Special problems: handling an uncooperative insured.

• Position: Part 9 - Manual for lawyers representing insured defendants

Handling an Uncooperative Insured

In the discussion of the scope of a defense lawyer's retention in Chapter II, it was emphasized that defense lawyers are not engaged to handle coverage issues and should steer clear of them. The danger of becoming involved in coverage issues arises when an uncooperative policyholder refuses to answer interrogatories or appear for a deposition.

Because defense lawyers encounter uncooperative insureds with some frequency, the subject of dealing them merits separate and more extended treatment. This section contains a general discussion. The next sections focuses on the manner of handling a policyholder who offers unexpected testimony at trial.

Standard insurance contracts contain cooperation clauses that obligate policyholders to help insurance companies investigate, defend and settle claims. Yet, few defense lawyers know the ins-and-outs of the cases that construe these clauses, and the nuances are important. Some jurisdictions require prejudice to the carrier before an insured's failure to cooperate will justify a decision to cancel a paid defense. Not all jurisdictions define prejudice the same way. Facts also matter. Conduct that qualifies as non-cooperation in one case or court may not rise to the same level in another.

Because the law governing the insured's duty to cooperate is complicated, a defense lawyer who tells an insured that coverage will be lost unless the policyholder acts in a particular way runs a risk of making a mistake. If the defense lawyer advises the insured to cooperate for the sake of preserving coverage, the insured may rely on this advice, sustain harm, and sue. The lawyer also needlessly steps outside the role of defending the liability claim by advising one of the clients on a coverage issue. Even a defense lawyer who has actual knowledge that an issue relates to coverage has only a duty to warn a policyholder of a possible danger and to advise the policyholder to engage separate counsel on the subject.

If the urge to enlighten the policyholder on the subject of coverage must be restrained, the urge to educate the insured about the impact helpful participation can have on the defense must be allowed to flourish. Insurance coverage may diminish a policyholder's enthusiasm for devoting time and energy to a lawsuit by reducing the exposure to loss, but it does not affect the potential value of participation at all. The reasons that justify a defendant's participation in a lawsuit in the absence of insurance carry just as much force when a carrier bears the potential loss. A defense lawyer's job is to motivate a defendant to participate as fully as need be by explaining the potential benefit to the defense clearly and forcibly.

When a policyholder faces a risk of personal liability above the policy limits, a defense lawyer can freely emphasize the possibility that helpful participation will reduce the amount the insured winds up paying. It is a standard tactic for litigators of all kinds to motivate clients by explaining how participation offered in a spirit of cooperation can save them money down the line.

Even when an insured faces no excess liability, a refusal to cooperate may saddle the insured with other costs that he or she would rather avoid. For example, when an insured misses a deposition or fails to answer interrogatories, a judge may sanction the insured directly. As another example, a judge may hold an insured personally responsible for costs and legal fees the plaintiff's incurs in connection with a motion to compel. When personal liability is imposed in this situation, the court usually will not allow the policyholder to obtain reimbursement from a third party, such as the insurer.

Because sanctions are a possibility, it is important for a defense lawyer to keep a record of efforts made to obtain an insured's compliance with court-related responsibilities. Defense lawyers should not become complicit in policyholders' irresponsible acts. By memorializing efforts to obtain cooperation in writing or otherwise, a defense lawyer creates a record of good conduct that will come in handy when a motion for sanctions is filed by the other side.

Impeaching the Insured, Your Own Client

Every jurisdiction that has addressed the issue, except Massachusetts, has held or stated that insurance defense counsel may not impeach the insured in cross-examination or in closing argument. Perhaps the leading case is Pennix v. Winton, 143 P.2d 940 (Cal.App. 1943), in which defense counsel in closing argument contended that there was collusion between the plaintiff and his client, the insured, and said that his client's version of the accident was "the most ridiculous story you every [sic] heard in your life." Apparently the jury was persuaded, since it returned a defendant's verdict.

On appeal, judgment was reversed because of counsel's closing argument. The court stated:

The confusion of a jury...