A 5th Circuit case highlights regional differences in handling Conflict of Interest and Choice of Counsel issues.
Although we tend to limit our coverage to New England decisions, every once in a while a decision comes down that could have significant implications for corporate insureds. The 5th Circuit decision Graper v. Mid-Continent Casualty Co., which holds that a reservation of rights does not automatically create a disqualifying conflict of interest such that the insured may reject the insurer’s choice of counsel, is one such case.
In Graper, the insureds were sued for copyright infringement that apparently implicated their advertising injury coverage. The insurer reserved rights, including based upon alleged intentional conduct and that the injury may not have occurred during the policy period. Because of the reservation, the insured rejected the insurer’s choice of counsel. The insurer insisted upon its right to choice of counsel notwithstanding the reservation of rights, and the 5th Circuit agreed.
In this case, the court held that the insured can only successfully object to the insurer’s chosen counsel if the facts that the underlying case will decide are the same facts that determine coverage. The court, surprisingly, concluded that the facts determinative of the case would not be dispositive of the coverage issue and thus there was no conflict of interest.
Under current Massachusetts practice, the result would like be different, but . . . Given that almost all business litigation cases are (i) very expensive to litigate; (ii) invoke a reservation of rights, this decision, if it signals a trend, could affect corporate insureds.
The case is Graper v. Mid-Continent Casualty Co., 2014 WL 2870553 (C.A. 5 (Tex.)).
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