Illinois Senate Bill 1296: Insured’s Independent Counsel Act
Unique ID: 787f5ea7-66d0-4fa5-8370-cc950cefc0b5
In response to the amendments submitted on April 17, 2015, we've updated this article to ensure you're reading the most relevant information.
Construction Insurance & Legislation
On February 18, 2015, a new bill was introduced to the Illinois Senate entitled Insured’s Independent Counsel Act. The proposed bill would reverse longstanding precedent in Illinois that protected insureds. The bill, if passed, will affect an insured’s right when being defended in litigation where the carrier has reserved its rights to deny coverage.
It’s common for an insured to be defended in a lawsuit by an insurance carrier that has reserved its right to indemnify one or more of the claims. As an example, when a claim against an insured seeks damages for both negligence (covered claim) and willful and wanton misconduct (non-covered claim), it’s common for an insurer to provide a defense, but reserve its rights to indemnify for the non-covered claims. The reservation of rights creates a conflict of interest for the insurer. The insurer owes a duty to defend, but is precluded from controlling the defense.
The Illinois court recognized that an attorney hired by an insurer to defend an insured under a reservation of rights owes a fiduciary duty to both the insured and the insurer, thereby creating a conflict in representation of the insured. The Illinois courts acknowledged that in such a situation the attorney hired by the insurer may be more inclined to protect the insurer’s interests and could theoretically direct the litigation to where there’s no coverage for the insured, which ultimately benefits the insurer. The reservation of rights creates a conflict whereby the insurer relinquishes control of the defense, and the insured is entitled to retain independent counsel of its choice. The insurer is required to pay the fees and costs associated with the defense of all claims in the lawsuit, covered and non-covered.
The proposed Senate Bill would diminish, if not eliminate, the protection afforded to an insured under longstanding case precedent. The Bill in its current form, if passed, would:
- The insurer only has a duty to appoint “independent counsel” if there’s a significant and actual conflict of interest. What constitutes a significant and actual conflict is likely to be disputed between the parties and ultimately litigated.
- The insurer will only reimburse “independent counsel” for fees and costs associated with work on the covered claims. Presumably, the insured will be required to pay counsel for fees and costs associated with non-covered claims.
- The insurer will establish the hourly rate for independent counsel. Previously independent counsel was reimbursed his usual rate for work.
- Independent counsel will be required to adhere to the insurer’s guidelines.
- The insurer would propose three "independent" attorneys to the insured to choose from or the insured may propose its own independent counsel if they have significant experience and carry malpractice insurance.
The Bill, as proposed, seeks to modify long standing Illinois case law that protected the insured’s rights to control the defense in situations where the insurer’s reservation of rights created a conflict of interest. If passed, the Bill would ultimately reduce the insured’s rights and benefits. We encourage you to write to your congressman asking that they vote against this proposed bill.
To view the complete text of the proposed bill, please click here, then click “Full Text" then "Senate Amendment 001" at the top of the screen. Locate your Senator or Congressperson by visiting www.ilga.gov.
ABOUT THE AUTHOR