Do you know which attorneys will represent your interests if your insurance provider has to defend you in litigation? You might be surprised.
As a general rule, liability insurance policies – such as those held by family offices and family businesses – include a “right and duty to defend” clause that requires the insurance provider to defend their insured customer in certain litigation situations, but also gives them a significant measure of control over that defense.
Over the years, court decisions have given insurance companies providing products such as Comprehensive General Liability (CGL), Employment Practices Liability Insurance (EPLI) and Directors and Officers (D&O) policies the right to select the defense counsel and control the defense of any lawsuits brought against insureds that trigger the insurance coverage.
In these matters, the insurer typically chooses a defense attorney from a pre-selected “panel” of firms and attorneys that regularly do work assigned by the insurance carrier and do that work at volume-discounted rates. While these attorneys are usually experienced litigators, they may not typically work with family offices or with businesses in your industry or with the unique concerns and risks that may be a significant issue in your lawsuit. Or they may be hired to play just a single, isolated part in a larger litigation environment that involves multiple insurers, jurisdictions or lawsuits that all need to be coordinated with an overarching legal strategy.
Alternatives exist for family offices and businesses that might not be comfortable with such an insurer-controlled arrangement. However, these alternatives should be considered on a proactive basis rather than waiting to hash out issues about choice of counsel and control with your insurer after a lawsuit has begun. Some options to consider include:
- High-dollar self-insured retentions/deductibles in exchange for greater control rights (and likely lower premiums).
- Policies that give the policyholder, rather than the insurer, the right to defend covered claims. However, you would need to be careful regarding any approval rights the insurer still might want to retain.
- Endorsements, such as specific choice of counsel provisions, providing that your preferred counsel will be appointed by the insurer as defense counsel. These usually include an arrangement on rates that the insurer will pay.
Although these proactive methods are often the most effective to ensure you can use your preferred attorneys, there are options for negotiation even if you have not yet arranged to have choice of counsel.
In a situation where the standard terms of the policy do apply and the insurer is initially in the driver’s seat, the most typical resolution is where the insurer agrees to allow the policyholder to use their preferred attorney but would only pay that attorney their standard panel counsel rate, which is usually much lower than the market rate. The policyholder would offer to “top up” the gap in rates between the panel counsel and their preferred attorney. Of course, the insurer does not have to agree to such an arrangement, so proactive action is still best.
