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November 6, 2015Client Alert

Federal District Court Sides with Insurer on Allegations that Insurer Breached Its Duty to Defend Its Insured

On November 2, 2015, the U.S. District Court for the Western District of Wisconsin found this week that an insurer’s delay in accepting a defense and strong-arm attempts to force its chosen counsel on the insured did not constitute a breach of the insurer’s duty to defend because the insured did not succumb to the insurer’s efforts.1

According to the insured, the insurer acted improperly, first by failing to timely respond to the insured’s tender of defense, and then, after the insurer had agreed to defend under a reservation of rights, by attempting to force the insured to replace the counsel it had chosen with insurer-selected counsel under threat of treating the insured’s rejection of insurer-chosen counsel as a “rejection of coverage.” The court concluded that the insurer’s months-long delay in accepting coverage was not a breach of the duty to defend because the insured was allowed to proceed during that time with its own counsel, and the insurer ultimately “helped to pay” defense costs. The court then concluded that the insurer’s attempts to control the selection of the insured’s attorney–whether appropriate or not–did not prejudice the insured because the insured remained steadfast in utilizing its own selected counsel. Because the insured suffered no actual prejudice other than legal fees in rebuffing the insurer’s efforts, the insurer’s conduct was not actionable as a breach of the duty to defend.

The decision is the latest in a concerning trend in cases that appear to condone an insurer’s attempts to retain inappropriate levels of control of an insured’s defense, so long as the insured ultimately has the fortitude to reject the insurer’s demands. When an insurer defends an insured under a reservation of rights, it is critical that the insured maintain full control of its own defense and selection of counsel in order to ensure that its attorney is looking out for the insured’s rights, not the insurer’s. This opinion reinforces the need for insureds to be vigilant in defending their rights when an insurer reserves rights in its defense of the insured, even if the insurer utilizes heavy-handed tactics in an effort to retain control of the insured’s defense.

1Haley v. Kolbe & Kolbe Millwork Co., Inc., No. 14-cv-99-bbc, 2015 U.S. Dist. LEXIS 148023, (W.D. Wis., Nov. 2, 2015)

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