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The scoop on insurance lawyers

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.

The caseload

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.

Unhappy campers

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 controversy over in-house lawyers

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.

The bottom line

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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