At one time or another, just about every agent or brokerage gets sued. It’s a fact of “business life.” When that happens you can get stuck with the carrier’s “panel counsel”—or you might want to pick us to defend you. After all, three of our attorneys have been brokers for 30 years. Each. The fine print in your policy says you can. We’d bet the carrier didn’t tell you that.
When a brokerage gets sued, it’s generally for negligence and some form of intentional misconduct. Why? Because plaintiffs want “punitive damages” and they can’t get that from a simple negligence claim. That’s a problem for the brokerage and agent, because E&O (errors and omissions) insurance doesn’t cover “intentional misconduct” claims.
E&O insurance, however, must pay for defending both claims, if they are brought in the same lawsuit; but the carriers also “reserve their right” to not pay punitive damages and to seek reimbursement. That’s done by issuing a “Reservation of Rights” letter. When that happens, a conflict exists between the insurance carrier and the broker. That’s when I step in: as the hand-picked independent attorney for the brokerage and agent. (This is also called “Cumis counsel.”)
E&O Carriers and Cumis Counsel
Insurance companies don’t generally tell a broker (or an agent) that they have the right to pick their own independent lawyer to defend them—and have that lawyer paid for by the E&O Carrier.
Why? Because E&O Carriers can try to restrict the aggressiveness of the defense provided by their hand- picked “panel counsel” when defending claims, by forcing panel counsel to enter into “Litigation Management Agreements” that place limits on the activities of those panel lawyers. Of course, all the paperwork will be sure to say to the contrary.
But even the California courts acknowledge that a law firm that gets just about all its business from an insurance company might be more inclined to minimize the carrier’s costs, at the broker’s expense; and the courts have mandated that the insured broker, or agent, has the right to pick his or her own lawyer when that kind of conflict of interest is shown. (Cumis counsel don’t sign, and don’t have to honor, the Insurance Company’s Litigation Management Agreements.)
HLF clients have chosen me to defend them, when the circumstances allow for it (and they generally do!), because of my expertise in real estate law (after all, I’ve been a broker too—for more than 30 years, and sold or leased my share of commercial (I’m a CCIM too) and residential property). My clients like the aggressive way we defend all claims made against them, especially those demanding punitive damages.
My best advice is that you should insist on your right to independent counsel, or Cumis counsel, whenever you can.
E&O Insurance and Bad Faith claims
The right to independent counsel isn’t the only thing some insurance carriers keep from brokers. Sometimes they keep the insurance itself. Carriers regularly deny claims, even claims that should be covered.
My staff and I have sued insurance companies for their “Bad Faith” refusal to cover brokers who bought E&O insurance. In one case, I got the broker $1,000,000 in a settlement of just such a Bad Faith case against an E&O insurance company. In another, I got the client $625,000. (No, I won’t, and can’t, guarantee you a similar result.)
But isn’t it nice to know that there is someone who can be on your side in such a case?
Got a claim? Got denied? Give us a call or send us an email from the contact form on the right, either way.