As soon as a claim or lawsuit is asserted against a professional, she should give notice to her insurer. The insurer has three choices following notice. It may accept coverage and appoint counsel to defend the action without asserting any potential defenses. It may disclaim coverage if it believes it will be able to establish as a matter of law that there is no possible factual or legal basis on which it might be obligated to indemnify its insured. In that instance, it will refuse to defend the insured. If it wrongfully refuses to defend, it will ultimately be able to only "litigate the validity of its disclaimer."1 Finally, the insurer can reserve its rights to disclaim coverage at some future date. It must notify the insured of its reasons for reserving its rights and will appoint defense counsel. Depending upon the reservation of rights, the insured may decline appointed counsel and instead retain outside counsel whose reasonable fees must be paid by the insurer.
If the insurer provides coverage without reserving its rights, the insured and insurer have a "common interest" in defending the action. The insurer has the right to privileged communications between the insured and her attorney. However, if the insurer reserves its rights, the "common interest" rule will not apply and the insurer is not entitled to privileged documents since the insured and insurer are presumed to be adverse and in conflict with each other.
The Reservation of Rights
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.
For questions call 1-877-256-2472 or contact us at [email protected]
