Y o u r s o u r c e f o r p r o f e s s i o n a l l i a b i l i t y e d u c a t i o n a n d n e t w o r k i n g .

Reservation of Rights and the Insurer

April 21, 2015

Sponsored by PLUS Diamond Sponsors:

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

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: www.plusweb.org

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Meet The Presenters

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Atea Martin, Esq.DirectorCNA Specialty

Moiré L. Moron, Esq.Senior Technical Claims SpecialistQBE North America

Moderator – William Despo, Esq.AttorneyLeClairRyan

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

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.

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

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

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Sampling of a JurisdictionalSurvey of Independent Counsel

• 31 States - Insured has Right to Independent counsel

• 7 states – No Right to Independent Counsel

• 13 – States - Undecided

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

California

• Cumis Counsel – San Diego Navy Federal Credit Union vs. Cumis Insurance

Society, Inc. (1985)

• California Statue Civil Code Sec. 2860

– 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)

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

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.

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

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

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

New York

• Selection of Independent Counsel

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Colorado

• Reservation of Rights doesn’t trigger Insured’s Rights to Independent Counsel

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

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

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

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?

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Questions

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Panelist Contact Information

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Atea Martin, Esq.CNA SpecialtyAtea.Martin@cna.com

Moiré L. Moron, Esq.QBE North AmericaMoire.Moron@us.qbe.com

Moderator – William Despo, Esq.LeClairRyanWilliam.Despo@leclairryan.com

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

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Thank You Diamond Sponsors

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Thank you for your time.

A replay of this webinar will be available to PLUS Members at: www.plusweb.org