A New York and New Jersey Lawyer Who Represents Policyholders and Beneficiaries in Life Insurance Denial Cases

Complex issues can arise when a person is sued and relies upon his insurance company to provide a defense. Who has the right to choose the attorney? Whose interests the attorney must protect, the client or the insurance company who is paying the bill?

I recently read a New York Law Journal article that addressed these topics and that spurred me to write this post. From an intellectual standpoint, it is an interesting area of the law because the tension between the competing interests not infrequently arises, and often there is confusion and uncertainty as to how lawyers should deal with it. Simply put, it’s not a subject that can be taught out of a textbook, and it is certainly one that is not addressed in law school. Practically, it can cause real headaches for insurance policyholders who want to be protected in the courtroom, but are not sure if that is the case.

Ordinarily, it is the insurance company that selects the attorney who represents the defendant-policyholder. Insurance companies have stables of attorneys they hire, and these attorneys, at least in my experience, generally consider the insurer to be their client. They report to the insurers, the insurers give them instruction, and of course, they want the insurer to hire them to defend the next case that comes down the pike. Further, many insurance defense counsel are employed “in house” by the insurer.

Most of the time, there is no conflict between the insurer and insured. For instance, say an automobile driver has a $500k policy and is involved in an accident where the other driver — the plaintiff — suffers a torn knee ligament for which there is a full recovery. There is no real concern that the insured will be personally liable for the claim because it is highly unlikely that the plaintiff will recover more than the policy limits. The insurer takes the reins of the defense and, aside from the inconvenience of having to testify, it has no real impact on the insured whether the case settles or not. At the end of the day, the insurer may have to make payment, but the insured will not have to personally satisfy a judgment.

But other situations can arise that are not so neat and clean. This can occur when the potential judgment may far exceed the policy limits, leaving the insured personally exposed, or when the insurer is defending a claim but has reserved its right to disclaim coverage with respect to payment of the claim. In both cases, there is the possibility that the attorney, being paid by the insurer, may have divided loyalties between his client, the insured, and his paymaster, the insurer.

The law in New York is that counsel owe their allegiance to the insured. One who pays an attorney to represent a different client is not permitted to direct, control or influence the litigation. Your sister hires an attorney to defend you in a DWI case – well, your sister can’t tell the attorney what to do or how to try the case.

To further flesh this point out by example, and as the article points out, if an insurer only agrees to defend against certain causes of action, claiming that others are outside the scope of insurance coverage, a conflict will arise when it hires an attorney to represent the insured. The attorney will be paid to only defend against some of the causes of action, not all. As a result, the insured would have the right to select independent counsel of his own choosing to be paid by the insurance company.

There can also be instances where the divergence between the interests of the insured and insurer leads to strategic differences in a case warranting the right to independent counsel selected by the insured. This can occur, for instance, when there is the threat of punitive damages that are not covered by the insurance policy. The counsel hired by the insurer may not have the same incentive to defend against claims for punitive damages as she would for other claims asserted, and this could impact on case strategy. Therefore, the insured may be entitled to independent counsel of his choosing, paid for by the insurer, who only has the insured’s interests in mind.

In short, the insured is entitled to counsel who will defend all of his interests, rather than just defend those within “the confines of a liability insurance policy,” as put by the article. When a conflict arises on this point, the insured should be entitled to select an independent counsel. In the real world, it can get a little messy, because many insured’s are unaware of their rights, and many defense counsel are beholden to insurance companies. But, again, the guiding principle is that counsel should always be protecting the interests of the insured, first and foremost.


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