo" for indemnification of that amount.
The trial court found for Contractor. In this opinion the appellate court reversed. Taking the issues out of order, the appellate court held that Contractor's failure to detect the defective window and advise Owner plainly did not fall within the coverage of the insurance policy.
The more relevant discussion to this audience is the court's analysis of whether the law firm retained by InsCo under a reservation of rights to defend Contractor in the AAA arbitration had one client or two. The court said that where there is no conflict, the law firm retained by the carrier could have two clients, the insured and the insurer, if the law firm consulted with the insured and the insured agreed. Here, there was no evidence of any consultation on this issue, and the court found a conflict.
That conflict arose when the law firm failed to request, prior to the selection of the arbitrator, an explanation for the basis of the award. Thus, the law firm was representing the Contractor only, and InsCo cannot be charged with the law firm's failure to request the explanation.
We have never encountered a claim that failure to make a pre-hearing request for explanation of an arbitration award was grounds for anything. Therefore, our description of the case may be flawed. Insured lost the case and filed bankruptcy. The bankruptcy trustee sued InsCo for bad faith this case.
The trustee sought communications between Law Firm and InsCo. InsCo claimed attorney-client privilege. In this opinion the magistrate judge first noted that it knew of no Indiana precedent as whether Law Firm had one client or two. But, the judge said it did not matter because under the co-client rule there would be no privilege as between InsCo and Insured.
In Washington a title insurance company represents only the insured. Evraz operates steel mills, including one near Portland harbor. When environmental officials began leaning on Evraz to assist in the clean up of Portland harbor, Evraz notified its environmental insurance carriers. In the meantime, Evraz had retained its long time law firm, Law Firm, to defend the environmental claims.
Several carriers participated until their limits were exceeded. The last carrier to stop paying was Continental. Evraz, represented by Law Firm, brought this suit against Continental for breach of its policy. In this opinion the magistrate judge denied the motion. However, the court noted a number of factors indicating that Continental should have known that it was not a client of Law Firm in the environmental representation.
First, Evraz hired Law Firm in the first instance. Second, Law Firm had almost no direct contact with Continental. Law Firm billed Evraz, not Continental.
The court discussed other cases holding that panel counsel may have two clients.
A three-way dilemma: Frank’s Casing and insurance defense
There was an auto accident, and the other driver sued Deerfield. The primary carrier provided a defense. Late in the case Landmark was notified of the case. Landmark, represented by Law Firm, filed this case seeking a declaration that it did not have to contribute to the verdict. Deerfield moved to disqualify Law Firm, claiming that Law Firm had represented Deerfield when it initially reviewed the file for Landmark. In this opinion the court denied the motion, finding that Deerfield had never been a client.
It should have been enough to hold that where an excess carrier hires a law firm to review a bad result, that alone should not result in a lawyer-client relationship with the insured.
Twin City Fire Ins. Same in Sierra Pac. Same in Nevada, Hansen v. Reservation of Rights Prevents Intervention. Frank Betz Associates, Inc. In applying FRCP 24 b the court denied the motion because allowing the coverage issues into the trial would create a conflict of interest for defense counsel presumably because they had been retained by Ins. This case presents a recurring conflict of interest question within law's "eternal triangle" -- the liability insurance company, the insured, and the insurance defense attorney.
The question is whether an insurer's reservation of rights created a conflict of interest sufficient to entitle the policyholders to have their insurer pay attorneys of the policyholders' choice to defend them in the underlying litigation. As explained below, the court finds that the reservation of rights posed, in the terms of Rule 1. As a result, the policyholders are entitled to select their own counsel to defend the underlying claim, subject to reasonable approval by the insurer, with reasonable fees and expenses paid by the insurer.
The court held that because the trier of fact could make findings, some of which could result in no coverage, the law firm selected by the insurance company would have a conflict. Reservation of Rights Case. The court held that a lawyer hired by the insurance company to defend an insured, where the insurance company had issued a reservation of rights, did not have a conflict of interest. Questionable Conduct of Carrier-Retained Counsel. InsCo hired counsel to defend Insureds under a reservation of rights.
Insureds hired their own additional counsel. In this case Insureds sued InsCo to recover the fees and expenses of their own counsel. In this opinion the court granted summary judgment to InsCo, holding that a reservation of rights does not automatically constitute a conflict of interest between the insurer and insured. This is a suit by Insurer to rescind a policy and for a declaration that it owed Insured nothing.
Insured did not tender the defense of the underlying case to Insurer until after the trial of that case. In this opinion the court held, among other things, that Insured was not entitled to hire independent "Cumis" counsel for appeal of the underlying case because the trial record was fixed, and the law firm hired by Insurer would not have a conflict. A person brought a defamation action against an entity and several individuals "underlying case".
The entity's insurance carrier issued a reservation of rights based upon a claim of no coverage. In this case the insureds seek a declaratory judgment that they are covered by the policy and that they have a right to control the defense of the underlying case.
As to the latter issue the court, in this opinion, held that a law firm representing both the insureds and the insurer would have a conflict. This is because coverage issues would turn upon the conduct of the insureds that would be shown at the trial.
