Academic journal article Defense Counsel Journal

Full-Coverage Representations

Academic journal article Defense Counsel Journal

Full-Coverage Representations

Article excerpt

The scope of this Report is limited to "full-coverage" representations, i.e., insurance defense representations in which the existence of insurance coverage is clear and the amount of coverage is clearly sufficient to cover the insured's exposure to liability.

Recommendations made in the Report may not apply, or may not apply straightforwardly, to "limited-coverage" representations, i.e., insurance defense representations in which coverage is disputed or is insufficient to cover the entire loss to which the insured is exposed. When an insured may be left without coverage or faces exposure to uninsured, excess liability, a lawyer's responsibilities may differ from those that exist in full-coverage representations.

The recommendations made in this Report are tailored to insurance defense representations in which the commercial general liability policy (the CGL policy) is the governing insurance policy. The recommendations may not apply, or may not apply straightforwardly, when an insurance defense representation is undertaken pursuant to a different insurance policy.

Part I: Working Hypotheses about Liability


The CGL policy obligates and entitles the insurance company to defend the liability suit against the insured, to control the investigation and settlement of covered claims, and to indemnify the insured for covered losses. It also obligates the insured to cooperate with the company in a variety of ways.

Sound economic reasons support the allocation of rights and responsibilities provided for in the CGL policy. The CGL policy transfers risk of loss from the insured to the company and enables the company to minimize claims-related costs, including amounts paid out in judgments, settlements, and litigation expenses.

Even in full-coverage representations, the interests of the insurance company and the insured can conflict. First, an insured who no longer bears the risk of paying a judgment or settlement may be more concerned about possible collateral effects of litigation than about minimizing claims-related losses. Second, an insurance company that bears defense costs may devote fewer resources to the defeating the liability suit than an insured would like. Third, an insurance company may have additional stakes in the outcome of litigation that motivate it to select defense or settlement strategies of which the insured disapproves. Fourth, the company and the insured may each be in a position to take advantage of the other.

It would be impracticable, because unduly expensive, to solve the professional responsibility problems that arise as a result of the aforementioned conflicts by requiring separate counsel for the insurance company and the insured. To suggest otherwise is to contend that the law of professional responsibility prevents insurance companies and insureds from contracting for liability insurance on terms that are lawful, that they prefer, and that presumably are efficient.

Part II: The Sources of the Tripartite


Because only the insurance company and the insured are parties to the liability insurance contract, that contract neither creates the tripartite relationship nor binds defense counsel directly.

Defense counsel's relationships with the insurance company and the insured spring into existence when counsel agrees to handle a representation at the company's request. The agreement subject to which defense counsel is retained, not the insurance contract, directly regulates defense counsel's rights and professional obligations.

The retainer agreement answers the following questions, among others:

1. Is the insured a client?

2. Is the insurance company a client?

3. What is the scope of defense counsel's representation of each client?

4. Within the defined scope of the representation of each client, what services must defense counsel provide?

5. What are the ground rules of the representation, including the authority of each client to instruct defense counsel on matters relating to the representation and the sharing of information by defense counsel with the clients? …

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