Shari Klevens, left, and Alanna Clair, Dentons (Courtesy Photo)

Nearly every type of litigator may at one point or another find themselves working on a case involving an insurer. Even for those attorneys who do not routinely practice in “insurance defense” can come across a situation where an insurance policy provides a defense or indemnity coverage for the claim against a client.

The interactions between the attorney, the client, and the insurer in such situations can be a minefield for attorneys who fail to appreciate the complexities of the relationship. The “tripartite relationship” between those three parties (as it is referred to in many jurisdictions) arises from the fact that the insurer has the right to control or direct the defense of the insured through the appointment of defense counsel, while defense counsel in such situations may defend the insured but also have obligations to the insurer.

In some situations, the insurer may provide the insured with independent counsel (referred to as Cumis counsel in California), which can further complicate the situation. However, attorneys who believe they can simply ignore the insurer while defending their insured client risk breaching not only their obligations but also their client’s obligation under the terms of the insurance policy and applicable law. Below are some tips for attorneys to avoiding running into trouble when working with an insurance company.

Keep the Insurer Up to Speed

A standard provision in insurance policies requires that the insured party provide certain information to the insurer and cooperate in the insurer’s provision of a defense. As a practical matter, defense counsel is typically the best resource for keeping the insurer informed regarding the status of a claim and strategy decisions. Notably, even if there is a coverage dispute that calls into question whether defense counsel is “tripartite” counsel or “independent” counsel, defense counsel may not be permitted to withhold important litigation-related information from the insurer.

For example, as referenced above, an insured may be afforded Cumis counsel where there is a dispute regarding the insurance coverage available in connection with a claim. The California statute governing Cumis counsel provides that, even under such circumstances, “it shall be the duty of that counsel and the insured to disclose to the insurer all information concerning the action except privileged materials relevant to coverage disputes, and timely to inform and consult with the insurer on all matters relating to the action.” Cal. Civ. Code 2860(d).

Because insurers require information regarding the claim to assess their insured’s potential liability and to make informed decisions regarding the claim, the failure to provide information can provide a basis for the insurance company to object to the course of an action or even to withhold funds. No client will be happy to lose insurance coverage or have to pay funds out of pocket simply because their attorney failed to appreciate the need to keep the insurer informed.

Determining the right balance of what information to provide to the insurance company and how often can be unique to each case. Many lawyers in this situation find it helpful to just ask the insurance company representative regarding what information they need to assess the case and how often they expect to receive reporting. Sometimes, as discussed below, the insurance company will adopt litigation guidelines that provide guidance regarding how often communications are expected.

Adhere to Billing Guidelines

Like many companies that are routinely involved in litigation, insurance companies often have billing guidelines that specify, among other things, the costs that will be reimbursed by the insurance company, standards for attorneys’ descriptions of time entries on bills, and the tasks that are considered outside the representation. These guidelines help insurance companies track expenses and confirm an efficient representation.

Courts nationwide have upheld the use of litigation guidelines by a client or insurer to control billing. Attorneys who disregard billing guidelines do so at their own risk and again jeopardize payment of expenses by the insurer. At a minimum, attorneys may find that their invoices are not getting paid as quickly as they would like or that the attorneys have to spend time resubmitting invoices to comply with the guidelines.

Thus, when working with an insurance company, it is often helpful to inquire regarding any applicable guidelines at the outset of the representation. It is especially important to do so when working with a particular insurer for the first time.

Be Clear About Settlement

Because many claims end in a settlement, and because insurers typically control the decision regarding whether to settle (subject to some limitations), insurers must have sufficient information to determine the appropriate settlement value. In order to enable insurers to make those decisions, defense counsel should take care to provide timely updates and information regarding the possibility of settlement or a proper valuation of settlement.

Failing to consider the insurer’s interest in any settlement again can have severe consequences.  While the relevant policy terms can vary, many policies prohibit the insured from settling or even offering to settle a matter without the insurer’s knowledge or consent. Thus, if defense counsel enters into a settlement arrangement with an opposing party without keeping the insurance company in the loop, the insurance company may be supported in refusing to make the settlement payment on behalf of the insured client.

It is also important that defense counsel provide evaluations based on their honest assessment of their client’s potential liabilities. Defense counsel who are not used to working with insurance companies may view the amount of limits available as “free money” available for a settlement without regard to the merits of the case. In particularly egregious scenarios, defense counsel may even advise opposing counsel to offer the exact amount of the policy limits in order to pressure the insurer to settle the case. Such circumstances can create a host of problems and lead to further litigation.

The key for working with insurers is to remember that insurers are an important part of the process and should be considered as part of the team working to reach the best possible result for the client. Forgetting the insurer’s role can lead to adverse consequences for both the client and the attorney.

Shari L. Klevens is a partner at Dentons US and serves on the firm’s US Board of Directors. She represents and advises lawyers and insurers on complex claims, is co-chair of Dentons’ global insurance sector team, and is co-author of “California Legal Malpractice Law” (2014).  Alanna Clair is a partner at Dentons US and focuses on professional liability defense.  Shari and Alanna are co-authors of “The Lawyer’s Handbook: Ethics Compliance and Claim Avoidance.”