If you cause an accident or are otherwise liable
for a claim against you and you're sued over damages covered by your
policy, your insurance company is obligated to defend you and will assign a lawyer to your case. Sometimes the lawyer is from an in-house staff, but insurance companies regularly retain outside law firms to help in suits against their policyholders.
| Most cases never go to trial. |
Watch out, though, if you received a "reservation of rights" letter
from your insurance company. The reservation of rights letter typically
states that the insurance company can end its contractual obligation to
defend you if it determines that your suit is not covered by your
policy. This could happen if your insurer finds evidence that you
fraudulently sought the defense or that you misrepresented the facts of
the case.
You may wonder how much time your lawyer is devoting to your case. Your
lawyer might have as many as 100 cases on her hands if they are
open-and-shut. The jurisdiction of the cases also impacts a lawyer's
workload. If the trial process is drawn out, as it is in states that
have over-filled dockets like New York and California, a lawyer is able
to take on more cases at once. A typical large insurance company will employ several hundred
in-house attorneys and use the services of potentially thousands of
outside law firms for cases that it outsources. The majority of
liability cases filed never go to trial and are settled out of court.
If an insurer thinks their clients' actions have caused a mountain of
liability exposure, they'll be looking to settle. Policyholders have little say when it comes to controlling
their defense. Though insurance companies encourage their customers to
cooperate in the investigation and defense of the case, ultimately,
what the insurance company says, goes. For example, a policyholder who
wishes to go to trial rather than settle his case out of court can be
overridden by an insurance company looking for a quick settlement
resolution.
| Insurance companies reserve the right to override policyholder wishes. |
Insurance
companies reserve the right to override policyholder wishes and settle
a case in order to cover their own backsides. That's because a
disgruntled policyholder who demands his day in court — against the
advice of his insurance company — and loses could turn around and sue
his insurer for not handling his case properly.
Most
people who are sued aren't familiar with the litigation process and
that they depend on their lawyers for advice. Since policyholders don't
know the litigation process, they won't know whether to complain about
their defense or not. But if you're unhappy with your appointed
counsel, you can always lodge a complaint with the insurance company.
Then, generally, you, the lawyer, and a representative from the company
would then sit down to try to iron out the problems. You can even try
to reject the lawyer from the in-house counsel team if you have a
solid, legitimate reason, in which case your suit would be sent to an
outside counsel.
If you start making noise about dissatisfaction
with your in-house counsel, most insurance companies will quickly shift
your case to an outside firm in order to avoid a bad-faith claim from
you later on. Or, say your insurance company gives your lawyer bad
advice or doesn't monitor your lawyer properly. You might be able to
sue your insurance company for malpractice. Further, if the company
fails to provide what courts have deemed "reasonable defense," it may
be liable.
The
use of in-house counsel by insurance companies can mislead the
policyholder into believing that the lawyers work for you, when in
reality they are working with you but taking their orders from the
insurer.
| Is practicing law on behalf of policyholders illegal and unethical |
The use of in-house counsel ultimately boils down to efficiency: If
insurance companies have nothing but lawyers who deal with cases of a
particular kind, they become more proficient. This, in turn, saves
insurance companies money.
Opponents maintain that
insurance companies practicing law on behalf of their policyholders is
not only illegal but also unethical.
When you sign your insurance policy, you agree to a three-way
relationship when it comes to your defense: the insurance company, you,
and the lawyer hired by insurance company. The insurer pays for the
lawyer regardless of where that lawyer is located. In addition, no
matter which type of lawyer takes the case, the insurance company is
responsible if that lawyer mucks up your defense.
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