If a business owner is sued and has insurance, who chooses the attorney?
In some circumstances, a business can select which lawyer it wants to defend it, although this usually comes at a cost, as a policy with that option is more expensive. Most policies do not allow the business to identify an individual lawyer whom it wants to defend it; however, most states say that if an insurance company is not defending the business unconditionally, the business is entitled to its own independent counsel.
In many cases, if the insurance company, for example, is defending a business but doing it under a reservation of rights, the business may be entitled to independent counsel, and in that case might be able to select that counsel.
Another possibility is that the business has a particular lawyer that it wants to defend it, but that lawyer’s hourly rate is higher than what the insurance company will approve. In that case, the business may be able to negotiate a deal where the insurance company and the business will split the fee. The insurance company will pay the hourly rate it normally pays to lawyers in that locale and the business will pick up the balance.
What happens if a business owner wants to settle the case, but the insurance company refuses?
Whenever you get a settlement demand, particularly if the settlement demand is within your policy limits, it is very risky for the insurance company to refuse the settlement. So let’s say your limit is $1 million and the plaintiff offers to settle for $750,000. The insurance company exposes itself to significant risk if it refuses that settlement offer.
There is a lot of law that says that the insured’s interests need to be paramount and that the insurance company must have a strong reason against settling, especially when the demand is within the policy limits.
In the end, there is not a lot a business can do to force the insurer to settle, but there are laws that put out the potential of extreme liability if the insurance company refuses to settle.
Take the previous example of the $1 million limit and the $750,000 settlement demand. If the insurer refuses to settle and the case goes back to trial and the business gets a $3 million verdict against it, in many cases, the insurance company will be liable for the entire $3 million, even though it exceeds the policy limits. Because of this risk, insurers are often inclined to accept reasonable settlement offers within their policy limits.
Steven J. Ciszewski is a partner with Novack and Macey LLP. Reach him at (312) 419-6900 or [email protected].
