Author, Sam Brown, Account Executive, Rancho Mesa Insurance Services, Inc.

You hoped this day would never come, but it’s time to notify your insurance agent of a liability insurance claim. You know you need to retain defense counsel, but who chooses the firm and pays the bills?

To answer this question, it’s important to understand the difference between “duty to defend” and “reimbursement” policy language. It is this language which determines who selects legal counsel.

Duty to Defend                                                                       

Duty to defend is a term used in insurance policies “to describe an insurer’s obligation to provide defense against claims made under a liability insurance policy,” according to the International Risk Management Institute.

Once the claim is made, the insurer selects and retains counsel for the insured, typically choosing from a panel of highly regarded law firms at negotiated rates. Appointing a law firm with whom there is a strong working relationship can slow the wearing down of policy limits and simplify the billing process between the law firm and insurance company.

Reimbursement

Conversely, a reimbursement policy form obligates a policyholder to provide and pay for its own defense, subject to the insurer’s written approval of the firm and rates. The insurer is then obligated to reimburse the policyholder for defense costs.

While selection of counsel can be preferred, a reimbursement form requires policyholders to take an active role in managing legal expenses. Policyholders should also exercise patience as the insurer conducts a detailed bill review and submits adjustments. Submitting monthly invoices to the insurer can help avoid friction.

If considering a reimbursement form, an honest assessment of your company’s balance sheet will help determine if paying the legal bills upfront and patiently awaiting reimbursement is worth the flexibility in choosing defense counsel.

If you have questions about your current insurance policies or are interested in discussing this subject further, please contact me at sbrown@ranchomesa.com or (619) 937-0175.