After a company has been sued, its immediate next steps should be twofold: consult its lawyer and notify its insurance carrier. The carrier should pick up the defense and provide an attorney to represent the company for a claim covered by the applicable insurance policy. The company’s current lawyer’s (who knows the business and may already know the facts underlying the claims) involvement in that covered claim is now unclear.
The Dilemma
The odds are that the company’s trusted lawyer is not on the carrier’s pre-approved slate of defense counsel hired to defend policyholders and will not be appointed to represent the company in the lawsuit. At that point, the company has a choice. One option is to continue with the carrier’s appointed counsel – after all, the carrier will cover that law firm’s fees. The newly engaged firm, however, does not know the company’s business values or strategy, and has no experience or reputation with the company team.
Another option is to have the company’s go-to lawyer continue representing the company against the lawsuit. This means either paying fully out of pocket (for example, if using the carrier’s appointed counsel while also using the company’s outside counsel for consultation and oversight purposes), or negotiating the company lawyer’s rates with the insurance carrier (which likely means paying out of pocket for amounts above the carrier’s rates). The desire to have the lawyer of the company’s choosing is obvious. She or he is reputable, experienced and trusted. So, who does the company use? And, is it required to choose?
The Solution: Choice of Counsel Endorsement
Companies can avoid this scenario at the outset by negotiating choice of counsel in their insurance policy. A “Choice of Counsel Endorsement” or “Selection of Defense Counsel Endorsement” is a policy endorsement that allows the company to choose its counsel when faced with a lawsuit. Like many endorsements, it could increase policy premiums. Whether a high-profile case or a case close to the heart of the company, having counsel who understands the businesses values and goals in defending a claim may be the company’s ultimate goal. By including this endorsement, companies gain key control over managing the risk and defending the company in the lawsuit.
Business leaders should consult an insurance broker and experienced insurance attorneys about this endorsement during the next policy renewal and whether it fits within the company’s business needs.
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