1. What You Don’t Know Can Hurt You: Identifying The Minefields In Professional Liability Claims
Presented by:
Jamie R. Carsey Sarah J. Couillard Marilyn B. Fagelson
Thompson Coe Markel – Claims Murtha Cullina
Casey Marcin Elizabeth Simon
Cooksey Marcin Akin Gump

2. Introduction To The Tripartite Relationship

3. Common Issues Claims made coverage for Wrongful Acts
Eroding Limits
The Right To Settle
Handling Confidential Information
Common Issues

4. The duty to settle – policy provision
A Professional Liability policy will typically give the insured the right to consent to the settlement.
Consent cannot be unreasonably withheld.
“Insurer will not settle or compromise any claim without the consent of the insured. If, however, the insured refuses to consent to a settlement or compromise recommended by insurer and elects to contest such claim or continue legal proceedings in connection with such claim, then insurer’s liability for the claim shall not exceed the amount for which the claim could have been so settled, plus claims expenses incurred up to the date of such refusal.”
The duty to settle – policy provision

5. Control Over Consent to Settle
Two Lines of Case Law:
Cases examining an insurers settlement duties where insured wants to settle over the insurers’ objections; and
Cases examining an insurers settlement duties when insurer wishes to settle and insured objects.
Control Over Consent to Settle

6. When Insurer Resists Settlement Sought by Insured
Many reasons Insured may want settlement over Insurers’ objections:
Potential verdict in excess of policy limits;
Yet Insurer believes settlement demand is excessive.
Fiduciary Obligations:
Duty to consider settlement arises on basis of fiduciary obligation to insured.
Good Faith Duty Owed:
Where Insurer has control, must use good faith;
Must use reasonable care and diligence in determining whether to settle. (Ordinary Care and Prudence);
Must consult its insured and evaluated circumstances of claim.
When Insurer Resists Settlement Sought by Insured

7. Factors Courts Have Identified
Factors Reviewed re Insurer’s reasonableness in deciding to settle a claim:
Strength of the case against insured;
Defense lawyers’ evaluation of defenses and liability;
Amount of financial risk to the insurer and the insured if settlement not reached;
Split as to whether to consider potential of punitive damages;
Coverage defenses – in some states
*Examined on basis of information available to insurer at time of considering settlement.
Factors Courts Have Identified

8. When Insured Resists Settlement
Shuster v. South Broward Hospital District Physicians Professional Liability Insurance Trust:
Doctor didn’t want settlement;
Insurer settled;
Court looked at meaning of “expedient” [useful-desired result]
Insurer had right to control settlement and was obvious in the provisions
Broad Discretion in settling claims against its insurer within policy limits.
Shuster v. South Broward Hospital District Physicians Professional Liability Insurance Trust, 591 So.2d 174 (Fla. 1992).
When Insured Resists Settlement

9. Consent Clauses Why insured may not want to settle: Harm to reputation
Settlement may encourage additional claims;
Eroding limits and multiple claimants or multiple insureds
Competition in the market place lead to the “Consent to Settle Clause;”
“Insurance company may not settle a claim of malpractice without the written consent of the accused professional.”
Consent Clauses

10. Hammer Clause Hammer Clause formed to combat obstinate professionals.
Allows insurance company, in certain circumstances, to either override refusal to give consent or make the professional financially responsible for amounts above potential settlement.
Many insureds are warned against procuring insurance policies with Hammer Clauses.
Hammer Clause

11. Sample Hammer Clause One such clause provides:
If, however, the named insured shall refuse to consent to any settlement recommended by the Company, and shall continue litigation at the trial level or at the appellate level in connection with such claim, then the Company’s liability for that claim shall not exceed the amount for which the claim would have been settled plus the cost and expenses incurred with the Company’s consent up to the date of such refusal to settle.
Sample Hammer Clause

12. A Unique Scenario Atticus Finch assists with creating a will.
After his client dies several years later, Finch realizes he made a mistake writing the will.
Finch admits his mistake to the beneficiaries in a letter but does not put his carrier on notice at the time.
The beneficiaries sue Finch.
Finch puts carrier on notice when suit is filed.
Harpers Insurance Company denies coverage on the basis the that the lawyer admitted to the wrongdoing.
A Unique Scenario

13. Finch’s Arguments For Coverage
The letter admitted a mistake, not liability.
Finch had a duty to disclose his error to the beneficiaries.
Model Rule 1.4
No policy provision can trump ethical obligations.
Harpers Insurance is not prejudiced.

