Laurie & Brennan, LLP Obtains First Impression Judicial Decision Dramatically Expanding the Rights of Policy Holders to have Choice of Counsel

In Perma-Pipe, Inc. v. Liberty Surplus Ins. Corp., No. 13 C 2898, 2014 WL 1600570 (N.D.Ill. 2014) Laurie & Brennan, LLP obtained a first of its kind decision dramatically altering the control a policy holder has over the defense of its insured cases.  L & B represented the interests of Perma Pipe as policy holder that was sued in a property damages case for over $40 million.  Liberty as the insurer agreed to pay defense costs of Perma-Pipe in that case and Liberty then waived any possible defense it may have had to pay for any loss under the policy as a result of judgment or settlement in the property damage case.  Liberty argued that a waiver of any defense allowed it to appoint its lawyers to defend Perma-Pipe and to control the defense.

Perma Pipe argued that it was entitled to choose its own counsel to be paid by Liberty for the defense, rather than be forced to accept defense of the $40 million claim by Liberty’s law firm because Liberty’s policy was only $1 million, thus leaving Perma Pipe exposed. Liberty refused and a lawsuit ensued.

The federal court agreed with Perma Pipe and held that a conflict still existed even though Liberty had allegedly waived all conflicts because there was a non trivial possibility that the damages would exceed the amount of insurance.  The court noted that when the amount of insurance is capped, and the claim is much large than the insurance, the insurer might be tempted to gamble with the insured’s exposure. Perma-Pipe was allowed to choose its counsel to defend it in the property damages case with the defense to be paid by Liberty.

This decision dramatically alters the insurance landscape.  At least in Illinois, policy holders should now be able to control the defense of their cases and have those costs paid by the insurer when the amount claimed exceeds insurance.

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