As claim adjusters know, a thorny issue in many liability claims is whether the insured is entitled to independent counsel. Jurisdictions take three general approaches to independent counsel.
- In some jurisdictions, such as Mississippi, whenever a carrier is defending under a reservation of rights, the insured is entitled to independent counsel. Moeller v. American Guar. and Liability Ins. Co., 707 So. 2d 1062, 1069 (Miss. 1996).
- In other jurisdictions, such as Pennsylvania, an insured is entitled to independent counsel only when an “actual conflict” arises between the insured and carrier. See St. Paul Fire & Marine Ins. Co. v. Roach Bros. Co., 639 F. Supp. 134, 138-39 (E.D. Pa. 1986).
- Finally, in states such as Alabama, the insured is never entitled to independent counsel by operation of law. Instead, the carrier has an enhanced obligation of good faith when operating under a reservation of rights. See L & S Roofing Supply Co., Inc. v. St. Paul Fire & Marine Ins. Co., 521 So. 2d 1298 (Ala. 1987).
The applicable approach to independent counsel is clear when the policy was delivered to the insured in the same state where the litigation is located. However, a choice of law issue arises when the insured is located in a separate state. Courts have traditionally applied the forum’s contract choice of law rule to determine the applicable standard. That approach generally results in applying the independent counsel standard of the state where the policy was delivered.
However, the Ninth Circuit took a contrasting approach in New York Marine & Gen. Ins. Co. v. Heard, No. 23-3399, 2024 WL 4879471, at *2 (9th Cir. Nov. 25, 2024). In that case, Amber Heard filed a coverage action against her carrier relating to the carrier’s defense of Heard in the defamation action filed against her by her ex-husband Johnny Depp. New York Marine had agreed to defend Heard pursuant to a reservation of rights in the defamation action, filed in Virginia. Heard argued that as a California resident, she was entitled to independent counsel under California’s Cumis statute, Cal. Civ. Code § 2860. The carrier refused on the basis that Virginia law, which would not provide for independent counsel, applied instead.
The Ninth Circuit agreed with the carrier. The court explained that defense counsel “litigated the defamation case in Virginia, were members of the Virginia bar, and were bound by Virginia’s, and not California’s, ethics rules…. Potential disputes between an insurer and insured over indemnification therefore do not put Virginia lawyers in a conflicted position. New York Marine had no obligation to provide Heard with independent counsel, and thus did not breach its duty to defend her.” Heard, 2024 WL 4879471 at *2.
Heard serves as a tocsin bell to carriers. While other courts have not yet adopted the Ninth Circuit’s approach, Heard could signal a shift in courts’ approach to independent counsel choice of law issues. Carriers should keep an eye on this issue as it continues to develop.