Automatic Right to Independent Counsel? Maybe Not So Automatic Anymore! Dominica C. Anderson, Duane Morris LLP Christine A. Gudaitis, Ver Ploeg & Lumpkin, P.A. Lindsay Lankford Rollins, Hancock, Daniel, Johnson & Nagle, P.C. Jennifer S. Senior, Jenner & Block LLP October 20, 2016

Automatic Right to Independent Counsel? Maybe Not So Automatic Anymore! Moderator: Dominica Anderson, Duane Morris LLP Panel: Christine A. Gudaitis, Ver Ploeg & Lumpkin, P.A. Lindsay Lankford Rollins, Hancock, Daniel, Johnson & Nagle, P.C. Jennifer S. Senior, Jenner & Block LLP Women In Insurance Networking CLE Workshop October 20, 2016 All Rights Reserved.

Introduction

Law Breaks Down Into These Categories: No Right to Independent Counsel Ever Automatic Right if ROR Issued Sometimes Right – Conflict Analysis Needed Unsettled or Open Question

Trends in the Right to Independent Counsel Per Se Disqualification No Right to Ind. Counsel Per Se Disqualification Trends in the Right to Independent Counsel Conflict Analysis Undecided

ALASKA Right to Independent Counsel Codified Broad Right Reservation = Right Exception: Punitive and Excess Limits Other Issues

CALIFORNIA Right to Independent Counsel Codified (Civ. Code § 2860) Conflict Analysis Needed – Independent Counsel Not Automatic From ROR Federal v. MBL (Aug. 2013) – General ROR doesn’t trigger right; DOL doesn’t trigger right; only issues defense could control which could impact coverage trigger right Other Issues

NEVADA State Farm Mutual Auto v. Hansen (Sept. 2015) – adopted California approach from MBL 6-0 decision – no automatic right, conflict analysis needed Only Right if There is an Actual Conflict Not All RORs Trigger Right

OREGON No Right, except in environmental cases and there codified: OR Environmental Cleanup Asst. Act (1999, amended 2013) Automatic Right with ROR if Environmental Case

ALABAMA Generally No Right to Independent Counsel Defense Under Reservation of Rights Imposes “Enhanced Obligation of Good Faith” Insurer must (1) Thoroughly investigate; (2) Appoint competent counsel to represent only insured; (3) Keep insured informed; and (4) Act in insured’s interest Breach of Enhanced Obligation of Good Faith Triggers Right to Independent Counsel at Insurer’s Expense

KENTUCKY Per Se Disqualification – Insured Is Not Required to Accept Defense Under ROR Unclear Whether Independent Counsel May Be Obtained At Insured’s or Insurer’s Expense Auto-Owners, Insurance Co. v. Egnew (E.D. Ky. 2016): Federal District Court declined jurisdiction on grounds that insurer’s request for reimbursement for cost of independent counsel presented novel issue of state law

TEXAS Conflict Analysis – ROR Creates Potential Conflict, But Only Actual Conflict Triggers Right to Independent Counsel At Insurer’s Expense Actual Conflict Arises When Facts to Be Adjudicated In Liability Suit Are Same Facts Upon Which Coverage Depends “Same Facts” May Be Construed Narrowly Graper v. Mid-Continent Casualty Co. (5th Cir. 2014): whether insured’s conduct was “willful” did not involve same facts as whether insured’s conduct involved “knowing violation of rights another”

ILLINOIS Actual Conflict of Interest Right to independent counsel where proof of certain facts would transfer liability from the insurer to the insured, or where there is a conflict between two insureds Effect on settlement if policyholder controls defense Insurer waives right to approve settlements Insurer can still contest reasonableness and coverage First Mercury Ins. Co. v. Nationwide Sec. Servs., Inc., 54 N.E.3d 323, 330-31 (Ill. App. Ct. 2016

PENNSYLVANIA Actual Conflict of Interest – Denial of Coverage ROR does not automatically entitle policyholder to control defense, but if insurer believes coverage does not exist, insurer should deny coverage and allow insured to control defense Babcock & Wilcox Co. v. Am. Nuclear Insurers, 131 A.3d 445, 456-57 (Pa. 2015) Earlier 1966 case held insurer should advise policyholder to secure counsel if insurer reserved right to deny claim Prejudice may be presumed where insurer fails to clearly communicate ROR denying coverage on timely basis Erie Ins. Exch. v. Lobenthal, 114 A.3d 832, 839 (Pa. Super. Ct. 2015)

