Most people understand that when they purchase insurance, they are agreeing to allow their insurer to select defense counsel for them should an action be brought against them. Most attorneys understand that when defense counsel is assigned to a legal malpractice action defended by their professional liability carrier, there is the possibility of a conflict of interest between the desires of the client law firm and the designers of the insurer. The Texas law firm of Coats, Rose, Yale, Ryman & Lee, when sued for legal malpractice, decided it could not abide by the provision of their insurance policy which gave their insurer the right to select defense counsel. The law firm retained its own counsel, independently of its insurer, Navigators Specialty Insurance Co., and then sued the insurer when the insurer refuse to pay the attorneys fees.
In November 2011, U. S. District Judge Sidney Fitzwater granted summary judgment for Navigators. Coats Rose appealed and a three-judge panel affirmed Judge Fitzwater’s decision earlier this week. The appellate panel adopted Judge Fitzwater’s opinion which found both the law firm and insurer had the same incentive to defeat the claim, despite the insurers reservation of rights under the policy not to cover fraudulent willful violations of the statute.
Attorneys who represent defendants in legal malpractice actions are, as a rule, acutely aware of the potential for conflict in their cases. The attorneys do all within their power to minimize that potential. However, there are times when clients feel an attorney hired by their insurer cannot protect their interests. On those occasions, the law firm is certainly entitled to hire its own counsel, but they will generally have to do so out of their own pocket.