A policyholder is usually thrilled when its insurer agrees to provide a defense of a claim. However, all too often, an insurer’s position on how that defense is to be provided surprises the policyholder. Sometimes, the policyholder learns for the first time that it does not have the right to select defense counsel. Other times, it learns that it is allowed to select defense counsel but must do so from a list of pre-approved panel counsel. In yet other circumstances, the policyholder is permitted to select its own defense counsel but may be limited to the rates approved by the insurance company (which are sometimes far below what the policyholder’s preferred counsel is charging).  

To avoid being put in this predicament in the wake of a claim, policyholders should carefully review their policy provisions relating to selection of defense counsel and payment of defense costs. If your company’s policy permits the insurer to select defense counsel or limits your choice of defense counsel to a panel counsel list, you may still have options.[1] And if your company’s policy gives the insured the right to select defense counsel, be sure to review other relevant provisions that may require the selection to be “mutually agreeable” to both parties or that the insurer consent to the selection by defense counsel. Other policies might give the policyholder the right to select defense counsel but require the insurer only to pay “reasonable attorneys’ fees.” In these cases, insurers often argue that attorneys’ rates are too high and agree to pay only a fraction of the hourly rates.

Carriers are often willing to negotiate pre-approval of preferred defense counsel if the conversation begins before a claim arises. Insurers are able to obtain significant discounts when hiring defense counsel due to the volume of claims that pre-approved counsel receive. As such, your company’s insurer may be unwilling to pre-approve your preferred attorneys at their standard rates. Compromises can often be worked out that involve using blended rates (i.e., one rate for all attorneys at the firm, regardless of position) or the policyholder agreeing to pay the delta between the insurer’s approved rate and the attorney’s actual rate.

In addition, even if the negotiation to retain your preferred counsel occurs after a claim has arisen, some carriers are willing to work with their policyholders when a compelling case can be made. Carriers will consider a variety of factors to determine whether the retention of counsel (and approval of their rates) is reasonable, including the nature of the case, the complexity of the issues, the amount of damages in question, the attorney’s expertise and experience, similar rates charged for similar services in the geographic area, and the attorney’s institutional knowledge with the policyholder.


[1] In certain circumstances, such as claims with covered and non-covered allegations or differences in case strategy, you may be entitled to select independent defense counsel, regardless of the policy language. The specific circumstances of the claim and state law are determinative in these situations.