Insured Unable to Force Insurers to Pay for Its Selected Counsel

Federal Insurance Company et al., v. MLB, Inc.
(Case No. H036296) (Ca. App. Ct., August 26, 2013)

A California appellate court affirmed a lower court’s decision that insurers’ selection of counsel to defend its insured, under a reservation of rights, created no conflict of interest to the insured’s detriment.

Specifically, the insured was a supplier of dry cleaning chemicals and products and was sued in a third-party action concerning costs for monitoring and remediation of contamination.  The insured tendered the defense and indemnity of the third-party actions to six different insurers who accepted the tender of defense subject to reservation of various rights.  In doing so, they retained counsel to represent insured’s interests.  The insured declined to accept insurers’ retained counsel on the grounds that there was a conflict of interest.  Specifically, it argued that counsel selected by the insurers might have an incentive to develop facts favoring certain issues preserved in their reservation of rights, rather than fully representing the insured’s best interests.

The appellate court disagreed, stating that the insurers did not reserve their rights under any exclusion relevant to that charge and that a general reservation of rights could not create a conflict of interest when it comes to selection of counsel to defend the insured.

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