Tips on Navigating the Independent Counsel Bad Faith Minefield

The decision to hire independent counsel on a claim can be wrought with pitfalls, according to Kevin Quinley, founder and principal of Quinley Risk Associates.

During an interview with Claims Journal for his Claims Insights podcast series, he offered six tips for managing independent counsel. In addition, he offered tips on addressing issues involving monitoring counsel, transferring cases from panel to independent counsel and the impact of coverage issues on defense.

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Hiring independent counsel on a claim can bring up conflicts of interest allegations, said Quinley, who noted that it can affect the tripartite relationship.

“Failure on the adjuster’s part to recognize and navigate around this touchy conflict of interest issue, can expose those adjusters, insurance companies or TPAs, if their handing the claim, to bad faith claims,” said Quinley.

Six tips suggested by Quinley to manage independent counsel include:

  1. Know the local case law on independent counsel issue. An insured may be entitled to separate defense counsel in some states when a reservation of rights is issued.
    2) Don’t automatically equate reserving rights with a conflict of interest.
    3) Set reasonable expectations on independent counsel to follow reasonable litigation guidelines. For example, requiring status reports, litigation budgets and timely case evaluation.
    4) Be strategic before opening the independent counsel door. An adjuster may have paper grounds for ROR, like late notice, but is unlikely to succeed on this issue.
    5) Be cautious in dealing with monitoring counsel or national coordinating counsel.
    6) Consider legitimate business reasons for independent counsel, even in non-conflict settings.

When an adjuster issues a reservation of rights, Quinley doesn’t think that automatically creates a conflict of interest.

“The mere potential for excess liability or potential for punitives may not, I think, by itself create conflicted interests between insureds and insurers,” said Quinley.

There is usually a common interest to defeat a plaintiff’s claim and limit damages, said Quinley.

Having independent counsel assigned to a claim doesn’t necessarily mean the adjuster relinquishes control of the file. An adjuster should hold independent counsel to the same standards as panel counsel.

Sometimes the risk of losing control of the defense and legal spend outweighs the risk of waiving coverage, Quinley added.

Monitoring or national coordinating counsel can be an issue, as well.

According to Quinley, sometimes commercial accounts want separate firms to oversee panel counsel work. There is nothing wrong with the request, unless they expect the insurer to foot the bill, he said.

“I recognize that monitoring counsel may comfort a policyholder, but nothing, typically, in the insurance policy obligates carriers to pay for a second pair of eyes,” Quinley said.

Though the request could be warranted in manufacturer product liability cases in U.S.

There are situations where an adjuster may agree to independent counsel even with no conflict of interest between the policyholder and insurer, Quinley said. Business or customer service relations or a policy endorsement that provides the insured the right to choose counsel are two possibilities where independent counsel might be assigned.

“The takeaway is consider, at times, big picture reasons that merit at entertaining an insured’s desire for independent counsel,” said Quinley. “Sometimes, not always, sometimes the big picture business factors and customer relations favor assigning independent counsel.”