Personal observations have demonstrated that some insurance companies have some very serious misunderstandings about the attorneys they hire.
I. The company’s defense attorney is not its adjuster.
Let’s say the first notice of a claim was via a lawsuit against an insurance company and that the insurance company immediately hires a defense attorney to respond to the suit — but the insurance company does nothing thereafter to investigate the claim because it thinks that, somehow, its attorney will investigate the claim and then tell it what to do. This type of thinking may ultimately provide a great reason for the lawsuit to be amended to include the company’s bad faith.
- Hiring an attorney to handle the claim does not shield the claim file (based on attorney-client privilege) from discovery.
- The insurance company is, in this case, the attorney’s client, and the attorney does not owe the insurance company’s policyholder the duty of good faith and fair dealing in handling the claim.
- The insurance company owes its policyholder the duty of good faith and fair dealing, and the duty can’t be delegated.
- Every state has rules set up regarding who can be licensed as an adjuster, and, invariably, attorneys are exempt for limited purposes — it is not a blanket exemption for attorneys. For example, in Oklahoma, persons not deemed adjusters or required to obtain license include: “a licensed attorney in Oklahoma who adjusts insurance losses from time to time, incidental to the practice of law, and who does not advertise or represent that he or she is an adjuster” and “a person employed solely for the purpose of furnishing technical assistance to a licensed adjuster, including but not limited to photographers, appraisers, estimators, private detectives, engineers, handwriting experts, and attorneys-at-law.”
See also: A Key Point on Limiting Attorneys’ Fees
II. The defense attorney the insurer hires for the liability lawsuit against its policyholder is not “your” (the company’s) attorney, even though “you” (the company) pay his bill.
The attorney the insurer hires generally has fiduciary duties to the policyholder, not the insurer, even though the insurer is footing the bill.
I have heard managers say, “Well, why did our attorney not tell us that the policyholder was not really covered?” I’d say, “Because he or she is not our attorney. Telling you that his client, our policyholder, was not covered would violate attorney-client privilege.” While the insurer can get raw information from the attorney, do not expect him to point out coverage weaknesses that may allow the insurer to withdraw from paying for the policyholder’s defense costs.
Even if the insurance manager would really like to know this information, don’t expect a competent attorney to set himself up for a legitimate complaint to the bar and to subject himself to sanctions for his ethical violations to his client, your policyholder.
III. The coverage attorney should not be the insurance company’s defense attorney.
Perhaps the coverage opinion given by a defense firm may be based on developing its defense business. Lawyers are human, so, to avoid any appearance of conflict, use different sources for coverage opinions and defense. Getting a coverage opinion from the same group that will be defending the suit based on the denial (which was based on the coverage opinion) is not only a poor claim practice, it is a good way to increase the company’s defense costs. Lawyers who defend insurance lawsuits are no more experts in insurance than lawyers who defend doctors are medical experts. Hire your defense lawyer to perform in what should be his area of expertise: court.
IV. Insurance company corporate counsel is not its defense.
Corporate counsel is generally an employee of the insurance company, and he or she holds the law license; the insurance company does not.
- Insurance companies are not authorized to practice law, not even pro se.
- The corporate counsel is not very likely to be on the “panel counsel” list of the insurer’s E&O carrier.
- The insurance company is not protected by any legal malpractice coverage under the insurance company’s E&O policy.
- Such coverage is likely prohibited by the language in the insurance company’s E&O policy, and it is the E&O carrier that will choose the insurance company’s defense counsel.
- Corporate counsel did not attend law school and obtain a law license so the insurance company may get a cut-rate deal on its legal defense fees.
- Defense fees are a part of defense costs, while salaries are generally not. Corporate counsel is generally paid a salary as an exempt employee and not an hourly defense fee.
- Corporate counsel may be called as a witness or representative for the insurance company.
- Good defense attorneys (trial lawyers) are a specialty, different from corporate counsel. Treating them as the same would be like hiring an ENT physician for a kidney infection — yes, he or she is licensed to practice medicine, but that is not his or her most competent area of practice.
Corporate counsel is not the proper attorney for an insurance company’s proper attorney to respond to a suit against the insurance company.