Opinion ID: 1671933
Heading Depth: 1
Heading Rank: 6

Heading: duty of carrier

Text: American Guarantee had a contractual obligation to furnish a legal defense to the members of this professional corporation for claims covered under its insurance policy, and to pay all sums they became legally obligated to pay for such claims. When an insured under a liability insurance policy is sued, the insurance company is contractually obligated to pay up to the limits of the policy all sums the insured becomes legally obligated to pay. Because the insurer must eventually pay whatever sums the insured becomes legally obligated to pay, the insurance carrier has the right to select the attorney retained to defend the claim. Hartford Acc. & Indem. Co. v. Foster, 528 So.2d 255, 263 (Miss. 1988). Liability policies generally, as in this case, by specific language give the carrier the right to select and employ defense counsel. Moreover, whenever a lawsuit filed against an insured contains an allegation or claim which is covered under the policy, the insurance carrier has a contractual duty to furnish a legal defense, whether the claim later proves to be meritorious or not. Southern Farm Bureau Cas. Ins. Co. v. Logan, 238 Miss. 580, 119 So.2d 268, 270-71 (1960) (The insurer's ultimate liability is not the criterion for determining whether the insurer is obligated to defend.). Thus, the obligation of the carrier is two-fold: first, to furnish a legal defense to the claim covered under the language of the policy and, second, to pay all sums the insured becomes legally obligated to pay therefor. The liability insurance company has an absolute duty to defend a complaint which contains allegations covered by the language of the policy; it clearly has no duty to defend a claim outside the coverage of the policy. What about the special situation where the allegations of the complaint are covered by the liability policy, but the facts are such that it may very well develop at trial that the conduct of the insured was not covered by the policy? Or, the allegations of the complaint themselves are ambiguous so that read in one way there is no coverage, but read in another there is? Unquestionably, the insurance carrier has a right to offer the insured a defense, while at the same time reserving the right to deny coverage in event a judgment is rendered against the insured. State Farm Mut. Auto. Ins. Co. v. Acosta, 479 So.2d 1089, 1092 (Miss. 1985). When defending under a reservation of rights, however, a special obligation is placed upon the insurance carrier. While this Court has not been called upon to address this issue, other jurisdictions have generally held that in such a situation, not only must the insured be given the opportunity to select his own counsel to defend the claim, the carrier must also pay the legal fees reasonably incurred in the defense. See American Family Life Assurance Co. v. U.S. Fire Co., 885 F.2d 826, 831 (11th Cir.1989); Rhodes v. Chicago Ins. Co., 719 F.2d 116, 120-21 (5th Cir.1983) (When a reservation of rights is made ... the insured may ... pursue his own defense [and the] insurer remains liable for attorneys' fees) (interpreting Texas law); Previews, Inc. v. California Union Ins. Co., 640 F.2d 1026, 1028 (9th Cir.1981); CHI of Alaska, Inc. v. Employers Reinsurance Corp., 844 P.2d 1113, 1120 (Alaska 1993); San Diego Navy Federal Credit Union v. Cumis Ins. Society, Inc., 162 Cal. App.3d 358, 208 Cal. Rptr. 494 (1984); Northland Ins. Co. v. Heck's Service Co., Inc., 620 F. Supp. 107, 108 (D.C.Ark. 1985); Bryan v. State-Wide Ins. Co., 144 A.D.2d 325, 533 N.Y.S.2d 951 (1988); Pepper Construction Co. v. Casualty Ins. Co., 145 Ill. App.3d 516, 99 Ill.Dec. 448, 495 N.E.2d 1183 (1986); Maryland Casualty Co. v. Peppers, 64 Ill.2d 187, 355 N.E.2d 24 (1976). See also Todd R. Smyth, Annotation, Duty of Insurer to Pay for Independent Counsel When Conflict of Interest Exists Between Insured and Insurer, 50 A.L.R.4th 932, 944-46 (1986) and (Supp. 1994). As one court reasoned: In cases where an insurer asserts either policy or coverage defenses, and defends its insured under a reservation of rights, there are various conflicts of interest between the insurer and the insured... . First, if the insurer knows that it can later assert non-coverage, or if it thinks that the loss which it is defending will not be covered under the policy, it may only go through the motions of defending: `it may offer only a token defense... . [I]t may not be motivated to achieve the lowest possible settlement or in other ways treat the interests of the insured as its own.' ... Second, if there are several theories of recovery, at least one of which is not covered under the policy, the insurer might conduct the defense in such a manner as to make the likelihood of a plaintiff's verdict greater under the uninsured theory... . Third, the insurer might gain access to confidential or privileged information in the process of the defense which it might later use to its advantage in litigation concerning coverage. CHI of Alaska, Inc. v. Employers Reinsurance Corp., 844 P.2d 1113, 1116 (Alaska 1993).