D&O Insurance Fires Our Attorney

Started by MikeW26 • 17 replies • 363 views

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MikeW26 (Texas)
Posts: 6

Posted:

I am on the Board of a small POA in Texas and the POA is being sued by a member. Our D & O insurance initially agreed with our choice of an attorney to represent us - a very good, highly recommended POA attorney, but not cheap. We are now 6 weeks from trial and the insurance company just informed us that they have dispute with the attorney regarding their bills. As a result, the insurance company advises that they are firing our attorney and assigning us to someone of their choosing. Further, they have advised that we have no voice in this matter and do not need our consent in this matter. Is this legal? If so, then an insurance company can hire the lowest grade, lowest quality attorney available in order to save a nickel, and we have no choice in the quality of representation we get. Really doesn't sound legitimate.

I would appreciate other's advice as to whether or not this is standard practice.

SheliaH (Indiana)
Posts: 6,964

Posted:

Have you read the policy? That's where you start and I know it it's like watching paint dry, but usually buried in the fine print is language like the company reserves the right to hire the attorney. If that's there, you may have to suck it up for now.

In fact , everyone on the board should sit down and read the policy so. you have an understanding as to what's in it. If necessary, everyone can take a section and explain it to everyone else.

After this crisis passes, you can talk to the company about changing it, but you want to first hope you win this case. Otherwise, the insurance company may Jack up your rates or drop you altogether. If you get another company, expect higher premiums.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By MikeW26 on 02/28/2023 3:48 PM
I am on the Board of a small POA in Texas and the POA is being sued by a member. Our D & O insurance initially agreed with our choice of an attorney to represent us - a very good, highly recommended POA attorney, but not cheap. We are now 6 weeks from trial and the insurance company just informed us that they have dispute with the attorney regarding their bills. As a result, the insurance company advises that they are firing our attorney and assigning us to someone of their choosing. Further, they have advised that we have no voice in this matter and do not need our consent in this matter. Is this legal? If so, then an insurance company can hire the lowest grade, lowest quality attorney available in order to save a nickel, and we have no choice in the quality of representation we get. Really doesn't sound legitimate.

Whoa, whoa whoa. Why would an insurance company want to hire an attorney that might potentially lose the lawsuit and so cost the insurer even more?

From my personal observation (like at least four times now, four completely different lawsuits), the insurance company always picks the attorney.

I think anyone who ends up being a client of an insurer-provided attorney needs to remember that the attorney has dual loyalties (regardless of what the attorney claims): One to the client, and another to the insurance company.

I advise getting a copy of the insurance policy and reading what it says. Also check to see whether the policy has a "hammer clause." The latter lets an insurer agree to a settlement even if the HOA opposes the settlement.

MikeW26 (Texas)
Posts: 6

Posted:

Thanks for your quick reply. I have read the policy - it is clearly written by lawyers on the Insurance Company's behalf. In any case, I do not see anywhere that it specifically states that the Defendant can select pick their own attorney. But also nowhere to I see it state that after a Company agrees to an attorney, that the Company can fire that attorney and assign an attorney of their choosing.

MikeW26 (Texas)
Posts: 6

Posted:

Thanks for your comments. And I appreciate knowing that in your cases, the insurance company did select the attorney.

BTW, our policy does require HOA consent on any settlement. But it is not clear regarding the choice of representation.

LoriM15 (Florida)
Posts: 1,009

Posted:

My experience is the insurance company likes to hire an attorney that gets them the lowest cost settlement at the least expense. Another non-profit that I lead (not my HOA) had an attorney that our old insurance company had recommended. She's a bulldog and doesn't give in. Frankly, she's a fantastic attorney and we can always count on her advice. New insurance company would not let us use her. They recommended another attorney who is good, but all he wants to do is settle. He's always ready to give a disgruntled employee a small settlement rather that fight. There's no principles involved - it's all about money.

The second approach isn't wrong, it's just advantageous for the insurance company.

I suspect your insurance company wants your new attorney to find the cheapest and easiest way to get the thing settled. And not much you can do about it, because do you really want to be at odds with the insurance company that is paying the bills for your representation?

