Your source for professional liability education and networking. Reservation of Rights and the Insurer April 21, 2015 Sponsored by PLUS Diamond Sponsors:

Professional Liability Underwriting Society The information and opinions expressed by our panelists today are their own, and do not necessarily represent the views of their employers or of PLUS. The contents of these materials may not be relied upon as legal advice. A copy of the presentation slides will be available following this webinar, on the PLUS website at: 2

Professional Liability Underwriting Society Meet The Presenters 3 Atea Martin, Esq. Director CNA Specialty Moiré L. Moron, Esq. Senior Technical Claims Specialist QBE North America Moderator – William Despo, Esq. Attorney LeClairRyan

Professional Liability Underwriting Society Overview California leads the way in favoring Insured’s ability to control litigation when a conflict arises between the insurance company and the insured. – Reservation of Rights by Insurer. A conflict of interest does not affect an insurer’s obligation to pay defense costs and indemnify. – Duty to defend and duty to indemnify separate. – Duty to investigate, settle claims or pay for defense. 4

Professional Liability Underwriting Society Reservation of Rights What is an Insurer’s Reservation of Rights? Why does an Insurer issue a Reservation of Rights? What does an Insurer consider when determining to send a Reservation of Rights Letter? Conflict of Interest – Actual vs. Potential Conflicts Independent Counsel Future Claims Handling Considerations 5

Professional Liability Underwriting Society Sampling of a Jurisdictional Survey of Independent Counsel 31 States - Insured has Right to Independent counsel 7 states – No Right to Independent Counsel 13 – States - Undecided 6

Professional Liability Underwriting Society California Cumis Counsel – San Diego Navy Federal Credit Union vs. Cumis Insurance Society, Inc. (1985) California Statue Civil Code Sec – Reservation of Rights does not automatically trigger the right to independent counsel Burden on Insurer to show a lack of conflict of interest – Conflict of interest needs to be Significant Dynamic Concepts, Inc. vs. Truck Insurance Exchange (1998)

Professional Liability Underwriting Society California Certain situations may not create a conflict of interest – Punitive damages – Claims in excess of policy limit Insurer may require certain minimum qualifications on the selection of independent counsel.

Professional Liability Underwriting Society New York Apparent conflict of interest gives Insured ability to select Independent Counsel No Statute Controls Need to look at Nature of Action Prashken vs. United States Guarantee Co. (1956) – Mere use of a Reservation of Rights does not create a conflict of interest Punitive Damages – Claims in Excess of Policy Limit – Dual Claims of Negligent / Intentional Misconduct

Professional Liability Underwriting Society New York Selection of Independent Counsel 10

Professional Liability Underwriting Society Colorado Reservation of Rights doesn’t trigger Insured’s Rights to Independent Counsel 11

Professional Liability Underwriting Society Washington State Insurer Retains Right to Select Defense Counsel Insured's Enhanced Obligation to Insurer - Tank vs. State Farm (1986) – Company must thoroughly investigate the claim – Must retain competent Defense Counsel – Defense counsel is the insured’s counsel – Insurer refrains from favoring itself over the insured

Professional Liability Underwriting Society Practical Considerations Once Independent Counsel is Required Speak with Insured – Seek consent to use Panel Counsel California law- Insurer pays independent counsel fees Shadow the Defense? Power to settle Expert Witness / Mediators Information from Independent Counsel Affirmative Claims - Who pays?

Professional Liability Underwriting Society Questions 14

Professional Liability Underwriting Society Panelist Contact Information 15 Atea Martin, Esq. CNA Specialty Moiré L. Moron, Esq. QBE North America Moderator – William Despo, Esq. LeClairRyan

Professional Liability Underwriting Society 16 Thank You Diamond Sponsors

Professional Liability Underwriting Society 17 Thank you for your time. A replay of this webinar will be available to PLUS Members at: