Independent CounselIf
you are sued, beware of your insurance defense lawyer. He or she cares more for the insurance
company’s interest than yours.
Most civil defendants receive representation from lawyers hired and paid by their insurance companies. These types of lawyers are commonly called “insurance defense lawyers” and make their money from insurance companies only. Sometimes, the lawyers even work for firms that represent one insurance company only! These are called “captive” firms. |
Defendants should to consider retaining independent counsel when their insurance companies “reserve rights”
to deny a claim, when a claim is mishandled, and when an insured defendant has
significant personal assets. Independent
counsel (also called “separate counsel”) reports to the insured defendant only.
The independent counsel monitors what the insurance defense lawyer is
doing and protects the insured’s rights by forcing the insurance defense lawyer
to remember who the real client is, the insured defendant not the insurance
company. This is a fact insurance
defense lawyers forget all too often.
For example, I was in court several other lawyers recently. An insurance defense lawyer returned from lunch and quipped: “Lunch is always great when your client pays!” She didn’t go to lunch that day with the client she was representing our trial. She went to lunch with the insurance company claim adjuster monitoring the case—the one that hired her to represent her actual client as the law sees it: the insured defendant.
But who was the “client” in her mind? The insurance company employee who pays her fees so she can make her mortgage payments and who funnels case-after-case to her firm, year-after-year. As with most insurance defense lawyers, the real client, the insured defendant, was a one-off that meant little to the lawyer. She’ll represent the defendant once in her lifetime, but get cases from the adjuster for years, if not her whole career. If you are represented by an insurance defense lawyer, expect the same.
Why is this permitted? Most often, the fact insurance defense lawyers care more for the insurance company than their real client matters little in the end: the insurance company is the one paying anyway. This means the insurance company and the insured defendant usually want the same thing: a quick resolution with as little money spent as possible. Sometimes, however, the insurance company’s and the insured defendant’s interests diverge.
Avoiding the “Black Mark”
A classic example a defendant's interests diverging is insured doctor worrying his insurance company is too ready to settle a frivolous claim just to avoid more defense costs. The doctor will have the black mark of a liability payment by his name forever, not the insurance company. In fact, the insurance company will make more money because of the higher risk premium charges. Convenient!
“Reservation of Rights”
Another important divergence occurs when the insurance company “reserves its rights” to deny coverage mid-way through the case or avoid paying a judgement at the end of the trial. “Reservations of rights” situations arise out of some language in the policy the insurance company thinks might exclude coverage or some facts in the case that, if proven, would exclude coverage. In these situations, the insurance company mails a letter to the insured defendant telling him or her that the company will pay the insurance defense lawyer's fees, for now, but reserves the right to stop paying them or any future judgment based on facts established later, usually at trial.
The conflict created by reservation of rights situations is clear: the insurance company will want to shape the facts of the case to support its right to deny the claim, not the insured’s right to have the claim paid fully by the insurance company. In some states, this inherent conflict means the insurance company must pay for the insured defendant’s independent counsel, in addition to the insurance defense counsel. Unfortunately, Washington is not one of those states. Here, insured defendants must pay for their own independent counsel. If, however, the insurance company is later found to have acted in bad faith, it usually must reimburse the insured for the independent counsel’s fees.
Insured Defendants with Assets
The last major divergence occurs when an insured defendant has significant assets—assets a plaintiff could get if there isn’t enough money under the policy to pay a judgment. Insurance companies too often refuse reasonable settlement demands for an insurance policy’s limits. If faced with such a “limits demand,” the insurance company may gamble on a jury trial, hoping for a jury award against its insured defendant below the policy’s limits. If this gamble is lost, the insurance company loses little. The insured defendant, however, will be personally on-the-hook for the amount of the award over the policy limits.
