Tag Archives: Policyholders

PROPERTY LOSS AND BUSINESS INTERRUPTION CHECKLIST FOR COMMERCIAL INSUREDS

Blogger:  Lee M. Epstein

 

Beyond the personal toll extracted by Hurricanes Harvey and Irma, the property and business losses are projected to be among the greatest caused by a natural disaster. As the recovery efforts continue in earnest, the following Checklist is offered to assist those who have suffered a loss and are planning to submit an insurance claim for any property loss and business interruption suffered.

□    Restore service to any property protection systems that have been damaged, such as
     sprinklers and alarms

       □    If property protection cannot be restored, post a watch

□    Notify all insurance companies whose policies may be implicated

       □   Consider whether notice should be given to excess insurance companies or to
           insurance companies whose policies have expired

□    Prepare a preliminary report describing:

      □    The type of loss

      □    The date and time of the loss

      □    The location of the loss

      □    A contact person at the company

      □    The property involved, including: buildings, equipment and stock

□    Determine if:

      □    The property is protected from further damage

      □    Any buildings require temporary enclosures

      □    Any utility lines have been damaged and require repairs

□    Identify and separate damaged and undamaged property

□    Commence salvage operations

□    Determine whether:

      □    Production can be restored at the damaged facilities

      □    Damaged equipment can be repaired

      □    Substitute facilities and equipment are available and necessary

      □    Lost production can be made up through inventory, overtime, or other
           suppliers

□    Formulate a plan with the insurance company’s input for making repairs, 
     securing substitute facilities and equipment and undertaking other loss
     mitigation efforts

□    Set up accounting procedures to track:

      □    Property Damage

            □    Create separate accounts for all loss-related expenses

            □    Implement procedures for collecting and maintaining all loss-related
                 documentation  in accordance with insurance policy terms, including
                 invoices, contracts and manpower hours

            □    Inventory damaged and undamaged goods

      □    Business Interruption

            □    Determine the “period of interruption”

            □    Determine the quantity of lost production as reflected in inventory 
                 records, production records and sales records. Compute what the business
                 would have normally produced, had there been no loss, then see how many                    
                 units were actually produced.  The difference is the gross lost production.
                
            □    Deduct any sales or production that can be continued or made up through
                 the use of existing inventory, the utilization of other plants, the utilization
                 of overtime hours or other loss mitigation efforts.  The difference is the
                 net lost production.

            □    Multiply the net lost production by the marginal value of a single
                 production unit.

            □    Add back the extra costs associated with replenishing inventory and loss
                 mitigation efforts.

□    Prepare and submit claim

      □    Summarize

            □    Date, location and type of loss

            □    Amount claimed

      □    Break down the amount claimed

            □    Property damage

                  □    Real property

                  □    Equipment

                  □    Stock and supplies

                  □    Demolition and debris removal

      □    Business Interruption

            □    Interruption Period

            □    Sales value of lost production

            □    Expenses incurred to reduce the loss

□    Attach supporting documentation for each element of the property damage and
     business interruption

□    Press for written extensions of time to submit claim and to file suit if necessary

□    Seek prompt payment of claim by insurance company

□    If a dispute over a claim arises, determine

      □    Whether appraisal is appropriate or beneficial

      □    Whether litigation will expedite payment of claim

 

For more information, please contact Lee M. Epstein, Weisbrod Matteis & Copley PLLC

Every Dawg Has Its Day – A Report From Philly I-Day 2016

cyber securityGuest Blogger: Emily Breslin Markos, Weisbrod Matteis & Copley PLLC

On Thursday, April 28th, I had the pleasure of attending Philly I-Day, an annual event where insurance professionals gather to network, share ideas and get informed about industry trends.  The attendees had the opportunity to hear from Tom Finan, who previously served as the Senior Cybersecurity Strategist and Counsel with the Department of Homeland Security.  While in this role, he established and led the agency’s Cyber Incident Data and Analysis Working Group (CIDAWG), which I previously blogged about.  I appreciated hearing him speak about the important work that the CIDAWG has done to secure businesses against cyber-attacks.  Mr. Finan shared that the National Protection and Programs Directorate (NPPD) recently held a workshop to focus on the execution of the repository for reporting cyber incidents, as described in my previous blog post.

I was surprised to learn that Mr. Finan invented the acronym CIDAWG for the working group, and intentionally made it, well, awesome.  He boasted that it is the best acronym in the federal government to date, and I tend to agree, at least until we all start calling the President “P-Dawg.”   To learn more about the CIDAWG’s continuing cyber-security efforts, please visit:  www.dhs.gov/cybersecurity-insurance.

