An Insured's 'Right' to Independent Counsel In New York

As a matter of conventional wisdom, if an insurer reserves its right to deny coverage, even while agreeing to defend an insured against a third party's claim, or denies coverage for a loss while accepting the duty to defend the insured, the insured has the right to be represented by defense counsel chosen by the insured and paid by the insurance carrier. The rationale for this result is that a reservation of rights or disclaimer of indemnity creates a conflict of interest between the insured and the insurer. Lawyers familiar with liability insurance issues recognize this principle as axiomatic. (See “Right to Independent Counsel: Effectively Implement and Insurer's Duty to Defend,” NYLJ, Sept. 10, 2012.) However, while the principle may be simply stated, its application, not surprisingly, is more complex. When does the “right” arise in New York? Who gets to choose? What does “independent” mean? The right answer to each of these questions is, It depends.