To illustrate the situation, let’s say a plaintiff (the person that sued) offers to settle his claim for the $1 million insurance policy limits available to the insured defendant. The insurance company, however, values the claim at $800,000 to $950,000 and rejects paying the $1 million limits. The insurance company might force the case to go to trial, hoping the jury will award a verdict well below $1 million or even award the plaintiff nothing. If the jury awards $1 million or more, the insurance company will still only have to pay the $1 million the plaintiff demanded before trial. The insured defendant, however, must pay everything over the $1 million policy limits. This means if the jury awards $2 million to the plaintiff, the insurance company would pay $1 million, and the insured defendant would have to pay an additional $1 million out-of-pocket, even though the case could have settled before trial with no cost to the insured. This is why independent counsel matters, and it is a service I provide.
For example, I was in court several other lawyers recently. An insurance defense lawyer returned from lunch and quipped: “Lunch is always great when your client pays!” She didn’t go to lunch that day with the client she was representing our trial. She went to lunch with the insurance company claim adjuster monitoring the case—the one that hired her to represent her actual client as the law sees it: the insured defendant.
But who was the “client” in her mind? The insurance company employee who pays her fees so she can make her mortgage payments and who funnels case-after-case to her firm, year-after-year. As with most insurance defense lawyers, the real client, the insured defendant, was a one-off that meant little to the lawyer. She’ll represent the defendant once in her lifetime, but get cases from the adjuster for years, if not her whole career. If you are represented by an insurance defense lawyer, expect the same.
Why is this permitted? Most often, the fact insurance defense lawyers care more for the insurance company than their real client matters little in the end: the insurance company is the one paying anyway. This means the insurance company and the insured defendant usually want the same thing: a quick resolution with as little money spent as possible. Sometimes, however, the insurance company’s and the insured defendant’s interests diverge.
Avoiding the “Black Mark”
A classic example a defendant's interests diverging is insured doctor worrying his insurance company is too ready to settle a frivolous claim just to avoid more defense costs. The doctor will have the black mark of a liability payment by his name forever, not the insurance company. In fact, the insurance company will make more money because of the higher risk premium charges. Convenient!
“Reservation of Rights”
Another important divergence occurs when the insurance company “reserves its rights” to deny coverage mid-way through the case or avoid paying a judgement at the end of the trial. “Reservations of rights” situations arise out of some language in the policy the insurance company thinks might exclude coverage or some facts in the case that, if proven, would exclude coverage. In these situations, the insurance company mails a letter to the insured defendant telling him or her that the company will pay the insurance defense lawyer's fees, for now, but reserves the right to stop paying them or any future judgment based on facts established later, usually at trial.
The conflict created by reservation of rights situations is clear: the insurance company will want to shape the facts of the case to support its right to deny the claim, not the insured’s right to have the claim paid fully by the insurance company. In some states, this inherent conflict means the insurance company must pay for the insured defendant’s independent counsel, in addition to the insurance defense counsel. Unfortunately, Washington is not one of those states. Here, insured defendants must pay for their own independent counsel. If, however, the insurance company is later found to have acted in bad faith, it usually must reimburse the insured for the independent counsel’s fees.
Insured Defendants with Assets
The last major divergence occurs when an insured defendant has significant assets—assets a plaintiff could get if there isn’t enough money under the policy to pay a judgment. Insurance companies too often refuse reasonable settlement demands for an insurance policy’s limits. If faced with such a “limits demand,” the insurance company may gamble on a jury trial, hoping for a jury award against its insured defendant below the policy’s limits. If this gamble is lost, the insurance company loses little. The insured defendant, however, will be personally on-the-hook for the amount of the award over the policy limits.
To illustrate the situation, let’s say a plaintiff (the person that sued) offers to settle his claim for the $1 million insurance policy limits available to the insured defendant. The insurance company, however, values the claim at $800,000 to $950,000 and rejects paying the $1 million limits. The insurance company might force the case to go to trial, hoping the jury will award a verdict well below $1 million or even award the plaintiff nothing. If the jury awards $1 million or more, the insurance company will still only have to pay the $1 million the plaintiff demanded before trial. The insured defendant, however, must pay everything over the $1 million policy limits. This means if the jury awards $2 million to the plaintiff, the insurance company would pay $1 million, and the insured defendant would have to pay an additional $1 million out-of-pocket, even though the case could have settled before trial with no cost to the insured. This is why independent counsel matters, and it is a service I provide.