While at the event, I also had the opportunity to attend a Presentation given by our own Lee Epstein, with Kevin M. McPoyle of KMRD Partners, on effective communications between brokers and policyholders.  In our work representing policyholders, we have seen our clients rely on brokers as an incredible source of expertise, guidance, and comfort when it comes to our client’s coverage needs.  Unfortunately, we have also had the firsthand experience of having communications between the policyholder and broker unearthed in coverage litigation, and sometimes used against the policyholder.

For example, when a broker gives the unequivocal opinion that a certain claim is not covered, that can come back to haunt the policyholder.  The insurer may rely on that statement as evidence of no coverage, and a court may find the broker’s statement compelling.  In light of that, Lee and Kevin discussed how can brokers strike a balance between providing helpful and definitive advice to their clients, while aware that their statements can carry a great deal of weight if the claim is ever litigated.

Two main themes emerged from the discussion.  First, the broker’s role is to offer business advice, not legal advice, and couching communications in business terms can avoid many problems if the claim ever goes to litigation.  Second, when there is a question as to the scope of coverage, setting forth advice in terms of what the insurer’s position may be provides sound advice to the policyholder, but also protects the policyholder in the event of litigation.  It was an eye-opening Presentation, and fodder for continuing discussion.

To learn more, contact Emily Breslin Markos

Weisbrod Matteis & Copley Uncovers Massive Fraud In the Adjustment Of Superstorm Sandy Claims

I, and several colleagues, recently had the good fortune of joining the law firm of Weisbrod Matteis & Copley (“WMC”) and opening its first office based outside of Washington, D.C. in Philadelphia, PA. In addition to representing corporate policyholders in maximizing insurance recoveries, WMC is one of the leading firms in the country representing individuals who have been left high and dry by their insurers after a major disaster, such as Hurricane Katrina or Superstorm Sandy, strikes.

For nearly ten years, the firm has represented the whistleblowers who first discovered fraudulent engineering reports after Hurricane Katrina. It remains the only firm in history to prove to a jury that a FEMA-contracted insurer committed fraud in adjusting Hurricane Katrina claims.

WMC is now bringing that experience to bear for the benefit of home and business owners who continue to suffer so greatly in the aftermath of Superstorm Sandy. The firm represents nearly 1300 Sandy victims who are seeking a fair adjustment of their flood insurance claims by FEMA. Unfortunately, that adjustment process is rife with fraud.

On the positive side, both congress and the media are taking note. Recently, WMC partner, August Matteis, appeared on a television news segment along with Congressman Tom MacArthur to discuss the fraud. You can view that segment by clicking here. Most recently, Matthew Krauss, another WMC attorney, appeared on Maggie Glynn’s radio show to further explain how Sandy victims are being underpaid. That interview can be heard by clicking here.

Victims of natural disasters have suffered enough. If nothing else, FEMA owes them an honest adjustment of their insurance claims.

 

For more information, please contact Lee M. Epstein.

Caveat Emptor in the Brave New World of Cyber Insurance Coverage

databreach

Guest Blogger:  Martin Bienstock, Weisbrod Matteis & Copley PLLC

There are two types of entities in the world, goes the adage: those who have learned that their data was breached; and those who just don’t know it yet.  The cost of these data breaches is no laughing matter, however; according to a recent study sponsored by IBM, the average data breach costs a company more than $200 for each record lost.[1]  (In the health-care sector, the cost are even greater, approaching $400 per-record lost record.[2])  The more records that are lost, the greater the per-record expense, so that a large data breach may give rise to exorbitant costs.[3]

Thoughtful executives can mitigate these costs through effective utilization of insurance coverage.  Insurance companies aggressively are marketing new cyber-insurance policies that provide first-party and third-party coverage in the event of a data breach.  Often, the new policies are accompanied by an exclusion in the entity’s Commercial General Liability Policy for losses arising from a data breach.

Entities entering the market for cyber coverage therefore must be vigilant to ensure that, at the end of the day, their efforts not yield less coverage than previously had been available.

Cyber Insurance Policies Are Often Conditioned Upon Maintaining a Particular Level of IT Security.

