Attached is a copy of "8th Annual Insurance Coverage Best In Show: The Ten Most Significant Decisions of 2008" --"Special Report: Coverage for Dummies 2008: The Top Ten," an article that Jennifer Wojciechowski and I are publishing in the December 18, 2008 issue of Mealey's Litigation Report: Insurance. To access your copy, register and log on to this site, and click on the link above.
This year's Insurance Coverage Top 10 addresses such issues as assignment of malpractice claims against insurance agents; insured's right to independent counsel; "sub-contractor exception" to the "your work" exclusion; ERISA conflict of interest; when is emotional injury "bodily injury;" scope of additional insured coverage; creating coverage by waiver or estoppel; construction defect trigger; duty to defend artfully drafted or specious "negligence" causes of action; and FACTA. In addition, "Coverage for Dummies: The Top Ten" is a Special Report that looks at the ten best decisions from 2008 that demonstrate that people sometimes do dumb things and then seek insurance coverage for the consequences. I hope that you find this year's edition enjoyable. Happy holidays. Randy
[Editor's note: For additional information, readers may contact Randy at Maniloffr@WhiteandWilliams.com, Readers may also access the complete issue of Mealey’s Litigation Report: Insurance on lexis.com.
I offer a few thoughts on the Elacqua case. One problem is that New York defines a "conflict," for purposes of the right to independent counsel more broadly than the NY legal ethics rules (or those elsewhere) define a conflict for purposes of legal representation.
In most jurisdictions, the two definitions are equivalent (and the lawyer selcted by the insurer usually has both insurer and insured as clients), so the ordinary conflict rules require the lawyer to advise the insured and get informed consent, which will itself require notifying the insured of the right to independent counsel. If all of this is being done, the insured will not be deceived and there can be no damages, whether or not the insurer itself notifies the insured. And, because counsel is both better positioned to evaluate potential conflicts and obligated to inform the insured about them, there is no real point in placing such a duty on the insurer itself.
Where an insured does proceed with conflicted counsel, the usual solution is to estop the insurer from asserting the conflict-creating coverage defense. But it is not uncommon to alos require the insurer to pay for the insured''s personal counsel.
In light of all of this, I''m not at all sure that this case will have much impact outside NY.
William T. Barker
I agree with what Mr. Maniloff has to say about Ulico v. Allied Pilots, but I have some additional thoughts. The case authorizes estoppel to deny coverage "[w]hen an insurer''s defense of or controlling the defense of an insured prejudices the insured." The key question then becomes, "what constitutes prejudice?"
I examined this question in William T. Barker, Defense Without Reserving Rights: When May Insurer Deny Coverage, 56 Def. Coun. J. 58 (1989). as explained there, one analysis would indicate that the insured may be prejudiced simply by yielding control of the defense. Even if the insurer's conduct of the defense was adequate, the insured might have chosen a different approach, and that might have produced a more favorable result. Ulico suggests that the Texas Supreme Court would find that analysis unduly speculative, unless shown that there actually was an alternative approach to the defense that actually might have produced a more favorable result.
Whether or not that analysis would be accepted, it would not have helped the insured in Ulico, because the insured never relinquised control of the defense. The insured's own counsel defended and the insurer paid the bills.
As my article points out, an insurer may also avoid an estoppel, even under this theory, if the insurer belatedly notifies the insured of the reservation of rights before the defense has been irreversibly shaped, foreclosing options that would otherwise have been available.
William T. Barker, Sonnenschein Nath & Rosenthal, LLP