Insurance Company Designated Defense Counsel

City Solicitors and Town Counsel Association, Newsletter, Spring, 2002

By Regina M. Ryan of Louison, Costello, Condon & Pfaff, LLP.

Town counsel and city solicitors whose municipalities have insurance coverage are making inquiry of the issue as to when an insurance company can designate defense counsel for the insured municipality. This article addresses the occasions when independent defense counsel may be chosen at the election of the insured municipality including reservation of rights, conflicts of interest and pursuant to the specific language of the insurance policy.

Reservation of Rights

It is settled law in Massachusetts that if the insurance company defends under a reservation of rights, the insured may 1.) insist on selecting counsel and controlling the defense or 2.) reserve its coverage defenses and relinquish control of the defense to the insured. Employers’ Liability Assurance Corp. v. Vella, 366 Mass. 651, 657, 321 N.E. 2d 910, 914 (1975); Three Sons, Inc. v. Phoenix Ins. Co., 357 Mass. 271 (1970). The rationale for this rule is that an insured should not be left at the end of the case facing a judgment with no coverage, having had no opportunity to settle or otherwise affect the outcome of a case. Three Sons, Inc., supra at 276. Moreover, in many such cases, the manner in which the case is defended can affect the question of coverage thereby creating a conflict of interest between the insured and the insurer.

If the insurer elects to relinquish control of the defense, it must pay a reasonable fee to the independent counsel retained by the insured. Magoun v. Liberty Mutual Ins. Co., 346 Mass. 677 (1964). Bear in mind, if the insured does not object to the defense counsel assigned by the insurer and acquiesces in being represented by the attorney selected by the insurer, it is not entitled to independent counsel.Employers’ Liability Assurance Corp. v. Vella, 366 Mass. 651, 657, 321 N.E. 2d 910, 914 (1975). Therefore, if the insured objects to the designated defense firm, counsel for the municipality should advise the insurance adjuster and request independent counsel of its own choice at the time defense counsel is assigned by the insurer.

Conflicts of Interest

Municipal attorneys should be aware that if a conflict of interest arises between a public employee and a public entity/ municipality it is strongly recommended, and in fact some courts require, that separate independent counsel be assigned to represent each of the parties. Dunton v. County of Suffolk 729 F.2d 903 (1984). Again, the insurance adjuster must promptly be made aware of the conflict when the insured municipality learns of it.

Specific Policy Language

Municipal counsel are advised to review closely the particular language of the insurance policy, as the insured may, in fact, be able to choose its own defense counsel regardless of whether or not there is a conflict of interest or a reservation of rights. The defense counsel retained by the insured, however, may be required to agree to reasonable billing rates and other reporting requirements established by the company. Accordingly, counsel should discuss these issues with the insurance adjuster upon receipt or notice of the claim.

If you have any questions regarding these issues, please feel free to contact Attorneys Douglas I. Louison or Regina M. Ryan of Louison, Costello, Condon & Pfaff, LLP at (617) 439-0305.

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