Overseeing Insurance Defense: When Does It Make Sense?
Examining when VT companies might want to invest in independent counsel
Many claims against companies involved in the vertical-transportation (VT) industry are covered by insurance policies and, typically, any such claims are forwarded to the appropriate insurer for handling. Whether a claim falls under general liability coverage, directors/officers liability coverage, errors and omissions coverage, a workers compensation policy, or some other policy or coverage, an entity is usually “covered” both for costs of defense and for any payments that may eventually be made to a claimant. Of course, all claims are subject to whatever exclusions, limitations or special terms may be included in the insurance contract.
Most companies faced with a claim notify their insurer of the claim and then, for better or worse, disregard the matter until informed that it was either resolved or additional action is required. While there are benefits to deferring entirely to your insurer to handle claims or lawsuits against your company – minimal additional time and costs to you, for starters – that may not always be the best approach from a business-management viewpoint. This article focuses on the legal defense of a claim after an insurer has agreed to provide a defense to your company and whether, in the right circumstances, it may be prudent to retain independent counsel to keep an eye on claims or litigation to protect your business objectives and, ultimately, give you peace of mind.
The first issue to consider after tendering a claim to your insurer is: Who will defend you? When it comes to the legal defense of a claim in the elevator industry, and in most other industries, typically, an insurance company has a prearranged relationship with a law firm or group of law firms from which the insurer assigns the defense. Insurance defense firms are assigned after a decision is made that the claim is covered or potentially covered. These firms often bid for the right to receive certain types of cases from an insurance company, be it general liability, employer liability, workers compensation or another category of coverage. The low bidders are often measured by proposed hourly rates (or flat fees) per matter. They then become part of a group of law firms that may be called upon to handle a myriad of cases on behalf of the insurer’s insureds, if and whenever the insurer assigns a matter to that firm. Insurance defense firms often specialize in just that: insurance defense. They typically do not specialize and have few, if any, lawyers with experience in any facet of the VT industry. Even if an insurance defense lawyer specializes in products- liability claims, for example, they probably have never defended against an allegedly “falling” elevator case, a door strike claim or a combplate entrapment matter. That is not to say that “low- bidder” law firms equal low-quality representation. However, lack of specialization and familiarity with the VT industry may have a cost to bear, such as actions taken in litigation that could indirectly but negatively impact your business after the litigation is over.
The next issue to consider is: To whom does the insurance defense lawyer answer? The short answer is that an insurance defense lawyer answers to you, but not on everything. Insurance defense firms are often structured like other large law firms, except that insurance defense lawyers answer to, and have ethical responsibilities to, the insured, as well as the insurer, since it is the insurer who pays the lawyer’s fees; costs of litigation; and, ultimately, any settlement or perhaps verdict (generally up to policy limits). The American Bar Association and state bar rules generally outline an insurance defense lawyer’s ethical obligations to both the insurer and insured, but provide clear distinctions between the two. Some states, like Florida, require an insurance defense lawyer to provide a written statement of the insured’s rights at the beginning of the relationship so the insured clearly knows who the insurance defense lawyer must answer to on a particular issue.
The most important issue to consider is: What limitations could there be on insurance defense counsel? The points above make it clear that insurance defense counsel is neither your personal counsel, nor your personal choice of counsel. Some limitations with insurance defense counsel include:
- Generally, you do not get to pick the firm or the attorney, unless your insurance policy specifically permits this.
- You do not get to reject the firm or attorneys selected by the insurance company, even if they have no prior experience in the VT industry or with the particular claim you are facing.
- Generally, you do not get to control the defense of the lawsuit.
- You normally do not get to see any billing statements to know what work is, or is not, being done on your behalf.
- They usually only defend the claim against you or your company. They normally cannot assert or bring claims against anyone else on your behalf.
- Insurance defense lawyers are typically not specialists in the VT industry and probably do not have a depth of connections or resources in the industry.
- Attorney experience, seniority in the firm and file staffing are not decided by you.
- You may not have as much input into how the case should be handled, including actions believed to be necessary or beneficial to the handling of a claim.
- Publicity or business impacts of ongoing litigation are not a primary focus of the insurance defense lawyer.
- Decisions of whether to settle, when to settle and how much to settle for are sometimes not yours to make.
Some or all of these limitations may not be a negative, and, frankly, they may be immaterial, considering the type of claim involved. Small property damage claims or minor personal-injury claims may fall into this category. But, with these significant limitations in mind, retaining separate counsel to oversee a claim may often be a sensible approach and worth the investment. This is not to suggest that you should only retain private counsel to handle a matter that may be covered by insurance. It is always wise to notify an appropriate insurer any time a claim is made against you or your company, regardless of whether you ultimately utilize the insurance coverage. Although you have a right not to notify an insurer of a claim, that may compromise your ability to go back and seek coverage later and may result in other issues.
In addition, you have paid premiums for coverage, and you should get the benefit of that coverage, including having your insurer bear the costs of litigation expenses and fund any settlements, as well as bear certain risks associated with any verdict. Nevertheless, notifying your insurer of a claim does not preclude you from retaining independent counsel to represent your interests both as to coverage and a defense. Everyone has a right to hire separate counsel, even if they are represented by insurance defense counsel, and there may be a number of advantages to having private counsel, such as:
- Having a personal relationship with an attorney involved in the matter can often provide you with better access to their processes and the status of the claim.
- They will advise only you and have strict attorney-client privilege with you.
- Expertise in the VT industry and with your products or services, which can be shared with insurance defense counsel for a more robust defense.
- They can be anywhere, and do not necessarily need to be admitted to practice in the venue where the claim or litigation is pending. Depending on the seriousness of the matter, private counsel can also apply for temporary admission to practice in another state usually without delays or excessive expense.
- They can reduce the risk of singular decision making, or a “one size fits all” handling of your matter. The perspective and legal insight from an attorney who better understands the VT industry, markets, products, services, applicable codes, etc., could provide an immeasurable advantage to your insurance defense counsel and defense.
- They can act as a liaison between you/your company and insurance defense lawyers, which may facilitate better information exchanges and scheduling.
- They may facilitate the retention of industry contacts and VT experts of which insurance defense counsel may be unaware.
- They may increase your protection against business interruption, negative publicity and other business impacts, which insurance defense counsel may not know or consider in their defense of a claim.
- They can evaluate whether the insurer is acting in good faith and in compliance with laws regulating insurers in your state.
- They can assert claims on your behalf against other parties in the case or bring claims on your behalf against non-parties to the case.
- They can defend you if there is a chance that a judgment exceeds the amounts of available insurance.
While there are clearly many advantages to having private counsel involved in a matter even where your insurer is providing a defense for you, there is also the added and potentially significant cost to you, as well as the risk of “too many cooks in the kitchen.” However, considering the limitations on insurance defense counsel and the potential advantages and disadvantages of private counsel, the questions that should be asked whenever a claim is made against you or your company are: “Is it necessary?” and “Is it worth it?”