The new cyber policies typically require an applicant to complete a comprehensive assessment of its cyber security measures, affirming, for example, that it has in place “up-to-date, active firewall technology,” and “updated anti-virus software active on all computers and networks.”[4]   Coverage may be conditioned on the accuracy of these representations.[5]   In the event of a breach, if it turns out that the IT security information represented in the application form was inaccurate, coverage might not be available.

Thus, in one recent case,[6] an insurer sought to deny coverage because, among other things, the insured health-care provider had not maintained the level of IT security described in its application.  The insurer argued that the policy therefore was void.[7]  Under cyber-liability policies, then, an insured might be excluded from coverage in the event that it was negligent in implementing cyber-security measures – hardly the result that the insured had in mind when it purchased the policy.

Traditional CGL Policies Offer Some Protection for Data Breaches Even When the Insured Failed to Maintain Adequate IT Security.

When a data breach arises from an entity’s failure to maintain security, third-party coverage likely would be available under a standard Commercial General Liability Policy.  The standard CGL Policy provides coverage for “advertising injury.”  It defines such advertising injury to include injury caused by “oral or written publication, including publication by electronic means,” which “disclosed information about a person’s private life.”

This definition of “advertising injury” is ill-suited for costs arising from a data breach since it depends upon “publication.”  In the event of a data breach, many of the costs are unrelated to the actual publication of private data; the costs arise from the mere possibility of publication, not its actuality.  Conditioning data-breach coverage upon an irrelevant “publication” standard makes little sense.

Two recent cases highlight the limitation of relying on the “publication” standard to provide protection against data-breach claims.  In one case, electronic data concerning 50,000 employees fell out of a transport van and never was recovered.  The Connecticut Supreme Court held that the data had not been “published,” since there no factual support for the conclusion that the data, which was not in a readily usable format, ever was accessed by anyone.[8]  In contrast, in another recent case, the Fourth Circuit Court of Appeals affirmed a district court decision that damages resulting from a data-breach did constitute “advertising injury” because the information had been made available on the internet, and therefore was “published.”[9]

Cyber-data and Cyber-security policies can be better designed than the CGL “advertising injury” coverage, so that coverage is not dependent on publication.  But as some insureds have learned to their dismay, cyber-liability policies may be drafted to shift the costs of negligence back to the insured, and to make coverage unavailable for the very data breaches for which the insured purchased the insurance in the first place.

Caveat Emptor

Cyber-risk insurance therefore may serve a useful purpose by providing coverage that is targeted specifically towards data breaches, and that covers damages that go beyond the scope of the traditional CGL Policy. Buyers must beware however that the extra financial and administrative burden they assume in buying such policies not leave them worse-off than before.

For more information, please contact Marty at mbienstock@wmclaw.com or 202.751.2002.

 

[1] IBM 2015 Cost of Data Breach Study United States, conducted by Ponemon Institute LLC (May 2015) at 1.

[2] Id. at 7.

[3] Id. at 7.

[4] A sample cyber-risk policy issued by Travelers Group and containing these representations (last accessed on the date of publication) is available here .

[5] Id., Cyber-Risk Policy at III.M. (p. 22).

[6] Columbia Cas. Co. v. Cottage Health Sys., 15-cv-3432 (2015 C.D. Cal.).

[7] Id., Dkt No. 22.

[8] Recall Total Info. Mgmt., Inc. v. Fed. Ins., 317 Conn. 46, 115 A.3d 458 (2015).  The Connecticut Supreme Court adopted the reasoning of the appellate court in Recall Total Information Management, Inc. v. Federal Ins. Co., 147 Conn.App. 450, 465, 83 A.3d 664 (2014).

[9] Travelers Indem. Co. of Am. v. Portal Healthcare Sols., L.L.C No. 14-1944, 2016 WL 1399517, at *2 (4th Cir. Apr. 11, 2016).

Anticipation Over: Heinz Squeezed By Federal Court

Heinz DeniedUnderscoring the need for complete candor when answering insurance application questions, a federal court permitted an insurer to rescind an insurance policy.  See H.J. Heinz Co. v. Starr Surplus Lines Co., Case No. 15 cv0631 (W.D. PA, Feb 1, 2016). Starr sold Heinz an Accidental Contamination and Government Recall insurance policy (the “Recall Policy”). After Heinz sought coverage for losses incurred in connection with a product recall in China, Starr refused the claim and sought to rescind the Recall Policy. As the court explained, “rescind” means to have the insurance policy declared void as if it never existed.