MelissaP1 (Alabama)
Posts: 13,836

Posted:

The problem is on how insurance companies "code" their claims. They pay out a certain amount of money for X claim or expense. That doesn't mean your attorney your HOA hired did not go out of that range when they submitted their bill. Which would leave someone holding the bill. The insurance not going to and the lawyer would charge the HOA the difference. The insurance is going to hire their own lawyer because they will work in their billing hours versus an outside attorney.

Remember this is basically making a "claim" on your insurance. The insurance has the control at this point.

Former HOA President

LetA (Nevada)
Posts: 2,679

Posted:

Is this attorney for the HOA your HOA corporate council that handles your day to day HOA affairs; or is the an attorney that was
chosen to specifically handle this one affair?

MikeW26 (Texas)
Posts: 6

Posted:

It is for an attorney that specializes in HOA litigation. We didn't really have a regular POA attorney in the recent past.

SheliaH (Indiana)
Posts: 6,964

Posted:

Quote:

Posted By MikeW26 on 02/28/2023 6:03 PM
Thanks for your quick reply. I have read the policy - it is clearly written by lawyers on the Insurance Company's behalf. In any case, I do not see anywhere that it specifically states that the Defendant can select pick their own attorney. But also nowhere to I see it state that after a Company agrees to an attorney, that the Company can fire that attorney and assign an attorney of their choosing.

Contracts are always written to favor one side over another, so that shouldn't surprise you. As a practical matter, it would make sense for the insurance company to pick the attorney because they're picking up the bill (if the association wins, they may go after the homeowner for reimbursement of their expenses). Insurance companies are notorious for not wanting to pay at all, and if they have no choice, do things on the cheap. And then jack up your rates or just drop you because having you as an insured would be too expensive.

After this is settled (one way or the other), you may want to take a hard look at what prompted this lawsuit in the first place and consider what can be done to prevent future incidents in the future. You don't say what this is about, but if it's something like a denial for an exterior change request, it might not hurt to review your procedures and make sure they're followed (e.g. make sure notices are sent in a timely manner and there's an appeals process). It won't stop people from suing you but could increase your chances of winning if the homeowner takes it that far.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Mike

What alleged offense is the POA being sued for?

JohnS111 (New York)
Posts: 228

Posted:

Quote:

Posted By ElleN on 02/28/2023 4:09 PM

On the first, second and last sentences, I agree completely.

On the sentence about "dual loyalties", the lawyer will have a duty to his/her client. I don't know if the client is the insurance company or the HOA. Any even halfway-reputable lawyer will be sure to be loyal to the client. (Not sure how many HOA lawyers are even halfway reputable, though.)

ElleN (Idaho)
Posts: 4,420

Posted:

In situations where an insurance company provides an attorney to the HOA to defend against a plaintiff's lawsuit (or possibly a threat of a lawsuit) against the HOA, my understanding is that the HOA is the client, period. //However//, I have observed twice now with two different HOAs where I was insurance companies pressuring attorneys to keep costs low. In one instance this included the insurance company micro-managing a part of the defense such that the attorney was discouraged from being aggressive. And I do mean the insurer and attorney were in some dispute over whether the attorney could do such-and-such and still be defending the client, as opposed to going on the offense to a small extent. Insurance companies in general do not pay attorneys to convert their clients from "defendant" to "defendant and counter-plaintiff." In my opinion any attorney wanting further business from the insurance company is going to have dual loyalties. Attorneys are human.

Maybe the best example of this dual loyalties is the hard reality of an insurance contract "hammer clause." Where a "hammer clause" is present, the insurance company has the right to settle a lawsuit rather than let the lawsuit go to trial. Settling may very well not be in the best interests of the HOA, but an insurer-provided attorney for a HOA is required to respect the contract with the insurance company. In this example, the loyalties are split, as a matter of law and reality.

One of my HOAs had around $400,000 owed by around 30% of owners. One delinquent owner ultimately filed a lawsuit, pro se. The owner said he should not have to pay his assessment, because of ___, ___, and ____. The claims adjuster instantly tried to settle with the delinquent owner. The board got wind of this and explained how many delinquent owners there were and that $400,000 was on the line. A few weeks later, the insurer assigned an attorney to the case. The attorney got the case dismissed 1.5 years later (which was fine, all things considered).

