David vs. Goliath: How Policyholders Hold Great Power When Insurers Issue Reservations of Rights and Panel Counsel Fail to Obey Ethical Rules

Millions of times per year, liability insurers issue reservations of rights agreeing to defend their policyholders against liability disputes, which always creates some conflict of interest between the reserving insurers and their policyholders because each wants the other to pay. Fifty American jurisdictions have consistently ruled that if the reservation of rights creates an ethically disqualifying conflict of interest, pre-approved “panel” defense lawyers may not accept representation of the policyholder nor accept compensation from the reserving insurer unless they first clear potential conflicts of interest created by the reservation of rights, usually by obtaining informed written consent. Sadly, most panel lawyers utterly fail to obey the Rules. Armed with Rules 1.4 (disclosure), 1.7 (conflicts of interest), and 1.8.6 (compensation), policyholders alone wield great power to select and direct independent counsel at the insurer’s expense to defend against the liability dispute. Success rests upon understanding timing, burden, and proof. This will be a “how to” course for policyholders and their independent counsel to quickly, easily, and cheaply resolve conflicts of interest with a single mantra: “Just say no!”