This is a suit by Law Firm against its malpractice carrier regarding the carrier's claimed right to control the defense of an underlying case. In the underlying case former clients sued Law Firm for malpractice, breach of fiduciary duty, and declaratory judgment.
After Law Firm tendered defense of the underlying case to its carrier, the carrier reserved rights as to the claim of excessive fees and declaratory judgment.
Law Firm brought this action against the carrier for a declaration that the law firm could hire independent counsel at the carrier's expense. In this opinion the court granted summary judgment to the carrier. Evidently, the reservation of rights covered the excessive fee claim and the count for declaratory judgment, but not the underlying claim for malpractice damages. The court held that just because the carrier might later reserve rights as to malpractice damages, did not justify a finding of an actual conflict of interest.
The court also held that the law firm retained by the carrier would have no incentive to guide the case to a result favoring the carrier and disadvantaging Law Firm. InsCo denied coverage for this occurrence negligent house inspection because the inspector did not mention this occurrence on his insurance application. Architects sued Developer for copyright infringement not this case. Developer's insurance carrier "Insurer" served a reservation of rights, identifying several coverage issues.
But, Insurer did assume the defense and hired a law firm to defend. Developer claimed that Insurer had a conflict and that Developer should be allowed to hire its own law firm. Developer filed this case for a declaration, among other things, that Developer had the right to its own law firm at Insurer's expense.
On that point, in this opinion, the court held that Developer could not show the requisite conflict. For each coverage issue, the court concluded that no findings would be made in the underlying case that would resolve that issue.
Thus, Insurer's law firm would not have a conflict because it would not have to ability to influence the outcome as to coverage. Downhole was sued by a customer for negligence. Downhole tendered the defense to its carrier, Nautilus. Nautilus responded with a reservation of rights letter, noting several exclusions that might be the bases for denying coverage. Based upon what Downhole believed was a conflict of interest, Downhole rejected Nautilus' designated lawyer and hired its own.
This suit seeks reimbursement from Nautilus for Downhole's legal expenses. The magistrate judge granted Nautilus summary judgment on that claim.
In this opinion the Fifth Circuit affirmed. The court held that because the facts to be adjudicated in the negligence case were different from the facts that would determine coverage, Nautilus' designated counsel would not have a conflict. This case is largely about California insurance and employment law. The issue of interest to this audience is whether, in the face of a reservation of rights, the insured was entitled to independent counsel compensated by the insurance company.
In this opinion the court held that the insured was so entitled because counsel appointed by the insurance company would be in a position to "steer the settlement" toward non-covered claims. InsCo in this case seeks a declaratory judgment that it does not cover Insured in an underlying liability action. Early in the underlying action InsCo issued a reservation of rights. Pursuant to its rights under the policy Insured hired its own independent law firm to defend Insured.
That law firm had to withdraw because of a conflict of interest conflict not explained in this opinion. InsCo then, with Insured's knowledge, undertook to hire another law firm "Law Firm 2" to defend Insured.
Insured lost the underlying case. Insured claims in this action that InsCo is collaterally estopped from denying coverage for the underlying case. The conflict was that Law Firm 2 was in a position to guide the underlying case in a direction that would result in no coverage. In this opinion the court rejected that defense because the reservation of rights had preceded the hiring of Law Firm 2, and the Insured knew all about its rights at the time Law Firm 2 was retained.
Title Insurance Company hired Law Firm to bring an action on behalf of insured Bank to vindicate Bank's mortgage lien. The trial court, in a discovery dispute, ruled that communications between the insurance company and Law Firm were not protected by the privilege. First, the court ruled that, as in the case of casualty policies, in California the law firm hired by the insurance company represents the insurer, as well as the insured.
This assumes there is no conflict. Second, the court held that the mere fact of a reservation of rights does not obviate the privilege so long as the policy defense relies on facts separate from the issues being dealt with by the law firm. Insco reserved rights in a claim against Contractor.
Contractor wanted a different law firm from that hired by Insco. Contractor agreed to pay the difference between the fees charged by the first law firm and its own law firm.
In this suit on the policy Contractor claimed that it should recover the difference in fees. In this opinion the court denied that relief, holding that there was not a conflict of interest, which might have had the effect of negating Contractor's earlier agreement to pay the fee differential. Faith in Action, Ill.
Reservation of rights, among other things. This case involves a not-for-profit entity, an entity volunteer, a fatality in an auto driven by the volunteer, the carrier for the entity, and the carrier for the driver. There are many issues including estoppel from asserting a reservation of rights. The one issue relevant to this audience was whether one of the carriers had a duty to pay for independent counsel for one of the insureds.
Because one law firm would be in a position to make arguments militating against coverage, the court held that the carrier had to pay for independent counsel.
This audience is familiar with the concept that an insurance carrier, which has reserved rights, must hire independent counsel for the insured where counsel would be in a position to skew the case into a non-covered one.
In this case the court said the same principle applied to a contractual indemnitor who controlled counsel in defending the contractual indemnitee. However, the court found no such conflict in this case. A sued B and C for breach of contract. B, claiming any liability it might have resulted from C's misconduct, brought a cross claim for indemnity against C.
