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Vol. 5, Iss. 12
December 7, 2016

General Insurance Company of America v. Walter E. Campbell Co., No. 12-3307, 2016 U.S. Dist. LEXIS 62842 (D. Md. May 12, 2016)

Court Disallows Insured’s (Yes, Insured’s) Personal Counsel: Could “Slant” Cases…Toward Coverage


Courts have long been addressing whether an insured is entitled to independent counsel (i.e., not panel counsel), when its insurer is defending it under a reservation of rights. You know the drill. Insured says that the insurer must pay for independent counsel, since the complaint alleges both covered and uncovered claims, and if panel counsel is used he or she might “steer” the case toward a finding of liability for only the uncovered claims, since panel counsel wants to curry favor with the insurer, in hopes of receiving additional assignments. [I’m not sure how you actually “steer” a case in that way, especially without anyone noticing, but that’s neither here nor there.]

General Insurance Company of America v. Walter E. Campbell Co. offers the opposite version of this tale. Here the insured was not permitted to use personal counsel because he or she might steer the case -- toward covered claims. Yes, the insured was denied the opportunity to select counsel of its choice.

I’ve never seen this scenario before. That’s not to say the issue has never arisen. But, if it has, it has eluded me. Despite that fact that Campbell is a federal trial court decision, its uniqueness, surprising outcome and, that it involves asbestos coverage, which is The Mousetrap of insurance coverage, garnered it a spot as one of the ten most significant of the year.

Campbell involves coverage for asbestos bodily injuries. As is so often the case, it has been the subject of lengthy litigation and oodles of coverage issues. The one at hand came about because there was a settlement between Campbell and certain insurers. This resulted in two classes of insurers – Settled Insurers and Non-Settled Insurers.

On account of the settlement, Campbell was now required to participate in defense and indemnity to the same extent as Settled Insurers. But here’s the rub – only so-called “operations” claims were potentially covered under the Non-Settled Insurers policies. [The Non-Settled Insurers disclaimed coverage for “products and completed operations” claims.] At issue was how to handle the defense, between Campbell and the Non-Settled Insurers, of the “operations” claims.

The court concluded that, with Campbell having the largest share of the defense of the operations claims, it was appropriate for Campbell to take the lead in the defense – with certain qualifications.

Campbell unilaterally replaced its long-standing defense counsel, Flax and Spinelli, with the law firm of Morgan Lewis in over 570 pending asbestos suits. However, of note, Morgan Lewis was also representing Campbell in the coverage dispute. The Non-Settled Insurers viewed Morgan’s role, of both defense counsel and coverage counsel, as a clear conflict of interest. The Non-Settled Insurers advocated for the retention of Dehay & Elliston, a law firm with considerable experience defending asbestos cases in Baltimore where most of the cases are pending.

Now, back to those qualifications governing Campbell’s defense, here’s the money paragraph: “One of those qualifications is that [Campbell] cannot continue to retain conflicted counsel to defend these suits and, as long as it does so, Non-Settled Insurers shall have no defense or indemnity obligations with respect to those suits in which Morgan Lewis remains defense counsel. Given the long and protracted efforts of Morgan Lewis to pull cases into coverage under the Non-Settled Insurers’ policies, Morgan Lewis cannot also be placed into the position where it can slant the defense in a manner that could render the claims covered claims.” (emphasis added).

What’s good for the goose…

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