This article originally appeared in the June 2022 issue of Security Business magazine. When sharing, don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter.
Everyone loves to make fun of lawyers: It was so cold last winter that I saw a lawyer with his hands in his own pockets. Funny. Hurtful…but funny!
Lawyers are regularly the subject of jokes and ridicule; however, studies show that, as much as people are skeptical of lawyers generally, they usually love their own lawyer.
Maybe you run a company and regularly interface with lawyers. If so, you probably work with lawyers who you trust to protect you.
In the security industry, there is inherent risk in much of what lawyers do. If you do not have the right lawyer, you are at greater risk of financial and reputational harm; thus, it may benefit you and your company to negotiate counsel selection provisions in your insurance policies and commercial contracts.
Why You Need a Counsel Selection Provision
A counsel selection provision gives your company the right to select or approve defense counsel if a claim is made against your company or one of its employees or owners. Seems logical – as companies usually get to select their own counsel, right? That may not apply when someone else is paying for that counsel – as is usually the case when an insurance policy applies, or someone else has agreed to indemnify you for the attorneys’ fees and any resulting damages.
In the insurance context, it is very common that the insurer – not the insured – has the right under a typical insurance policy to appoint legal counsel to defend against a claim. The insurer is generally obligated to pay the legal fees and expenses incurred in the defense of the claim and obligated to pay, subject to the limits of the policy, for any resulting judgment (or settlement). So, it makes sense that they would get to choose counsel; however, larger companies (like some of my clients) generally buy bigger polices and pay higher premiums. Therefore, they have greater leverage to demand the right to choose their own counsel.
In the indemnity context, it is not uncommon for contracting parties to agree to shift the risk of loss to one or the other for a particular liability. For example, Company A contracts to provide services to Company B and, in consideration of payment, agrees that if it commits negligence resulting in injury to a third party, it will indemnify Company B.
Company A (known as an indemnitor) may prefer to choose counsel – as they are paying; however, Company B may have sufficient bargaining power to demand its own counsel (perhaps subject to billing rate caps or other limitations). At a minimum, it may demand that its own counsel have the right to be involved and consulted on major decisions and strategy – even if Company B may not be fully reimbursed for its own counsel.
Potential Pitfalls
Bluntly, if you are not trying to negotiate these rights, you are setting yourself up for problems:
1. Insurers or indemnitors will appoint someone who meets their qualifications, not yours. The appointed counsel may have no knowledge of the security industry, your company, your technology, your personnel, or how you conduct business. This actually leads to higher costs, lower quality work product, and more inconvenience for you and your employees.
2. Insurers or indemnitors do not care about your reputation or your business principles. If they have the right to appoint counsel, they probably have the right to direct strategy, including resolution strategy. They may settle a case that you would never settle. They may compromise your principles, disregard your reputation or otherwise make choices through their appointed counsel with which you do not agree.
3. Attorneys appointed by insurers or indemnitors often hold an allegiance to whomever hired them (i.e., not you!). This is particularly true in the insurance context – where law firms have to be approved by the insurer and may be eligible for repeat work. While any law firm appointed by your insurer will owe you an ethical obligation, their loyalty, as a practical matter, is often to the insurer.
A Worthy Investment
Over many years, I have been retained by corporate clients as their appointed counsel in matters subject to insurance or indemnity. This has provided my clients with comfort knowing that the matter is being handled by their trusted advisor. It gives them greater access to the defense, greater control over resolution strategies, and a familiar face upon whom they can call at any time. I have also been retained to monitor the work of appointed counsel – to give my clients assurance that their interests are being protected (not just the interests of the insurer or indemnitor). While this role comes at a cost to the client (meaning it is typically not reimbursed), my clients deem this investment worthy to protect the company and its reputation.
So, yes, people make fun of lawyers, but they usually like their own lawyers. Demand the right to choose your counsel. Then, you can make all the lawyer jokes you want – knowing that your chosen counsel will laugh and then get back to fighting for you!
Timothy J. Pastore, Esq., is a Partner in the New York office of Montgomery McCracken Walker & Rhoads LLP (www.mmwr.com), where he is Vice-Chair of the Litigation Department. Before entering private practice, Mr. Pastore was an officer and Judge Advocate General (JAG) in the U.S. Air Force and a Special Assistant U.S. Attorney with the U.S. Department of Justice. Reach him at (212) 551-7707 or by e-mail at [email protected].
