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to seek reimbursement of the cost associated with defending non-covered claims is that the insurer is required to defend both covered and non-covered claims but does not receive a premium for defense of the non-covered claims. T.H.E. Ins. Co. v. Larsen Intermodal Servs., Inc., 242 F.3d 667 (5th Cir. 2001).
In Resure, Inc., the insurer timely reserved its rights under the policy, and the reservation specifically referred to the possibility that the insurer might seek reimbursement for any and all costs of defense. The court found nothing in the record to suggest that the insured objected to the reservation. Accordingly, the court found the insurer entitled to reimbursement for all costs of defense. Resure, Inc. v. Chem. Distribs., Inc., 927 F.Supp. 190 (M.D. La. 1996).
Reimbursement for Settlement
In Sears Employers Mutual Liability Insurance Co., an insurance company defended the insured, without a reservation of rights or non-waiver agreement, based upon a vendor’s endorse- ment. After settling the case, it sued the insured to recover the settlement based upon an exclusion to the vendor’s endorse- ment. The court ruled that by defending and settling without protecting its non-coverage defenses or reserving its rights, the insurance company had waived its right to seek recovery from the insured. Emp’rs Mut. Liab. Ins. Co. of Wis. v. Sears, Roebuck & Co., 621 F.2d 746 (5th Cir. 1980).
Conflicts of Interest and Independent Counsel
No statutory provision mandates the use of Cumis counsel, however, Louisiana courts have specifically recognized the insured’s right to retain counsel-at the insurer’s expense-to defend its interests in connection with the liability aspect of a lawsuit when the insurance company has reserved its rights to deny coverage for a claim or suit.
In Belanger, the Louisiana First Circuit Court of Appeal specifi- cally enforced a Cumis endorsement, contained in a policy of insurance issued by Lexington Insurance Company, which allowed an insured to retain counsel to defend its interests when the insurer reserved its right to deny coverage. «[I]f the insurer chooses to represent the insured but deny coverage it must employ separate counsel. If it fails to do so, the insurer is liable for the attorney fees and costs the insured may incur for defending the suit.» Belanger v. Gabriel Chems., Inc., 787 So. 2d 559, 565 (La. Ct. App. 1st), writ denied, 802 So. 2d 612 (La. 2001) (quoting Dugas Pest Control of Baton Rouge, Inc. v. Mut. Fire, Marine & Inland Ins. Co., 504 So. 2d 1051, 1054 (La. Ct. App. 1st 1987) (internal quotation marks omitted).
More often than not, the separate counsel employed to repre- sent the insured is selected by the insurer. However, in cases where an insurance company and its insured have a conflict of interest, the insured, rather than the insurance company, is en- titled to assume control of the defense of the underlying action and select its own attorney, referred to as Cumis counsel. See Trinity Universal Ins. Co. v. Stevens Forestry Serv., Inc., 335 F.3d
353 (5th Cir. 2003); Belanger, 787 So.2d 559.
In Trinity, the insurer agreed to defend the insured and pro- vided counsel, but also reserved its rights to deny coverage and encouraged the insured to employ private counsel at the insured’s own expense, which the insured did. After receiving a favorable verdict in the underlying action, the insured sought reimbursement for the attorney’s fees and costs of the private counsel. The U.S. Court of Appeals for the Fifth Circuit distin- guished Belanger on the grounds that here the insured did not reject the insurer-appointed counsel, but rather accepted that counsel and simultaneously kept its own. The court held that, absent some showing that the counsel provided by the insurer was incompetent or inadequate; the insurer had no duty to reimburse the insured for his additional counsel. 335 F.3d 353.
An insurer’s appointment of counsel to represent both the in- surance company and the insured after issuing a reservation of rights letter and a denial of coverage letter constituted a conflict of interest as to the insurer and the attorney appointed by the insurance company and “constituted conduct so inconsistent with an intent to enforce its right to assert its coverage defense as to induce a reasonable belief that the right had been relin- quished.” Emery v. Progressive Cas. Ins. Co., 49 So.2d 17, 22 (La. Ct. App. 1st 2010). The Court noted that the insurer failed to advise the insured of the conflict of interest inherent in deny- ing coverage by appointing a single attorney to represent both the insurer and the insured. In addition, the single attorney ap- pointed did not obtain an informed consent from the insured regarding the conflict of interest. The Court further noted that the single attorney appointed to represent both the insured and the insurer was not completely dedicated to the insured’s defense of the matter and, as such, the insurer waived its coverage defenses by assigning only one attorney to represent itself and its insured for 17 months despite having knowledge of facts indicating non-coverage under the policy. Id.
Time for Providing Insured with Coverage Position/ Reservation of Rights
• “Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to facts or applicable law for denial of a claim or for the compromise of a settlement” constitutes an unfair claim settlement practice. La. Rev. Stat. Ann. § 22:1964(14)(n).
• No case law interprets and no regulation governs “prompt- ly provide.”
• “Misrepresenting pertinent facts or insurance policy provi- sions relating to any coverages at issue” is a breach of an insurer’s duty to its insured of good faith and fair dealing. La. Rev. Stat. Ann. § 22:1973(B)(1).
• Thus, a good practice is to provide the insured with a coverage explanation within thirty days after the insurer’s acknowledgement of the claim.
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