Benefits of former insurance coverage and monitoring counsel as an ADR neutral

Insurance companies routinely retain counsel to advise them on coverage interpretation and obligations. In certain cases, it is not uncommon for an insurer to also appoint counsel to more or less "keep an eye" on the claim and independently advise the claim examiner and/or claim department leader on what is reported or advised by defense counsel (or the adjuster). This role is commonly known as monitoring counsel, underwriters' representative or watching counsel. Sometimes the same counsel is appointed to provide coverage advice and monitor the claim through settlement, arbitration award or judgment on the merits.

The monitoring counsel role is seldom passive in that counsel trusted with this role are often provided the requisite settlement authority from the carrier (sometimes to the exclusion of defense counsel) and are expected to actively participate in the settlement negotiations. Sometimes a monitoring counsel is retained shortly after the claim notice is received by the carrier. Indeed, it is not uncommon for monitoring counsel to assist the carrier in identifying, interviewing and ultimately recommending specific defense counsel in the first instance.

Coverage counsel and the value of independent judgment

In the coverage role, upon completion of a review of the matter and coverage analysis, counsel will provide the carrier with a coverage opinion and await instruction with respect to any further coverage-related work. Depending upon the coverage position taken, counsel's role can either end at this point or proceed if, at the time of the initial coverage position, future developments could have an impact on the coverage position taken. In this situation, counsel will monitor the ongoing claim and report developments and any corresponding coverage-related recommendations to the claim handler.
A "second set of eyes": Neutral evaluation and reality testing

All that said, not all insured matters have coverage issues. There are claims in which (either due to complexity or simply the custom or practice of the insurer) the carrier prefers to have a "separate set of eyes and ears," independent of defense counsel, provide, inter alia, a separate evaluation of the strengths or weaknesses of a case, its potential damages and an evaluation of defense counsel's performance. In this monitoring role, counsel provides unbiased, neutral and honest opinions directly to the claim handler, which can include recommendations for defense and loss reserves, settlement strategies and whether to go to trial or arbitration. In some cases, the monitoring counsel is not retained until well into the life of the claim. In this circumstance, the monitoring counsel essentially "comes in fresh" and evaluates the aging matter anew and provides the carrier with what is essentially a second opinion. The monitoring counsel provides a neutral assessment, or "reality check," as they see it, independent of what the carrier to-date has been receiving from defense counsel.

Granted, it is not uncommon for the monitoring evaluation and recommendations to be aligned with what defense counsel has previously provided. It is also not uncommon (again, dealing with a monitoring role only versus the combined monitoring/coverage role) for the monitoring counsel and defense counsel to work together to protect the insured by maximizing the likelihood that the carrier is prepared to make the best decisions under the circumstances.

When independence requires disagreement

There are situations in which the monitoring counsel must take issue with defense counsel's evaluations, strategies, budgets, recommendations, etc., and present their ideas to the carrier for consideration. This can create the somewhat uncomfortable yet necessary obligation for the monitoring counsel to inform the claims person that, for example, the defense is not as strong as has been previously reported or advance other opinions that the carrier might be surprised to hear, such as those regarding defense counsel's degree of preparedness, the experience of opposing counsel or the insured's expert's presentation.

Application to ADR

As counterintuitive as it seems at first glance, the independence and neutrality of coverage/monitoring counsel are strikingly similar to what is required of an ADR neutral/mediator. This is especially true in mediations that involve coverage disputes, multiple insurance companies, and the insured, defense counsel and/or the carrier(s) not being on the same page. For example, when there is a contribution or coverage dispute between carriers and/or the policy wordings are in conflict, or excess insurers are not in agreement with the primary insurer, everyone benefits if the mediator is experienced in navigating these thorny issues.

On the one hand, from the carrier's perspective, insurers know that a former monitoring/coverage counsel once "lived in their world"; understands issues such as allocation, triggers and exhaustion; and appreciates that in order for a sum to be offered in settlement, it has to be reasonable and supported. Simply put, this experience allows the neutral to speak to carriers with credibility, applying the same straightforward/unfiltered approach they would employ as coverage/monitoring counsel.

From the plaintiff's perspective, a former insurer-counsel mediator knows what the carriers need to justify a settlement offer, what situations tend to promote insurers to compromise on stated "line in the sand" positions and, as mentioned above, can tell a carrier or its representative what they might not want to hear (something that defense counsel might be reluctant to do); that is, the neutral's honest opinion.

Neutrality that serves all stakeholders

A plaintiff counsel might regard a neutral with this experience as a beneficial "former insider" who knows how the insurer side of the equation works and is thus capable of efficiently cutting through issues that typically would impede a successful negotiated resolution.

From the defense-insurer side of the equation, this same neutral "speaks their language," knows what they need to have in their files to justify whatever strategic or settlement position is ultimately taken and knows how to work effectively with insurers that have conflicting perspectives. In these situations, carriers appreciate the benefit of a neutral who can resolve a carrier or inter-carrier issue that is complicating reaching resolution.

In summary, both sides to a dispute that includes insurer participation equally benefit from the assistance of a neutral with extensive monitoring and coverage experience.

Disclaimer: This content is intended for general informational purposes only and should not be construed as legal advice. If you require legal or professional advice, please contact an attorney.