MISSOURI Per Se Disqualification Policyholder may select counsel and control defense if insurer’s defense would be pursuant to ROR Recent case addresses requirements for insurer’s ROR Smith v. Maryland Cas. Co., No. SD 3341, 2015 WL 302141 (Mo. Ct. App. Jan. 23, 2015) (policyholder had notice of conflict of interest in second lawsuit where insurer defended pursuant to ROR even though ROR was issued only with respect to first lawsuit)

WISCONSIN State appellate decisions support per se disqualification Unclear whether policyholder or insurer has right to select counsel Recent federal cases note split of authority and assume, without deciding, that insurer has right to select counsel when it defends under ROR so long as counsel is truly independent Haley v. Kolbe & Kolbe Millwork Co., Inc., 97 F. Supp. 3d 1047, 1053 (W.D. Wis. Apr. 1, 2015)

FLORIDA Florida Claims Administration Statute Section 627.426 … (2) A liability insurer shall not be permitted to deny coverage based on a particular coverage defense unless: (a) Within 30 days after the liability insurer knew or should have known of the coverage defense, written notice of reservation of rights to assert a coverage defense is given to the named insured by registered or certified mail sent to the last known address of the insured or by hand delivery; and (b) Within 60 days of compliance with paragraph (a) or receipt of a summons and complaint naming the insured as a defendant, whichever is later, but in no case later than 30 days before trial, the insurer: 1. Gives written notice to the named insured by registered or certified mail of its refusal to defend the insured; 2. Obtains from the insured a nonwaiver agreement following full disclosure of the specific facts and policy provisions upon which the coverage defense is asserted and the duties, obligations, and liabilities of the insurer during and following the pendency of the subject litigation; or 3. Retains independent counsel which is mutually agreeable to the parties. Reasonable fees for the counsel may be agreed upon between the parties or, if no agreement is reached, shall be set by the court.

FLORIDA “Coverage defense” = a defense to coverage that otherwise exists Conflict between insured and additional insured: carrier must provide independent counsel for each Insured must affirmatively REJECT offer of defense under ROR to avoid jeopardizing coverage

MASSACHUSETTS ROR: Policyholders are entitled to independent counsel; carrier must pay reasonable costs Policyholder may reject defense under ROR

MISSISSIPPI Conflict: policyholders have a right to independent counsel Examples: where policy covers only a portion of claim or only one theory of liability but not another, where carrier may be privy to confidential information it might later use in coverage litigation, where insurer knows it can later assert non-coverage

NEW JERSEY Actual conflict: independent counsel required Carrier insuring codefendants with conflicting interests must retain separate and independent counsel for each or permit each insured to do so at carrier’s expense Where pleading alleges covered and non-covered claims, and without expressly-agreed ROR, carrier may be obligated to finance defense subject to reimbursement

NEW YORK Conflict: carrier must inform insured of right to select independent counsel at carrier’s expense Example: one theory of liability would be covered but another would not If conflict arises, appointed counsel must withdraw – attorney represents policyholder, not insurer

VERMONT Right to independent counsel has not been directly addressed by Vermont courts Cases suggest independent counsel required Vt. Rules of Prof’l Conduct R 1.7cmt (in case of conflict, “special counsel’s prof’l independence” must be assured) Carrier that controls defense with knowledge of facts that may exclude coverage waives all defenses to coverage unless it obtains nonwaiver agreement

Questions? Dominica C. Anderson Christine A. Gudaitis Duane Morris LLP Email: dcanderson@duanemorris.com Lindsay Lankford Rollins Hancock, Daniel, Johnson & Nagle, P.C. Email: lrollins@hdjn.com Christine A. Gudaitis Ver Ploeg & Lumpkin, P.A. Email: cgudaitis@vpl-law.com Jennifer S. Senior Jenner & Block LLP Email: JSenior@jenner.com