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Choice Of Counsel Clause Important
Kevin Dougherty, of Warner Norcross and Judd, said that while increasing self-insured retention — a deductible — has the effect of increasing risk, a firm can mitigate that risk to a degree by exerting more control over litigation.
In an essay he wrote for a newsletter and in a follow-up interview with the Business Journal, Dougherty indicated that the way to hedge the risk is to request an endorsement on the liability policy that allows the company, rather than the insurer, to select defense counsel.
The question is surfacing, Dougherty said, because a great many firms have raised their deductibles to try to offset the surge in insurance premiums in the past three years.
Dougherty told the Business Journal that a typical comprehensive general liability policy provides the insurer the right to select the lawyer or law firm that will defend the case if the company is sued.
“Since it’s their money that’s at risk,” he said, “they feel they ought to have control over the litigation.”
Therefore, he said, most insurers probably would balk at allowing a choice of counsel endorsement if the policy has a deductible of, say, $20,000 or less per occurrence.
But where the per occurrence deductible on such a policy is $100,000 or more, he said, insurers probably would be more willing to discuss the issue. And, he added, choice of counsel endorsements are included in almost all policies where the self-insured retention exceeds $500,000.
Dougherty said the primary thing for a firm to remember is that when a claim or lawsuit is tendered to an insurer, the insurer has one primary goal: to dispose of the case for as small a settlement or defense cost as possible.
“Insurance defense counsel typically retained by insurance companies are very effective in handling routine matters such as slip-and-fall or automobile accident cases,” Dougherty wrote.
“They are skilled in meeting the insurer’s goal,” he added, “of disposing of the case for as little as possible and doing as little as possible to accomplish that goal.”
But he advised that it’s different when a case or series of cases involves serious allegations that threaten a company’s reputation.
“That’s when you need to be able to retain counsel who is familiar with your business and has specialized expertise in the necessary area of law,” Dougherty said.
He said examples of such allegations would be race, age or sex discrimination; directors’ or officers’ liability relating to financial transactions; sexual harassment; or product liability defense as a result of unsafe or defective products.
Moreover, he said, it’s especially important for a firm to be able to control the choice of counsel when it faces a number of cases in differing jurisdictions.
He explained that it’s highly important that the defense of all multi-jurisdiction cases be coordinated and handled with consistency — and with a view toward the strategy of obtaining the best overall outcome for the company over the long term.
But he said it is difficult and even impossible to coordinate defenses in different jurisdictions when using different counsel, and even counsel assigned by different insurers who have differing aims and strategies.
“If your company has an existing relationship with a particular law firm,” Dougherty said, “ that law firm will understand your business goals and will be better equipped to act in your company’s best interest than would an insurer-assigned counsel with whom you have no history or established relationship.”
He said serial product liability cases particularly benefit from a consistent and well-coordinated defense.
“You may think that your company’s products do not lend themselves to such a scenario,” he said, “but seemingly harmless products can result in significant liability exposure.”
By way of example, he said one of Warner Norcross’ clients, a manufacturer of ventilation products, enjoyed decades with no product liability claims.
“Suddenly, an unforeseen problem with a new product resulted in a CPSC (Consumer Product Safety Council) investigation and over 20 wrongful death, personal injury, breach of warranty and class action lawsuits were subsequently filed throughout the United States and Canada over the following three years.
“A team of Warner Norcross lawyers defended all of those cases with a consistent strategy that brought very favorable results.”
He said most insurance brokers are very familiar with choice-of-counsel provisions and recognize the benefits that they provide to clients.
“Talk to your insurance broker now,” he said, “about obtaining a choice of counsel endorsement. When the need arises for competent counsel that you know and trust, you won’t want your company’s hands to be tied by its insurance policy.”