April 13, 2021

Br’er Rabbit Asks, “Do you REALLY Need to Reserve those Coverage Rights?”

Reaching back into childhood memories, you may recall the stories of Br’er Rabbit. He constantly outwitted Br’er Fox and Br’er Bear. In one fable, Br’er Fox catches Br’er Rabbit.  The latter begs his arch enemy NOT to toss him into the briar patch, full-well knowing that the briar patch is the rabbit’s best escape outlet. The dim-witted fox falls for it and Br’er Rabbit again evades capture.

Briar patch scenarios play themselves out in insurance claims on coverage issues and tussles over choice of counsel.  Specifically, sometimes adjusters may feel goaded by an insured’s hand-picked attorney into reserving coverage rights.  Savvy policyholders and their would-be lawyers are often aware that, once an insurance company reserves coverage rights, the policyholder then may be entitled to separate defense counsel of its choice, to be paid for by the insurance company.

These are often Dream Assignments for the insured’s preferred lawyer. Invariably, it seems like the insured’s counsel is much more expensive than the panel counsel that the carriers prefer. They may be white shoe, silk stocking law firms that bill at multiples of two to three times “normal” rates for insurance defense work. In fact, not only do many of these firms not do insurance defense work, but they pride themselves on the fact that they do not have to “stoop” to do insurance defense work, which they may view as the ghetto of the legal servuces industry.  .

Under the guise of being thorough, turning over every rock and stone, getting every conceivable duck in a row, these firms may rack up huge bills . . . which they happily send along to the insurance company to pay. All the while, they can beat their chests and posture to the policyholder, “We are doing our utmost to defend you, our client!”

In some cases, the adjuster may consider what is the lesser evil: risking waiver of a policy/coverage defense or opening the gates for the Huns to rape, plunder and pillage when it comes to legal fee billing on case.

In some instances, the coverage issue involved may be somewhat a long shot. For example, some plaintiffs throw punitive damage allegations in with the kitchen sink, not because there is any credible threat of punitive damages, but simply because that is their habit.

In other cases, the adjuster may notice a potential late notice coverage defense.  This may be due to the late reporting of the loss from the insured to the insurer. In the real world, prevailing on a late notice coverage defense is often an uphill battle, particularly if the case is in a jurisdiction that demands that the insurance company demonstrate prejudice from the delay.

These are just two examples of where there may be textbook bases for reserving coverage rights, but in the long run they may be moot or long shots in terms of presenting viable coverage defenses.  Yes, theoretically you may technically have some question about coverage.  In  reality, prevailing on those questions may be very remote.

Therefore, in some cases the bigger threat may be the hemorrhaging of costs on the expense side.  This flows from relinquishing the ability to control legal expenses. If an insured-appointed defense firm enters the fray, you may lose the ability to manage the transaction cists — read “legal fees” — on the claim.  This risk may be more imminent than the threat of waiving a coverage defense which, may be shaky anyway.

The point here is not to ignore viable coverage defenses.  The point is that, there may be cases where an adjuster consciously decides to forgo reserving rights on “squishy” coverage issues to preserve the right to control the defense and deprive the policyholder and its preferred counsel — eagerly waiting in the wings to jump in — from being able to drive a Sherman tank through the Cumis-type situation and grab the keys to the bank vault.

… or to the briar patch.

Brer Rabbit

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