Conflict of interest: When the insured has the right to select independent counsel

If an insurance carrier agrees to defend a policyholder under a reservation of rights, it may lose control of the defense

When an insurance carrier agrees to defend its policyholder in a lawsuit, the general rule is that the carrier has the right to pick the lawyers and control the defense, so long as it has agreed to defend the suit unconditionally. But when the carrier agrees to defend the lawsuit while simultaneously reserving its right to deny coverage at a later date, this rule changes and the policyholder may have the right to select its own independent counsel. 

Because the insurer and the insured both may have good reasons for wanting to control the defense, this frequently becomes a point of contention. However, policyholders should use caution before rejecting a defense offered under a reservation of rights because the circumstances in which the carrier loses control of the defense vary considerably from state to state.

Contributing Author

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Richard Milone

Richard D. Milone is the Chair of Kelley Drye & Warren LLP’s Insurance Recovery practice, which has attorneys in Washington, D.C., New York and Los...

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Contributing Author

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Cameron Argetsinger

Cameron R. Argetsinger is an associate in the Insurance Recovery practice in the Washington D.C. office of Kelley Drye & Warren LLP.  He can be...

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