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Some would call it dilly. Some would call it dally. Some would call it dilly-dally.
The Court in this case called it estoppel: Haley v. Kolbe & Kolbe Millwork Co., 97 F. Supp. 3d 1047 (W.D. Wis. 2015).
This case presented a large commercial policyholder, Kolbe. The policyholder was sued for damages in an alleged class action "in which plaintiffs allege that defendant Kolbe & Kolbe Millwork Co. sold them defective windows." Haley v. Kolbe & Kolbe Millwork Co., 97 F. Supp. 3d 1047, 1048 (W.D. Wis. 2015). On February 14, the policyholder tendered the defense of the class action to its liability insurers. That was the day after the complaint was filed against it.
A little over two weeks after that, the liability insurers retained coverage counsel.
It took them four months to select defense counsel and by then, it wasn't the same defense counsel who had already been defending the insured during those four months.
But back to the beginning of the matter, in and after February, 2014. At that time, the policyholder retained defense counsel to meet immediate deadlines in the underlying case. The policyholder kept its liability insurers advised for the next month concerning the policyholder's choice of defense counsel and counsel's rates and experience. The record showed that the carriers did not communicate anything that resembled an objection or a question about the policyholder's selection, for four months, until June, 2014. That was the first time that the carriers provided names of defense counsel that they might choose to defend the policyholder in the class action that was filed in February.
The Court summarized the following undisputed facts in existence by that time:
By June 2014, Foley & Lardner [the defense counsel selected by the policyholder] had performed the following work on this case: (a) answered the original complaint; (b) prepared initial disclosures and a Rule 26(f) report; (c) filed a motion for a protective order with plaintiffs; (d) conducted internal interviews to gather facts regarding plaintiffs' claims; (e) issued discovery requests to plaintiffs and reviewed their responses; (f) reviewed plaintiffs' discovery requests to defendants and addressed concerns about the breadth of those requests which required the filing of a motion; (g) began the process of locating, assembling, and producing a large volume of documents that were responsive to plaintiffs' discovery requests; and (h) retained an expert and began inspections of the named plaintiffs' homes.
Haley v. Kolbe & Kolbe Millwork Co., 97 F. Supp. 3d 1047, 1050 (W.D. Wis. 2015).
The carriers did not exactly respond promptly, thus the holding in this case. In August, or two months later, they informed the policyholder that they were directing a different law firm to put in an appearance as the policyholder's defense counsel in the class action. Whether the different law firm got that message too is unknown. What is known is that the different law firm did not put in an appearance in the class action.
The next thing the carriers did according to the Court's litany of events was in November, at which time they filed a motion to intervene in the class action. Their motion to intervene was granted in December. Three weeks later, or at the end of December at this point, the carriers filed another motion in the class action, this time seeking a declaration of their rights to control the policyholder's defense.
At or about the same time, which to say again is around and about the end of December, the carriers "filed their motion for summary judgment on the selection of counsel issue". By then, the defense counsel selected by the policyholder had defended the insured in the case for over 10 months. In addition to the other defense activities summarized in the above quotation from the Court's opinion, counsel among other things had by then filed a 70-page motion for summary judgment on behalf of the policyholder-defendant. Haley v. Kolbe & Kolbe Millwork Co., 97 F. Supp. 3d 1047, 1055 (W.D. Wis. 2015).
Timing is everything, or so the saying goes. The liability insurers at that point demanded that the policyholder accept their selection of defense counsel to take the place of the defense counsel of record in the class action. The policyholder refused and instead demanded that the liability insurance companies in this case reimburse the policyholder for the defense fees and expenses it had incurred since it tendered the defense to the carriers and during the time that the policyholder was waiting for the carriers' response. Parenthetically and predictably, the policyholder filed a claim for bad faith against the carriers in this case. As of the date that this article is written, the Court has not ruled on the bad faith claim except to grant one carrier's motion for summary judgment against it.
Apparently swelling more with resolve than with foresight, the insurance companies asked that their policy-given right to "control the defense" be affirmed. In particular, the carriers asked that their choice of counsel to defend the policyholder in the underlying case be approved by the Federal Judge and that their choice of defense counsel should be substituted as counsel of record for the policyholder in the underlying case.
To the contrary, said the Court in this case. On this record, the Court held that estoppel resulting from their own delay foreseeably prevented the carriers from demanding the relief they claimed in this case. As the Court succinctly put its ruling in this case before the Court even before the Court began exploring in detail its litany of actions taken and not taken in this proceeding:
Because the insurers did not choose counsel for defendant until the lawsuit was well underway and then waited several more months to bring this issue to the court's attention, I conclude that the insurers are equitably estopped from forcing defendant to switch counsel now.
Haley v. Kolbe & Kolbe Millwork Co., 97 F. Supp. 3d 1047, 1049 (W.D. Wis. 2015).
The price of delay in this case included losing control over the defense, or at least losing control over who would be the defense lawyers. The price of delay in this case also included the fees and expenses incurred by the lawyers selected by the policyholder during the carriers' delay.
Please Read The Disclaimer. ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements). See in particular §§ 3:51-3:64 regarding duty to defend issues, and § 5:25, "Insurer Waiver of or Estoppel to Assert Coverage or Policy Defenses," regarding estoppel issues related to the duty to defend. All rights reserved.
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