Interestingly, the court employed an advisory jury to assist in the determination. The court agreed with the jury’s finding that Heinz had omitted and misrepresented certain material facts in its application for insurance. Specifically, the application asked two pertinent questions: (1) whether “any fines or penalties been assessed against the Applicant by any food or similar regulatory body over the last 3 years” and (2) whether “the Applicant experienced a withdrawal, recall or stock recovery of any products or has the Applicant been responsible for the costs incurred by a third party in recalling or withdrawing any products.” Heinz answered no to the first question and did not answer the second question.

Contrary to its application answers, the evidence presented at trial showed that Heinz was fined or undertook recalls in connection with a number of contaminated food products. Heinz’s Global Insurance Director sought to excuse certain of the less than accurate application answers by stating that the losses at issue would not have been covered by a Recall Policy. The court did not credit that testimony.

Particularly damning was the fact that Heinz’s Global Insurance Director had previously disclosed the very same contamination losses that had been withheld from the insurer to Heinz’s Senior Management. According to the court, “simply put, if this information was sufficiently important for [the Global Insurance Director] to include in a presentation memorandum to the Heinz senior management, it was sufficiently important to include on the Application, yet [he] failed to do so.” The court found further that the Global Insurance Director made the misrepresentations for one or both of the following reasons: (1) to obtain a lower SIR and/or (2) to secure a lower insurance premium.

Although instances of insurance policy rescission for fraud and misrepresentation are rare, it does occur. This case serves as a painful reminder to all policyholders and their risk managers of the importance of full and complete candor when answering insurance application questions.

Questions? Let me know.

Free At Last: PA Supreme Court Frees Policyholders From Consent To Settlement Provisions

free at last

Thanks to a recent ruling by the Pennsylvania Supreme Court, policyholders may now settle cases that are being defended by an insurer under a reservation of rights so long as the settlement is fair, reasonable and non-collusive. See Babcock & Wilcox Co. et al. v. American Nuclear Insurers, Case Number 2 WAP 2014 (Pa Sup. Ct., July 21, 2015). In order to recover, policyholders will not have to prove that their insurers acted in bad faith in refusing to settle.

In Babcock & Wilcox, the insureds sought indemnification for an $80 million settlement that was paid to underlying plaintiffs who claimed injurious exposure to radiation. The insurers, who were defending under a reservation of rights, refused to pay the settlement and argued that the insureds’ settlement without the insurers consent breached the following so-called “consent to settlement” clause that is standard in liability policies:

Assistance and cooperation of the Insured. The insured shall cooperate with the companies, and upon the companies’ request, attend hearings and trials and assist in making settlements, securing and giving evidence, obtaining the attendance of witnesses and in the conduct of any legal proceedings in connection with the subject matter of this insurance. The insured shall not, except at his own cost, make any payments, assume any obligations or incur any expense.

The insurers argued that the consent to settlement clause grants insurers unilateral authority to settle underlying lawsuits. They argued, therefore, that the insureds breached the insurance policy when it settled without the insurers’ consent and that the insurers should not be liable for the settlement amount absent proof that the insurers acted in bad faith in refusing to settle.

In rejecting the insurers’ argument, the Pennsylvania Supreme Court held that, “if an insurer breaches its duty to settle while defending subject to a reservation of rights and the insured accepts a reasonable settlement offer, the insured need only demonstrate that the insurer breached its duty by failing to consent to a settlement that is fair, reasonable, and non-collusive. . . .”

In so ruling, the Court left intact the standard applicable when an insurer refuses to settle and the insured is hit with a verdict that exceeds policy limits. In those cases, “if the insured establishes that the insurer breached its duty of good faith by failing to settle, the insurer is held responsible for the entire verdict, which resulted from the bad faith decision not to settle, even if it far exceeds policy limits.”

Quoting another court, the Pennsylvania Supreme Court reasoned that, “[t]he bad faith standard is simply not appropriate here, where the issue is one of contractual liability as opposed to extra-contractual liability.” Accordingly, the Supreme Court held that the court below erred “by requiring an insured to demonstrate bad faith when the insured accepts a settlement offer in a reservation of rights case.”

This is an extremely important victory for policyholders in that it will free them to wrest control of underlying cases and settle them without insurer consent. Coverage for the amounts paid in settlement will be preserved so long as the settlement is fair, reasonable and non-collusive; proof of insurer bad faith will not be required.

Questions? Let me know.

