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.

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           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.
 
 

When presented with a new claim, insurance companies often issue a reservation of rights letter to the policyholder.   Alternatively, some insurers will issue a non-waiver agreement.  In issuing a non-waiver agreement, insurers are attempting to preserve potential coverage defenses by getting the policyholder to agree that the insurer may undertake an investigation of the claim or defend the policyholder while preserving the right to later contest coverage.  A typical non-waiver agreement may read:
 
                         It is hereby agreed by and between the Insured and the Company that any action
                         taken by the Company, by and through its representatives, and at such time and
                         in such manner as it deems advisable, in investigating said accident, shall not
                         operate in any way as a waiver, or invalidate any of the conditions of said policy nor
                         any of the rights of either party here to under said policy; and in the event any suit
                         has been or shall be filed against the Insured growing out of a said accident or
                         occurrence should the Company elect to defend said suit, such defense by it shall
                        not be construed as a waiver of any of the conditions of said policy. 
 
                         Nothing herein shall be construed as a waiver of any rights which the Insured has under
                         said policy.
 
See Shelby Steel Fabricators Inc. v. United States Fid. & Guar. Co., 569 So.2d 309, 311 (Ala. 1990) (the non-waiver agreement language quoted in this case).
 
Unlike reservation of rights letters, non-waiver agreements are bilateral.  In agreeing to a non-waiver agreement, it can be argued that the policyholder consents to the terms of the insurance company's agreement to defend.  Policyholders are under no obligation to enter into a non-waiver agreement with their insurance company and an insurance company cannot force the policyholder to do so in order to provide a defense. 
 
When a policyholder receives a non-waiver agreement from an insurance company, the policyholder should decline to enter into the non-waiver agreement.  Then, the policyholder should request that the insurance company issue a reservation of rights letter that informs the policyholder, in detail, of the insurance company's coverage position.