A Policyholder’s Right to Independent Counsel

What is a policyholder to do when their insurance company assumes its obligations to provide coverage, but only after issuing a reservation of rights? Can a policyholder trust that the insurance company–appointed defense counsel is working in their best interest, as opposed to in the interests of the insurance company? When is a policyholder entitled to “independent counsel” – counsel selected by the policyholder but paid for by the insurance company? The short answer: whenever in the course of a defense the policyholder’s interests potentially diverge from the insurance company’s. Below, we examine when and how such conflicts of interest occur.

The Tripartite Relationship
The tripartite relationship is the relationship between the policyholder, the insurance company and the defense counsel hired by the insurance company to defend the policyholder. The tripartite relationship stems from an insurance company’s broad duty to defend, which is triggered if there is a potential for coverage under a policy. This means that an insurance company owes the policyholder a defense even if it is ultimately found that there is no coverage for the claim against the policyholder. Pursuant to its duty to defend, the insurance company will select defense counsel from a panel of firms that it regularly deals with. While the insurance company’s broad duty to defend benefits the policyholder in so far as they are not paying for a defense out their own pockets, a conflict arises when the insurance company issues a reservation of...