Obligations to Your Clients and Their Insurers: A Balancing Act

It’s not that uncommon for business litigation to involve insurance companies. There are situations where an insurance policy may provide coverage or a defense for litigation, meaning that the insurance company may pay the legal fees incurred by the policyholder’s defense counsel. Clients may sometimes be allowed to choose their own counsel, but other times the insurance company will choose an attorney for them and they will contribute to the legal fees.

The nature of the relationship can become complex, as the insurer and the policyholder can share a privilege, but the insurer may have the right to control and direct the defense. As a result, an attorney may not accurately appreciate their obligations to insurance companies and they may think that they only have a duty towards the clients. If the defense counsel doesn’t treat the insurance companies fairly in these types of situations, they can even risk the rights of their clients.

Since these situations can sometimes be tricky to handle, we’re going to be looking at a few tips for defense counsel working with an insurance company.

Always Keep the Insurer Up-to-Date

Under most policies that provide coverage for legal defense, insurers will typically have certain rights of information. While the attorney is usually tasked with representing the client’s interested, they’ll usually be obligated to keep the insurer informed of any recent developments or changes in strategies. However, even if there are coverage disputes, an attorney may not be allowed to withhold any important litigation-related information from the client.

If insurers aren’t kept informed about the developments of the litigation, they may use this as a basis for refusing to continue to pay funds in support of the case. The attorney will then be in a difficult situation with the client who’ll want to know why the insurance company is no longer funding them.

Figuring out the right balance of what information to pass on to the insurance company and how often is unique to each case. Lawyers who find themselves in these situations usually prefer to directly ask the insurance company’s representative about what information they’ll require and how often they want to be updated on the case’s status. Insurance companies will sometimes have litigation guidelines that provide guidance as to how often communications from the lawyer are expected.

Do Not Ignore the Billing Guidelines

Billing guidelines have been adopted by most insurance companies nowadays for use by lawyers. These guidelines can specify the rates, the costs that will be reimbursed by the insurance company, what tasks are considered to be outside the representation, and so on. They help the insurance company track expenses and make sure that the lawyer is offering an efficient representation.

Some lawyers who may be unfamiliar with billing guidelines may treat them as just suggestions instead of actual requirements. Courts across the country, though, have upheld the use of litigation guidelines to control billing, so by failing to respect the guidelines, lawyers may be doing both themselves and their clients a disservice. Lawyers may find themselves not being paid as quickly as they would like, or even that their fees are not being fully covered.

To reiterate, if you are unsure how to proceed, it’s always wise to just ask and avoid any possible risks.

Settlements and Transparency

A representation funded by an insurance company can often culminate with a settlement. Even in this case, the lawyer handling the settlement on behalf of the insurer-funded client should make sure that they are still meeting the insurance company’s obligations by providing regular updates and relevant information about the possibility of a settlement.

Generally, clients don’t settle or offer settlement of a matter without first informing their insurers and getting their consent. Thus, if a lawyer enters into a settlement agreement and keeps the insurance company out of the loop, the insurance company may refuse to participate. The client will then blame the lawyer for not keeping everyone informed.

Lawyers who aren’t used to working with insurance companies might see the limits available as free money. They may negotiate a settlement for the same sum as the policy’s limit, even if the case is worth a lot less, and they may even be tempted to instruct the opposing counsel to ask for the sum available from the insurance company, as if they are on the same team.

If the case is worth much less than the available sum, working with the opposing counsel to try and compel the insurance company to pay more than the case is worth can backfire and even lead to future litigation. Lawyers should avoid gambling with the insurance company’s money, as many insurers can figure out when they’re being cheated.

Lawyers who don’t have much experience with working with insurance companies, if any, might be concerned that they are harming their clients’ interests by not following the rules. However, remembering their obligations to the insurance company, asking questions whenever they’re not sure about something, and keeping an open line of communication with them will always help to ensure a positive resolution for both the client and the insurer.