Policyholder-Insurer Conflicts of Interest

The foundation of a policyholder’s agreement to pay premiums for a standard commercial general liability policy (CGL) is the insurer’s agreement to defend the policyholder against lawsuits and shoulder the costs of the defense. The insurer has “the right and duty to defend any ‘suit’” containing any allegation that potentially falls within the policy’s coverage.

erosionA recent Fifth Circuit case highlights the potential risks of purchasing a defense-within-limits policy: If an insurer is obligated to hire independent counsel due to a conflict of interest, that counsel’s fees may erode your policy limits.

When an insurer accepts coverage of a liability claim, the insurer typically has the right to choose counsel