One Step beyond Meadowbrook: Can an Insurer Direct Defense Counsel to Dismiss Covered Claims? an Examination of Insurance Defense Attorneys' Roles and Ethical Duties

By Baldwin, Shaun McParland | Defense Counsel Journal, April 2005 | Go to article overview

One Step beyond Meadowbrook: Can an Insurer Direct Defense Counsel to Dismiss Covered Claims? an Examination of Insurance Defense Attorneys' Roles and Ethical Duties


Baldwin, Shaun McParland, Defense Counsel Journal


A COMPLAINT may contain some allegations, which are covered under the terms of the defendant's insurance policy and others that are not. In most jurisdictions, the insurer will have the duty to defend its insured against all the claims, not just those portions that are potentially covered by the policy. Typically an insurer will advise the insured of those claims for which it believes it has no duty to indemnify. This is commonly accomplished through a reservation of rights letter or a coverage position letter.

It is a well-settled proposition that an insurer can withdraw from the defense if the potentially covered clams are dropped from the suit. (1) The next question that arises is whether an insurer, who is providing a defense to its insured under a reservation of rights, can extinguish the duty to defend by settling the covered claims directly with the plaintiff. Can the insurer withdraw from the insured's defense once it has settled out the covered counts?

In Meadowbrook, Inc. v. Tower Insurance Co. Inc., the Minnesota Supreme Court held that an insurer can settle out the covered claims and extinguish its duty to defend. (2) Meadowbrook involved a suit brought by four employees for charges including, but not limited to, discrimination, wrongful discharge, and defamation. Tower Insurance Company agreed to defend Meadowbrook pursuant to a reservation of rights. Tower concluded that the policy only covered the defamation claim. When the trial court eventually dismissed the defamation claim, Tower withdrew its defense.

Meadowbrook then commenced a declaratory judgment action against Tower, arguing that Tower had a continuing duty to defend. Thereafter, Tower settled the defamation claim directly with the plaintiffs and filed a motion for summary judgment. The trial court denied the motion, but the court of appeals held that Tower was entitled to summary judgment in its favor. The Supreme Court of Minnesota also found for Tower, stating that, "an insurer who undertakes an insured's defense under a reservation of rights can withdraw its defense once all arguably covered claims have been dismissed with finality." (3) It held that the term "finality" included the option of engaging in direct settlement negotiations with the plaintiff. The court reasoned that,

      To require an insurer who undertakes a
   defense on the basis of arguably covered
   claims to remain in the litigation even after
   those claims have been resolved, is to force
   the insurer to defend claims not arguably
   covered by the policy. Such a policy
   would encourage insurers to avoid
   defending lawsuits that actually include
   arguably covered claims. The result would
   be an increase in declaratory judgment
   actions brought by insureds to force
   insurers to perform their contractually
   mandated duties. Consequently, we hold
   that an insurer who undertakes an insured's
   defense under a reservation of rights can
   withdraw its defense once all arguably
   covered claims have been dismissed with
   finality. (4)

The Seventh Circuit Court of Appeals cited and tacitly approved of the Meadowbrook ruling in its 2001 decision, Lockwood Int'l. B. V. v. Volta Bag Co., Inc., when it stated, "if in the course of litigation the covered claims fall out of the case through settlement or otherwise, the insurer's duty to defend his insured ceases." (5) The facts of the Lockwood case, however, are distinguishable from Meadowbrook. In Lockwood, the insurer and the defense attorney unilaterally (without consulting or obtaining the insured's informed consent) negotiated to pay the plaintiff to re-draft the complaint with the effect of converting all the covered claims to uncovered claims. Notably, the insurer actually paid sums in excess of its policy limits to the plaintiff in exchange for re-drafting the complaint. The Seventh Circuit disapproved of such tactics. It cautioned that while Meadowbrook allowed an insurer to settle covered claims, the duty to defend is extinguished only if the settlement is made in good faith. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

One Step beyond Meadowbrook: Can an Insurer Direct Defense Counsel to Dismiss Covered Claims? an Examination of Insurance Defense Attorneys' Roles and Ethical Duties
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.