Few issues have proved as expensive or vexing to insurers over the years as whether and when policyholders may retain their own defense counsel due to claimed conflicts of interest on the part of their insurers. An issue that has received relatively little attention up to this point, however, is the extent to which the right to independent counsel may reflect choice of law considerations other than those that might ordinarily be assumed to govern the interpretation of the insurance contract itself.

Morrison & Mahoney partner Michael Aylward discusses how the opposing decisions in Hartford Underwriters Ins. Co. v. Foundation Health Services, Inc. 2008 U.S. App. LEXIS 7621 and PhotoMedex, Inc. v. St. Paul Fire & Marine Ins. Co., 2008 U.S. Dist. LEXIS 8526, highlight the complexity and sophistication of choice of law determinations as applicable in insurance cases. In Hartford, the court held that the law of the state where the insurer was expected to perform, not the place of contracting was also the law to be applied to the insurer’s independent counsel duties. However, in St. Paul, the court held that the home state of the insured controlled both substantive issues of contract interpretation and issues pertaining to the scope of the insurer’s duties vis a vis independent counsel.

Aylward says, “Even when an insurer defends under a reservation of rights, its obligation is only to engage one set of lawyers. As courts have recognized, the insurer is under no separate obligation to pay for a second set of lawyers. This is not to say that the insured could not have refused to accept defense counsel appointed by its insurer had a true conflict of interest existed. In such circumstances, however, the insurer’s obligation is to pay for one set of lawyers or the other, not both.”

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