American Association of Insurance Management Consultants

What The Attorney Hired By The Insurance Company Is Not

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What The Attorney Hired By The Insurance Company Is Not

  1. THE COMPANY’S DEFENSE ATTORNEY IS NOT ITS ADJUSTER

So, the first notice of a claim was via a lawsuit against the Insurance Company and the Insurance Company immediately hires a defense attorney to respond to the suit…and it does nothing thereafter to investigate the claim thinking that somehow its attorney will investigate the claim and then tell it what to do. This type thinking may ultimately provide a great reason for the lawsuit to be amended to include the company’s bad faith.  

  1. Hiring an attorney to handle the claim does not shield the claim file itself based on attorney-client privilege from discovery
  2. The Insurance Company is the attorney’s client in this case and the attorney does not owe the insurance company’s policyholder the duty of good faith and fair dealing in handling the claim.
  3. The Insurance Company owes its policyholder the duty of good faith and fair dealing, which duty is not delegable.
  4. Every state has rules set up for who is to be licensed as an adjuster and invariably attorneys are exempt for limited purposes, it is not a blank exemption for attorneys.  

For example:

Oklahoma: §36-6203.  Persons not deemed adjusters or required to obtain license are:

 

“5. A licensed attorney in the State of Oklahoma who adjusts insurance losses from time to time, incidental to the practice of law, and who does not advertise or represent that he is an adjuster.

 

6.  A person employed solely for the purpose of furnishing technical assistance to a licensed adjuster, including but not limited to photographers, appraisers, estimators, private detectives, engineers, handwriting experts, and attorneys-at-law;”

 

This does not say incidental to the time spent on an annual basis for the practice of law compared to that of adjusting claims, and in fact seems to be better supported as applying to the individual case. That is, the attorney is not licensed to spend the major portion of his time on the claim doing company adjusting work.

 

  1. THE DEFENSE ATTORNEY THE INSURER HIRES FOR THE LIABILITY LAWSUIT AGAINST ITS POLICYHOLDER IS NOT “YOUR” (THE COMPANY’S) ATTORNEY EVEN THOUGH YOU (THE COMPANY) PAYS HIS BILL

 

The policyholder is the client of the attorney hired for the policyholder and his fiduciary duties are generally to the policyholder, not the Insurer.

 

I have heard managers say “well why did our attorney not tell us that the policyholder was not really covered”?  …  “because he is not our attorney”, I would say, “Telling you that his client, our policyholder, was not covered would violate attorney client privilege”. While the insurer can get raw information from the attorney, do not expect him to point out coverage weaknesses which may allow the Insurer to withdraw from paying for the policyholder’s defense costs.

 

Even if the insurance manager would really like to know this information, don’t expect a competent attorney to set himself up for a legitimate complaint to the bar and subject himself to sanctions for his ethical violations to his client, your policyholder.

 

  1. THE COVERAGE ATTORNEY SHOULD NOT BE THE INSURANCE COMPANY’S DEFENSE ATTORNEY

Ever wonder why the coverage opinion received from defense counsel listing all the reasons coverage is not available to later discover after being sued for  wrongfully denying the policyholder’s claim that the same defense counsel suddenly says that the Company defenses are weak and the Company needs to settle this?  Perhaps the coverage opinion given by a defense firm may be based on developing its defense business.   Lawyers are human and to avoid any appearance of conflict, use different sources for coverage opinions and defense.   Getting a coverage opinion from the same group that will be defending the suit based on the denial which was based on the coverage opinion is not only a poor claim practice, but a good way to increase the company’s defense costs.  Lawyers who defend insurance lawsuits are no more experts in insurance than lawyers who defend doctors are medical experts.  Hire your defense lawyer to perform in what should be his area of expertise… court.

 

  1. INSURANCE COMPANY  CORPORATE COUNSEL IS NOT ITS DEFENSE COUNSEL

 

Corporate counsel is generally an employee of the Insurance Company, and he holds the law license, not the Insurance Company.

 

  1. Insurance Companies are not authorized to practice law, not even pro se.
  2. The corporate counsel is not very likely to be on the “panel counsel” list of the Insurer’s E&O Carrier.
  3. The Insurance Company is not protected by any legal malpractice coverage under the Insurance Company’s E&O policy.
  4. It is likely prohibited by the language in the Insurance Company’s E&O policy and it is the E&O carrier that will choose the Insurance Company’s defense counsel.
  5. Corporate counsel did not attend law school and obtain a law license so the Insurance Company may get a cut rate deal on its legal defense fees.
  6. Defense fees are a part of defense costs, salaries are generally not.  Corporate Counsel is generally paid a salary as an exempt employee, and not an hourly defense fee.
  7. Corporate counsel may be called as a witness or representative for the Insurance Company.
  8. And finally good defense attorneys (trial lawyers) are a specialty, different from Corporate Counsel. It would be like hiring an ENT physician for a kidney infection…yes he is licensed to prescribe and practice medicine, but that is not his familiar and most competent area of practice.  

 

Corporate Counsel is not properly the attorney to specifically respond for the Insurance Company to a suit against the Insurance Company.

 

Bruce Heffner

Corporate Counsel / Attorney at Law
Boomerang Recoveries, LLC, Inmedex, LLC & Law Office of Bruce P. Heffner,