C told B that C intended to defend both B and C, that C would pay any resultant liability, and that C had sufficient funds to do so. Nevertheless, B hired independent counsel to defend B.
In this opinion, finding for B, the court held that there was a conflict between B and C from the outset and that B did not have to rely upon C's representation that C would take care of everything. Park Townsend, LLC v. The issue in this case is whether InsCo should pay the fees of independent counsel in the face of InsCo's reservation of rights. The opinion is very fact-specific and relies heavily on California statutory law.
Thus, we will leave it to those with California insurance practices to read it. When notified of the matter, InsCo reserved rights based upon the fact that some of the actions complained of might have fallen outside certain policy years.
Insured claimed the right to hire its own counsel at InsCo's expense. InsCo filed this declaratory judgment action. The trial court granted InsCo summary judgment on this claim. In this opinion the appellate court affirmed.
The court held that counsel hired by InsCo were primarily concerned with defeating liability and had no control over what actions of Insured occurred when. InsCo served a reservation of rights. Insured then hired independent counsel "Lawyer"and the parties agreed on a billing rate. InsCo later withdrew the reservation of rights. In this opinion the court held that InsCo could hire counsel of its choosing, and InsCo did not have to further compensate Lawyer.
Nucor was sued for polluting nearby water supplies. Nucor hired Law Firm to represent it. Nucor also notified its liability carrier "InsCo". Insco issued a reservation of rights.
InsCo did not exercise its contractual right to hire a law firm to defend until a year after notification. The court first held that a reservation of rights does not automatically deprive the carrier of the right to select defense counsel. Second, the court held that this right can be waived by passage of time. In this case the court denied the carrier summary judgment and held that waiver would be a jury question.
The court said in passing that not every reservation of rights creates a conflict of interest. Otherwise, an insurer could never reserve rights. CE brought a class action against Matrix for violating junk fax laws.
CE claimed in this case that the failure to disclose the conflict estopped Ind. In this opinion the court dealt with that and several unrelated issues. As to estoppel, the court said that failure to disclose a conflict in a reservation of rights letter could trigger an estoppel. However, the court held that only the insured Matrix could claim estoppel, and Matrix had not done so.
This case involves liability insurance policies issued to a building contractor. A claim was made, and the insurance company issued a reservation of rights letter.
conflict of interest, Freivogel on Conflicts Insurance Defense
This opinion by the magistrate judge deals with several motions for summary judgment. The analysis is too fact-specific to merit discussion here. In Centex Homes v. June 16,the same court, in this case, ruling on a variety of other issues, reiterated the same principle.
Builder tendered the defense to InsCo. In this case Builder seeks to recover the cost of independent counsel. In this opinion the Fifth Circuit rejected this claim. Insured was in an automobile accident. InsCo denied coverage because Insured was unlicensed, a policy exclusion.
InsCo defended the case with retained counsel, Insured lost, and Plaintiff, in this proceeding, sought to collect from InsCo. In this opinion the appellate court held that the exclusion prevailed. InsCo had not waived the exclusion because it had not failed to disclose a conflict to Insured. Retained defense counsel had no conflict because the liability issue was different from the coverage issue.
Insured sued InsCo over fees Insured paid its own counsel to defend an underlying injury case. The policy covered accidents.
The underlying injury complaint contained an allegation of intentional conduct. InsCo reserved rights, in part, because of this provision.
Hinds County School Dist. In this opinion, answering no, the court held that such authority would, among other things, create a conflict of interest on the part of Moeller Counsel. Demand for Independent Counsel not Failure to Cooperate. Centex Homes, U. HB was sued for defects in state court. InsCos filed this action for a declaration that they did not cover the state court liability. When tendered the state court case, InsCos wrote a reservation of rights letter.
Among other things, InsCos claim that this demand violates the cooperation clause of the policy. Based upon the wording of the letter the court, in this opinion, held that the demand did not violate the cooperation clause. In effect, the court is saying that any request for independent counsel does not, per se, violate the cooperation clause.
Very similar holding, Travelers Indem. Centex Homes, WL N. We are keeping this one short. Lawyers in California dealing with Cumis counsel should probably read it.
In responding to a certified request from the federal court, the court held that, in the case of a reservation of rights, the insured has a right to independent counsel only where counsel selected by the insurer could control resolution of the coverage issue. The court also reiterated that, in Nevada, counsel retained by the insurer has two clients unless, and until, a conflict develops.
Father had dropped Son off in downtown Toronto. Son sued Father and the other driver. Son won a jury award at trial. Law Firm has appeared for Father in this appeal. The case concerns bad faith issues of questionable interest to this audience. However, the court did hold that principles regarding reservations of rights and possible conflicts of interest apply fully to title insurance. Employee sued DHR for wrongful termination and owed wages. In this opinion the court dismissed that count.
One issue was whether the insured was entitled to reimbursement for fees of independent counsel hired by insured. In this opinion the magistrate judge ruled that the insured was so entitled. The insurer had accepted tender of the case under a reservation of rights.