Lawrence A. Hobel
Covington & Burling LLP
One Front Street
San Francisco, CA 94111
Linda B. Morrison
18100 Von Karman Ave.,
Irvine, CA 92612
When Can the Insured Select Counsel and
When Does the Insurer Select?
◦ Common situations and standards
◦ Statutory provisions
Who selects counsel if one insurer is entitled
to control the defense, and another is not?
How are defense fees and costs shared?
Common areas of dispute
◦ Share of defense
Insurer pays “reasonable” fees and costs
incurred in the defense of the insured
Disputes over Counsel Selection and Rates
◦ Time/skill required
◦ Complexity of issues
◦ Novelty of issues
◦ Fees customarily charged in locality
◦ Nature/length of attorney relationship with client
ABA Model Rules of Professional Conduct, Rule 1.5(A)
◦ Case Staffing
Partners / associates
Multiple attorneys undertaking overlapping
tasks or appearing at same hearing
Value of time spent in relation to impact on
Who, how many, rates and “approvals”
Clarity of entries
Paralegal Work vs. Administrative Cost
Client professionals and staff
◦ Per se inappropriate, presumptively inappropriate or
◦ Privilege Issues
◦ Nit-picking vs. too vague
Under what circumstances can
the insurer require compliance
with guidelines that insurer
imposes on counsel it retains?
Can guidelines preclude insurer
payment if counsel believes
activities are necessary to
defense of insured?
Is insurer obligated to pay when
independent counsel’s bills do
not comply with guidelines?
Disputes Over Whether Appropriate
◦ Most insurers:
Dependent on circumstances and claims
Not unreasonable per se; but can be hard to manage
Firms should have discrete roles to minimize overlap and
Consider specific specialties, expertise of firms
National Counsel and Coordinating Function may raise
Can insurer apportion “unreasonable” fees to
Must insurer pay entire defense and seek to
If insurer pays amounts determined to be
“unreasonable” or not necessary to defense of
insured, can it later recover from—
Must insurer pay for defense fees incurred
◦ For joint activities benefitting both insured and noninsureds?
◦ For activities solely benefitting non-insureds?
Who bears burden of allocating?
Additional insured entitled to full defense
Statute may limit rates insurer pays to defend
Impact of indemnity
◦ Can additional insured indemnitee
recover rate differential from
named insured if defense already
◦ If so, is insurer obligated to
reimburse named insured for
Negotiate At Outset
Evaluate whether issues can be resolved by audit process or independent
Establish mechanism for resolving disputes
◦ Guidelines Applicability
◦ Arbitration as required by some statutes absent agreement?
At set intervals after submission of bills if disputes arise?
Defending insurer seeks to recover from nondefending insurer
Non-defending insurer not allowed to second
Non-defending insurer bound by defending
insurer’s decision to provide independent counsel