1. 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

2. 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.

3. Introduction

4. 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

5. 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

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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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”

13. 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, (Ill. App. Ct. 2016

14. 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, (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)

15. 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 (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)

16. 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)

17. FLORIDA
Florida Claims Administration Statute Section … (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.

18. 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

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

20. 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

21. 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

22. 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

23. 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

24. Questions? Dominica C. Anderson Christine A. Gudaitis Duane Morris LLP
Lindsay Lankford Rollins
Hancock, Daniel, Johnson & Nagle, P.C.
Christine A. Gudaitis
Ver Ploeg & Lumpkin, P.A.
Jennifer S. Senior
Jenner & Block LLP