Loose Lips Sink Ships: Policyholder Communications with Insurance Brokers May Not Be Privileged and Immune from Disclosure

Insurance brokers play a vital role in the insurance process. Beyond assisting in the placement of the insurance program, they are often the first to be consulted by the policyholder after a major loss or liability. In fact, brokers are often so involved in the claim process that policyholders may consider their communications with brokers to be privileged and immune from discovery by insurers after a claim dispute arises. Unfortunately, that is not always the case.

Generally, the attorney-client privilege protects confidential communications between attorneys and their clients with regard to the rendering of legal advice. Communications are protected when they are necessary for the effective communication between attorneys and their clients. Protection may not be available when the communication is extended to someone outside of the attorney-client relationship or when the communication involves business, as opposed to legal advice.Man afloat on desk in sea of currency

Courts throughout the country are split on whether broker communications are privileged. Those courts that uphold the privilege recognize that insurance brokers negotiate the coverage and, thereafter, serve as necessary advisors to policyholders. Other courts uphold the privilege when the communications with the broker are made for the purpose of facilitating legal advice. Conversely, some courts refuse to extend the privilege after concluding that insurance brokers are outside the scope of the attorney-client relationship or that the broker provided business, as opposed to legal, advice.

Accordingly, any communications with brokers should be undertaken with an understanding that they may not be protected from disclosure. And, in order to maximize whatever protection that may be available, any sensitive communications with insurance brokers should be made pursuant to a confidentiality agreement and clearly marked as “Privileged and Confidential.”

Questions? Contact  Lee Epstein at Weisbrod Matteis & Copley PLLC.

Three’s a Crowd: Adventures in the Tripartite Relationship

An insurance company’s duty to defend its policyholder is at least as important as its duty to indemnify — if not more so. Indeed, it has been estimated that 55 cents out of every claim dollar is paid for defense.

The not insignificant expense associated with defending claims has caused insurers to seek greater control over the defense of claims asserted against policyholders. With increasing frequency, insurers are insisting on the use of panel defense counsel, the adherence to strict billing guidelines and the pre-approval of even the most basic costs. The resulting tensions have led defense counsel to seek guidance from their bar associations and policyholders to seek relief from the courts. Those tensions are exacerbated even further when conflicts of interest between insurers and policyholders arise.

This article discusses the nuances of the tripartite relationship involving insurers, policyholders and defense counsel and examines the current state of the law governing that relationship.

I. The Policyholder Is Always The Client

Even when an insurer is defending an action without reservation, the policyholder remains the client of the defense counsel retained and paid by the insurer. In certain jurisdictions, however, the insurer is also considered the client when a tripartite relationship is formed. Notwithstanding whether the insurer is also considered the client, insurers will invariably insist that they are entitled to control that defense, especially when they are defending without reservation.

According to insurers, the right to control will include the right to select defense counsel, approve all tactical decisions and settle any claim within policy limits. At times, however, the policyholder and insurer may have divergent views on how to defend a case or the policyholder may have business reasons for not wanting to settle a case within policy limits. In those situations, the Model Rules of Professional Conduct for attorneys provide necessary guidance for defense counsel and their clients.

Rule 1.2(a) of the Model Rules dictates that the lawyer must consult with and abide by a client’s decisions concerning the representation. Moreover, Model Rule 5.4(c) provides that a lawyer “shall not permit a person who recommends, employs or pays a lawyer to render legal services for another to direct or regulate the lawyer’s professional judgment in rendering . . . legal services.” Thus, irrespective of whether the insurer is also deemed the client, defense counsel must consult with the policyholder, and not permit the insurer to interfere with counsel’s judgment in defending the interests of the policyholder.

II. An Insurer May Not Insist On Unfettered Compliance With Its Billing Guidelines   

In an effort to reduce litigation costs, insurers are increasingly insisting that defense counsel comply with stringent billing guidelines. Those guidelines typically impose strict reporting requirements and require defense counsel to seek prior insurer approval of any significant costs to be incurred. The insurer’s interest in reducing costs will, in many instances, diverge from the policyholder’s interests in obtaining the best possible defense.
When compliance with insurer-imposed billing guidelines will compromise the defense, defense counsel must protect the policyholder’s interests. In those circumstances, defense counsel must first consult with both the insurer and the policyholder. If the insurer is unwilling to modify or withdraw the limitation a billing guideline places on the defense, and the policyholder is unwilling to accept that limitation, Rule 1.7(b) requires that defense counsel withdraw from representation of both the policyholder and the insurer. Rule 1.7(b) provides, in pertinent part, that “[a] lawyer shall not represent a client if the representation of that client will be materially limited by the lawyer’s responsibilities to another client or to a third person . . . .”

