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6 keys to navigating the independent counsel minefield.

Byline: Kevin Quinley, CPCU

Conflict of interest allegations frequently arise in insurance claims when adjusters hire attorneys to defend insureds who face suits from third parties.

When files include insurance coverage questions and carriers reserve rights, many authorities hold that the defense attorney in the tripartite relationship has a conflict of interest. Defense attorneys rely on insurers for business and to pay their bills. On the other hand, defense attorneys typically owe their main allegiance to their policyholder or client. Those policyholders' interests lie in having the coverage that the carrier may be contesting. Failure to recognize and navigate around this touchy issue can expose adjusters, insurers and TPAs to bad faith. How can one navigate around this minefield?

Consider these six "practice tips" for managing independent counsel.

1. Know the local case law on independent counsel, or find out. Different states' case law address situations when an insured may have off-panel, separate defense counsel. If you're handling claims in a given state and reserve coverage rights, assess how the case law in that state treats reserving rights and if that entitles insureds to separate counsel.

If you do not know, contact local counsel and ask. Before reserving rights, know the risk of losing control of the defense, especially defense costs, in your jurisdiction. As a witness on bad faith cases, I wince when adjusters testify that they are unaware of the state's Unfair Claim Settlement Practices Act and get no training on it.

This does not mean adjusters must memorize every regulation. They should, however, have a working familiarity with the case law or "know what they don't know," getting professional guidance to assess what an insured is entitled to if a carrier reserves coverage rights.

2. Don't automatically equate reserving rights with a conflict of interest. For example, carriers often send "excess letters" just to be safe. Maybe a plaintiff alleges punitive damages, even though there is little chance of recovering them. Perhaps the policy excludes punitives or the state does not allow coverage for punitives on public policy grounds.

The mere potential for excess liability or punitives may not, by itself, create conflicted interests between insurers and insureds. The insurer hires defense counsel, who works hard to defend the policyholder; any liability assessed will be the carrier's responsibility. A lawyer also works to prevent liability over the policy limits and prevent punitive damages. Insurers and insureds have a common interest -- defeating the plaintiff's claim or limiting damages.

This differs from situations where one claim is covered and one is not, and panel counsel could "steer" the case toward excluded claims. The main point: Reserving rights does not always equal a conflict entitling insureds to separate counsel.

3. Condition reassignment of the case on your "silver linings playbook." Set reasonable conditions. Hourly rate is but one concern about independent counsel. The other: The time counsel bills. Independent counsel may quote a reasonable rate, but compensate by "billing heavy."

Hourly rate is relevant, but only one part of legal spend. Condition assignment to counsel on them following reasonable litigation guidelines. Focus areas are:


Regular and thorough status updates;


Litigation plans and budgets; and


Case evaluations.

These should address questions like:


Based on all you know, what is the claim's reasonable compromise settlement value?


If the case is tried, what are the percentage odds of a defense verdict?


If a plaintiff's award occurs, what is the likely verdict range?

If guidelines do not hamper an insured's defense, such requirements should pose no problem. Carriers deserve information from independent counsel, who should follow the same reporting, communication, budgeting and case evaluation disciplines expected from any attorney.

4. Be strategic before opening the independent counsel "door." Sometimes insureds (especially commercial accounts) have a preferred firm with a high hourly rate, waiting to launch when carriers reserve rights, triggering a presumed entitlement to independent counsel. The adjuster may have "paper" grounds for reserving rights but the odds of prevailing are dim, such as a "late notice" in states, which make carriers prove prejudice from delayed reporting. Or the plaintiff pleads punitive damages as a "kitchen sink" throw-in, and there's little chance of punitives being awarded.

The risk of losing control over the defense -- and legal costs -- may exceed the risk of waiving "Hail Mary" coverage defenses. The carrier may be wiser not reserving rights on a theoretical coverage issue to retain control of the defense, which goes beyond hourly rate. It includes settlement philosophy versus expensive, "scorched earth" litigation.

Settlement philosophy of panel counsel versus independent counsel is a huge worry in relinquishing control of case defense. It is not just about hourly rates or how heavily independent counsel might bill.

5. Be cautious in dealing with "monitoring counsel" and national coordinating counsel. Sometimes, insureds want separate firms to oversee panel counsel's work. There is nothing wrong with this unless the insured tries to bill the carrier for the service.

An insured may face suits around the country from the same product or operation and announce, "We need national coordinating counsel!" Sometimes, insureds are coached by a law firm which tells them, "You need monitoring counsel or national coordinating counsel."

While monitoring counsel may comfort an insured, nothing in the policy typically obligates carriers to pay for a second set of eyes, either in monitoring counsel or national coordinating counsel. Some files may warrant national coordinating counsel. This is a judgment call. There is no magic number of claims that triggers their use. However, sometimes an insured has multiple claims and announces it needs national coordinating counsel.

Somewhere, the adjuster must draw the line. The carrier must defend. That duty may not extend to funding monitoring counsel or national coordinating counsel just because it comforts the insured.

6. Consider legitimate business reasons for independent counsel, even in non-conflict settings. Even without reserving rights or conflicting interests, adjusters may have sound reasons for agreeing to independent counsel. A client might make a cogent case why counsel of its choice is familiar with its operations and products, and has deeper subject matter knowledge of the law. A policy endorsement may give the insured the right to pick counsel, or there may be existing business or customer relations reasons. Despite the default mode of panel counsel, a large account might merit "customer service" accommodations.

Always consider big picture reasons that merit entertaining an insured's desire for independent counsel. Sometimes, business factors and customer relations can favor assigning independent counsel. Minimize bad-faith risks and runaway legal fees by heeding these tips to navigate the independent counsel minefield.

Kevin Quinley CPCU, AIC, ( is the principal of Quinley Risk Associates LLC.
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Date:Mar 1, 2018
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