Michael Young, HeplerBroom Attorney co-authored IDC Quarterly article
Michael Young, HeplerBroom Attorney co-authored:
Monograph, "In the Wrong Place at the Wrong Time: Defense Counsel as Ethically Challenged or Merely in a Position where Appearance of Impropriety Exists when Insurer and Insured have Conflicts of Interest?" (Co-Author) IDC Quarterly, Second Quarter, 2012, Volume 21, Number 2.
In the Wrong Place at the Wrong Time: Defense Counsel as Ethically Challenged or Merely in a Position where Appearance of Impropriety Exists when Insurer and Insured have Conflicts of Interest?
|Patrick D. Cloud
Heyl Royster Voelker and Allen
|Terry A. Fox
|Seth D. Lamden
Neal Gerber Eisenberg
|Michael L. Young
Under Illinois law, an attorney hired by an insurer to defend an action against its insured owes fiduciary duties to two clients: the insurer and the insured.1 Although an insurer's duty to defend typically includes the right to control the defense of litigation against its insured, Illinois law is settled that an insurer loses the right to control the defense when it issues a reservation of rights letter that creates a conflict of interest between the insurer and insured.2 The most common example of a conflict of interest that gives rise to the right to independent defense counsel is where an insured is sued
in a two-count lawsuit alleging negligence and intentional misconduct and the insurer agrees to cover damages because of negligence and reserves its rights to deny coverage for
damages because of intentional conduct. Although both the insurer and the insured have a common interest in defeating the claim in its entirety, the insurer would also benefit from a finding of intentional misconduct, whereas the insured would benefit from a finding of negligence.
When such a conflict of interest arises, the insured has the right to reject a defense from insurer-appointed defense counsel and instead, select independent defense counsel to be paid for by the insurer.3 Inherent in Illinois decisions discussing the right to independent counsel is a presumption thatwhen a conflict arises, insurer-retained attorneys may favor their business relationship with the insurer over the attorneyclient relationship with the insured and will not vigorously defend uncovered counts (e.g. fraud), thereby exposing the insured to liability for uncovered damages. Courts remedy
any possibility that an insurer-retained attorney will subvert the insured's interests in favor of the insurer when a conflict arises by affording insureds the right to independent defense counsel, who does not owe any fiduciary duty to the insurer as a client, thereby eliminating the insurer's right to instruct the attorney on how to defend the case.