A specific cost-reduction mechanism employed by insurers, which has come under fire recently, is the use of third-party auditors to review defense counsel bills. Such “legal bill audits,” typically involve an examination of hourly rates charged, time spent and defense counsel’s work product to determine the reasonableness of the amounts charged. In the usual case, defense counsel may share this type of information with the insurer because such sharing is either required by the insurance policy or it is permissible in those jurisdictions in which the insurer is also considered the client of defense counsel. When the disclosure would affect a material interest of the policyholder, however, defense counsel may not share such information with the insurer, absent informed consent from the policyholder. For example, defense counsel are usually prohibited from disclosing information to the insurer that could adversely affect the policyholder’s coverage under the insurance policy at issue. An apt example was provided by the Pennsylvania Bar Association:

Generally, an attorney representing an insured need only inform the Insurer of the information necessary to evaluate a claim. For example, assume an attorney represents an Insured in a premise liability slip and fall. During the course of the representation, the attorney discovers that the subject property is a rental property, not a residential property as set forth in the policy.
Although this information may radically affect coverage, the attorney is prohibited from releasing this information to the Insurer or any other third parties. In the foregoing hypothetical, the attorney would simply inform the Insurer of the nature of the injuries claimed by plaintiff and the circumstances surrounding the incident. The insurer would have all of the information necessary to evaluate the value and basis for the claim and the Insured’s confidentiality would be protected.

Pa. Bar Assoc. Comm. On Legal Ethics and Prof. Resp. Informal Op., No. 97-119, 1997 WL 816708 at *2 (Oct. 7, 1997).

Moreover, the majority of jurisdictions have concluded that defense counsel may not disclose confidential information to a third-party auditor, absent the policyholder’s informed consent. Unlike the case with insurers, disclosure of such information to third-party auditors, with whom defense counsel have no employment or contractual relationship, may result in a waiver of any applicable privilege. In order to secure informed consent from the policyholder, defense counsel must discuss the nature of the disclosures sought by the third-party auditor as well as the consequences of disclosure (i.e., potential waiver of privilege) and non-disclosure (i.e., insurer may view non-disclosure as a breach of the duty to cooperate under the insurance policy).

III. When Conflicts Arise, The Insurer Must Relinquish Control Over The Defense 

When a conflict of interest between the insurer and policyholder arises, an insurer must typically relinquish any right to control the defense, including the right to select defense counsel. “It is settled law that where conflicts of interest between an insurer and policyholder arise, such that a question as to the loyalty of the insurer’s counsel to that policyholder is raised, the policyholder is entitled to select its counsel, whose reasonable fee is to be paid by the insurer.” St. Peter’s Church v. American Nat. Fire Ins. Co., No. 00-2806, 2002 WL 59333 at *10 (E.D. Pa. Jan 14, 2002).

A classic example of a conflict necessitating the retention of independent counsel may arise where the insurer reserves the right to deny coverage for certain of the underlying claims, but not others. In that situation, an insurer “would be tempted to construct a defense which would place any damage award outside policy coverage.” Public Serv. Mut. Ins. Co. v. Goldfarb, 442 N.Y.S.2d 422, 427 (N.Y. 1981).

Another prime example of a conflict sufficient to cause an insurer to relinquish the control over the defense is where the insurer lacks the economic motive for mounting a vigorous defense. This situation may arise where the underlying claimant prays for damages that are well in excess of the insurer’s policy limits. See, e.g., Emons Indus., Inc. v. Liberty Mut. Ins. Co., 749 F. Supp. 1289, 1297 (S.D.N.Y. 1990).

IV. Conclusion

The tripartite relationship between the insurer, policyholder and defense counsel provides fertile ground for confusion and abuse. Even when an insurer defends a matter without reservation, the policyholder remains the client and can properly object to any limitations placed on the defense by the insurer. If defense counsel reasonably believes that an insurer-imposed limitation will materially impair the defense, defense counsel must withdraw from representing both the insurer and the policyholder.

When a conflict of interest between the insurer and policyholder arises, the insurer must relinquish control over the defense and the policyholder is entitled to select defense counsel. Such a conflict may arise where an insurer reserves the right to deny coverage for only certain of the underlying claims, or where the insurer does not have an economic incentive to defend vigorously, or where the insurer could construct a defense placing any damage award outside of coverage.

Questions? Contact Lee Epstein at Weisbrod Matteis & Copley PLLC.

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