I'm presenting at a webinar on Reservations of Rights: Ethical Rules, Conflicts, Right to Independent Counsel on Wednesday, April 22, 2026 at 1 PM; discount codes available

Ethics of Insurance Defense Under a Reservation of Rights: Ethical Rules, Conflicts, Right to Independent Counsel

This CLE webinar will discuss how policyholders, insurers, and panel counsel determine whether a reservation of rights (ROR) creates a disqualifying conflict of interest for panel counsel at various stages of the case, and the possible consequences if a conflict exists. We will offer guidance and best practices for insurers, policyholders, panel counsel, and independent counsel. The program will discuss roles in the tripartite relationship, defense counsel's ethical obligation if a conflict arises, and examples of disqualifying conflicts in various jurisdictions.

Description

When an insurer agrees to defend its policyholder under a reservation of its right to later litigate or deny coverage, a particularly delicate and dynamic tripartite relationship is created. Everyone involved in this relationship needs to be aware of conflicts and potential conflicts of interest, and sometimes determine how to use them to their advantage.

What constitutes a conflict within the context of the tripartite relationship is often hotly contested. The case law continues to develop and no less than 50 American jurisdictions have issued rulings on these important issues.

An insurer's reservation of rights will necessitate panel counsel to evaluate many ethical duties: undivided loyalty (Rule 1.7), disclosure (Rule 1.4), confidentiality (Rule 1.6), and limitations on compensation from insurers (Rule 1.8). At the same time, policyholders need to make a determination of whether the convenience and known competence of panel counsel is outweighed by the advantages of independent counsel.

Listen as this esteemed panel examines the scope of the appointed defense counsel's ethical obligations, discusses the insured's right to independent counsel, reviews emerging issues in independent counsel litigation, and offers best practices for policyholders and insurers. 

You can sign up here.  https://www.barbri.com/course/professional-development/CLE/ethics-of-insurance-defense-under-ror-model-rule-17-conflict_2026-04-22

Feel free to use and share this code for 50 percent off tuition:

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If this program remains cost-prohibitive for you even at 50 percent off, please reach out to me.  I have a limited number of free tuition spots, first-come, first-served.  

An insurer's duty to settle when defending under a reservation of rights

As a general rule an insurer is liable to an insured for failing to settle a case within the policy limits “if no reasonable insurer would have failed to settle the case within the policy limits.” Hartford Casualty Ins. Co. v. New Hampshire Ins. Co., 417 Mass. 115, 121 (1994).

I am not aware of any Massachusetts case that discuss the duty of an insurer to settle where the insurer is defending under a reservation of rights. However, an insurer and an insured may agree that the insurer will settle a case within the policy limits and then seek indemnification from the insured on the grounds that there was no coverage under the policy. Medical Malpractice Joint Underwriting Ass’n v. Goldberg, 425 Mass. 46, 56 and fn 26 (1997). If the insured agrees to those terms, there is no reason why the general rule should not apply.

When your insurer must pay your loss

As I discussed in my last post, an insurer has two duties: the duty to defend and the duty to indemnify. The insurer may have a duty to defend but ultimately no duty to indemnify.

While the duty to defend is determined by what is alleged in the complaint, the duty to indemnify depends on the "true" facts as determined by a court. So, going back to the example in the last post, if you are insured for injuries caused by apples falling from your apple tree, your insurer will defend you if someone states in a complaint that he or she was injured by an apple falling from your apple tree.

The case eventually goes to trial. Maybe you win at trial altogether. Your attorney convinces the jury that the plaintiff was not injured; or was not injured by something falling out of your tree. The plaintiff does not appeal. You are all set. The insurance company has paid an attorney to represent you; no damages have been found against you; and the case is over. While you have been inconvenienced and undoubtedly stressed by the lawsuit, you have not suffered any monetary loss.

But if you lose at trial, the insurer, having reserved its rights at the beginning of the case, will make a decision about whether to pay your damages awarded by the court to the plaintiff or to deny coverage. If the facts at trial demonstrated that the plaintiff was hit by an apple that fell from your tree--the very thing that your insurance policy covers--the insurer will pay the damages.

If the facts at trial showed that the plaintiff was hit by a falling acorn, then the insurer will "disclaim coverage"--refuse to pay the claim. Unless you have other insurance that will cover the claim, you will be personally liable to pay the damages assessed.

If you disagree with the insurer's view of the facts, you can file a "declaratory judgment" lawsuit. I will discuss that in a future post.

What does that letter from your insurer mean?

You have been sued. You immediately notify your insurance carrier. An adjuster--an employee of the insurance company assigned to your claim--contacts you, asks you some questions, and says the insurer will get back to you.

A few weeks later you get a letter from the insurer that quotes a lot of gobbledygook from your insurance policy. Towards the end, the letter states that the insurer will "defend you" in the lawsuit, but is "reserving its rights to disclaim coverage." What does this mean and what should you do?

The insurer is telling you that it will pay for an attorney to defend you in the lawsuit. This is called defending the suit. However, at the end of the lawsuit, if you lose, the insurer may decide that it will not pay the judgment against you. This is called the insurer reserving its rights.

If you receive a reservation of rights letter you have some options.

* You can take the path of least resistance and hope for the best. The insurer will choose and pay for an attorney to defend you in the lawsuit. Maybe you will win, and if you lose maybe the insurer will pay the claim. (In a later post I will talk about when this may happen.)

* The insurer will probably not tell you this, but in most cases when you have received a reservation of rights letter you can insist that the insurer allow you to choose the attorney that will defend you and that the insurer pay that attorney's fees.

* You can agree to the attorney the insurer hires on your behalf, but you also hire and pay for your own attorney to monitor the lawsuit and make sure that your rights are being adequately protected.