In this episode of “In the Know,” Alexander B. Corson, an associate in Lowenstein Sandler’s Insurance Recovery Group, breaks down the real value of an insurer’s defense obligation—and the common tactics insurers use to limit it. Alex discusses when policyholders may reject insurer-selected panel counsel, why litigation guidelines often function as unenforceable, after-the-fact restrictions, and how to respond when insurers impose unilateral cuts to defense invoices.
Speaker:
Alexander B. Corson, Associate, Insurance Recovery Group
READ THE TRANSCRIPT
Alexander B. Corson: Hi, I'm Alex Corson, associate in Lowenstein Sandler’s Insurance Recovery Group. Welcome to “In the Know.”
Today we're going to discuss the value of an insurer's defense obligation and examine three common tactics that insurers employ to minimize their duty to pay defense costs.
Most liability insurance policies today oblige the insurer either to hire lawyers to defend against the claim or advance legal costs on a current basis. And while most policyholders understand the value of having their legal costs covered by insurance, businesses facing a claim may not be aware of the ways that insurers attempt to contain costs, sometimes to the detriment of their insureds.
First, insurance companies often retain panel counsel. These are law firms that have agreed to work on matters for the insurer at discounted rates. And while cost effective counsel may be a valuable way to preserve insurance in a run-of-the-mill case, insurance companies sometimes take a “one size fits all” approach to the retention of counsel, where the stakes are high or the subject matter is complex. Policyholders may be better off with sophisticated counsel that can more effectively defend the case.
In these cases, policyholders should not assume that they must accept the insurer's choice of counsel. A conflict of interest may entitle the policyholder to its choice of counsel. And many insurers will engage in a commercial discussion with the insured about the law firm that's the best fit for the job.
Second, insurance companies often request or demand that counsel adhere to their litigation guidelines. These are sets of rules that purport to restrict the activities that may be taken in defense of the claim, and, again, are intended to conserve costs.
Policyholders should not agree to the imposition of guidelines on defense counsel, which are almost never attached to or incorporated into the policy and amount to an unenforceable ex-post facto addendum.
In addition, many states have held that an insurer's litigation guidelines are unenforceable because they infringe upon defense counsel's professional responsibility to use independent judgment in defending their clients’ interests.
Third, insurance companies often seek to deduct amounts from defense invoices that they deem unreasonable. While most insurance policies limit coverage to reasonable expenses, insurers often impose unilateral cuts to defense counsel's invoices, even for legitimate expenses.
Policyholders placed in the unenviable position of having to choose between absorbing legitimate defense costs and disputing the bills with their defense counsel, should instead consider pushing back on aggressive cuts to legal bills by their insurer.
We hope this episode is helpful to policyholders looking to realize the value of their insurer's defense obligation. Thank you for joining us, and we look forward to seeing you next time on “In the Know.”