14. Harpers’ Arguments For Denial
The conduct in disclosing the error to the beneficiaries was breach of the duty under the policy to not admit liability In many E&O policies, clauses such as a voluntary payments clause or a duty to cooperate clause prohibit the insured from admitting to liability without the express consent of the Insurer. In writing to the beneficiaries, Finch prejudiced the insurance company and interfered in its right to control the defense.
Finch’s disclosures went beyond what was necessary to
tell the beneficiaries about the error.
Late Notice because Finch did not notify the carrier until
suit was filed, which was a year after the letter was sent.

15. Illinois State Bar Assoc. Mut’l Ins. Co. v. Greenfield and Assoc
Illinois State Bar Assoc. Mut’l Ins. Co. v. Greenfield and Assoc., 980 N.E.2d 1120 (Ill.App. 2012)
Court found:
Letter did not rise to the letter of an admission.
Even if there was a breach of a policy condition, no prejudice.
Lawyers are obligated to be honest and forthcoming with errors.

16. Should Finch Have Handled This Differently? A Look at the Model Rules

17. ABA Model Rule 1.4 governs the issue of attorney-client communications. The Rule states that: (a) A lawyer shall: (1) promptly inform the client of any decision or circumstance with respect to which the client's informed consent, as defined in Rule 1.0(e), is required by these Rules; (2) reasonably consult with the client about the means by which the client's objectives are to be accomplished; (3) keep the client reasonably informed about the status of the matter; (4) promptly comply with reasonable requests for information; …. (b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.
Model Rules

18. ABA Model Rule 8. 4 governs the issue of misconduct
ABA Model Rule 8.4 governs the issue of misconduct. The Rule states, in relevant part, that: It is professional misconduct for a lawyer to: (a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another; … (c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation; (d) engage in conduct that is prejudicial to the administration of justice; ….
Model Rules

19. Amal Clooney is the defense counsel retained by Professionals R Us Insurance Company to represent its insureds, Law LCC and its individual members, against a claim of legal malpractice.
In interviewing a secretary, Clooney learns that Law LLC may have had enough information to discover the error before it purchased its malpractice policy.
This potential claim was not disclosed on the policy application.
A More Common Scenario

20. Insurer’s Perspective
Confirm coverage by seeking confirmation of the date the claim was made during the initial discussion; fact scenario; request copies of all written communications.
Review policy application and if the question was asked…..and answered.
If there is doubt, consider issuing a Reservation of Rights; retain Attorney Clooney unless issuing the R of R allows the Insured to select counsel.
If the dates and sequence of events don’t add up, consider retaining coverage counsel; Examination Under Oath?
Consider the overall claim vs. a scorched Earth coverage fight.
Insurer’s Perspective

21. Insured’s Perspective
You are MY lawyer!
You do not have my consent to disclose!
If you reveal the information, you endanger the Firm’s coverage!
Duty of Confidentiality
Model Rule 1.6: “A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent”
Insured’s Perspective

22. Model Rule 1.7: A concurrent conflict of interest exists if:
(1) the representation of one client will be directly adverse to another client; or
(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client …
Model Rule 1.9: A conflict must end the representation
a lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing
Conflict of Interest

23. Defense Counsel’s Perspective
Consider the Tripartite Relationship
I have two clients: Insured and Insurer.
Possibility of a conflict of interest must be constantly assessed.
“Four-corners Rule”
Or Eight Corners Rule.
Duty to defend is determined by four corners of the complaint.
Not without exception.
Defense Counsel’s Perspective

24. Know your jurisdiction
Know your jurisdiction! States vary widely regarding their rules about the right to independent counsel
I’m in Texas;
Look to Texas test:
Under Texas law, the test to apply in determining whether a conflict of interest exists, permitting the selection of independent counsel by the insured is whether the facts to be adjudicated in the underlying lawsuit are the same facts upon which coverage depends. Northern County Mut. Ins. Co. v. Davalos, 140 S.W.3d 685 at 689 (Tex. 2004); Graper v. Mid-Continent Cas. Co., 756 F.3d 388 (5th Cir. 2014).
Know your jurisdiction

25. Defense Counsel’s Approach
Texas Disciplinary Rules of Professional Conduct: Allows a lawyer to represent more than one client in a matter if not precluded by conflicts between them.
Will dual representation materially affect representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any?
Defense Counsel’s Approach

26. Tilley Case (Texas case re duty): “If a conflict arises between the interests of the insurer and the insured, the attorney owes a duty to the insured to immediately advise him of the conflict.”
Ethics Opinion 533 supports the Tilley duties flowing from the defense counsel directly to an insured/client.
Safest course of action is to notify insured of potential conflict and withdraw.
Employers Casualty Co. v Tilley, 496 SW2d 552 (Tex. 1973)

27. QUESTIONS?