JohnS111 (New York)
Posts: 228

Posted:

Quote:

Posted By ElleN on 03/05/2023 5:40 AM
In situations where an insurance company provides an attorney to the HOA to defend against a plaintiff's lawsuit (or possibly a threat of a lawsuit) against the HOA, my understanding is that the HOA is the client, period. //However//, I have observed twice now with two different HOAs where I was insurance companies pressuring attorneys to keep costs low. In one instance this included the insurance company micro-managing a part of the defense such that the attorney was discouraged from being aggressive. And I do mean the insurer and attorney were in some dispute over whether the attorney could do such-and-such and still be defending the client, as opposed to going on the offense to a small extent. Insurance companies in general do not pay attorneys to convert their clients from "defendant" to "defendant and counter-plaintiff." In my opinion any attorney wanting further business from the insurance company is going to have dual loyalties. Attorneys are human.

Maybe the best example of this dual loyalties is the hard reality of an insurance contract "hammer clause." Where a "hammer clause" is present, the insurance company has the right to settle a lawsuit rather than let the lawsuit go to trial. Settling may very well not be in the best interests of the HOA, but an insurer-provided attorney for a HOA is required to respect the contract with the insurance company. In this example, the loyalties are split, as a matter of law and reality.

One of my HOAs had around $400,000 owed by around 30% of owners. One delinquent owner ultimately filed a lawsuit, pro se. The owner said he should not have to pay his assessment, because of ___, ___, and ____. The claims adjuster instantly tried to settle with the delinquent owner. The board got wind of this and explained how many delinquent owners there were and that $400,000 was on the line. A few weeks later, the insurer assigned an attorney to the case. The attorney got the case dismissed 1.5 years later (which was fine, all things considered).

A lawyer who is loyal to someone who isn't his or her client is putting himself or herself at risk of a malpractice claim. Lawyers are human, but they are also bound by strict ethics rules and can be punished by the state bar if they don't follow them. In my experience, HOA lawyers ignore those ethics rules, figuring that homeowners generally don't know about how they work and won't do anything in case of a violation, but that doesn't erase those ethics rules and the obligation to follow them.

ElleN (Idaho)
Posts: 4,420

Posted:

Unless otherwise specified by contract or agreement, a North Carolina insurance defense attorney has two clients, the insured and the insurer. To avoid any favoritism possibly engendered by the insurer's long term relationship with the attorney or by the insurer paying the attorney's bills, the insured is deemed the "primary" client, whose "best interest must be served at all times." RPC 92

What does "primary" client mean in terms of a lawyer's conduct? It appears the attorney at least owes the insured a heightened duty of communication and loyalty. See RPCs 92 and 118. The crux of dual client representation, however, is uncompromising allegiance to two clients. That is, absent a waiver, the attorney may advocate and pursue only courses of action that make both clients better off. Therefore, despite the insured's "primary" designation, where the interests of the insured and insurer diverge, the attorney may not subordinate the interests of the insurer in favor of the insured.

More at https://www.ncbar.gov/for-lawyers/ethics/ethics-articles/an-insurance-defense-attorneys-dual-client-problem/

Conflicts have long been acute in insurance defense practice. Conflicts of interest here trace directly to questions of client identity and, specifically,to the concept of dual representation, commonly described as the dual client doctrine. The dual client doctrine holds that a lawyer appointed by an insurance company to defend its insured represents both the insurer and
the insured, meaning that the defense lawyer has an attorney-client relationship with both. As the court in National Union Fire Insurance Co. v. Stites Professional Law Corp.17 once explained, “As long as the interests of the insurer and the insured coincide, they are both clients of the defense attorney and the defense attorney’s fiduciary duty runs to both the insurer and the insured.”18 A defense lawyer therefore serves two masters in any given case... The dual client doctrine appears to represent the majority rule;19 however, many jurisdictions hold that the insured is the defense lawyer’s sole client.20

More at https://www.americanbar.org/content/dam/aba-cms-dotorg/products/inv/book/412676242/chap1excpt-5190567.pdf

JohnS111 (New York)
Posts: 228

Posted:

ElleN, thanks; I stand corrected then. I'm not an insurance defense lawyer.

MikeW26 (Texas)
Posts: 6

Posted:

My thanks to all that have provided input. Our Insurance company has now selected and assigned our POA a new attorney. We will see how it goes.

MikeW26 (Texas)
Posts: 6

Posted:

My thanks to all that have provided input. Our Insurance company has now selected and assigned our POA a new attorney. We will see how it goes.

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