Insurance Law

Texas Supreme Court Authorizes Captive Counsel in Insurance Defense Cases

Friday, May 30, 2008
Contributed by: Matthew J. Whitten

 

In Unauthorized Practice of Law Committee v. American Home Assurance Co. Inc. and Travelers Indemnity Co., the Texas Supreme Court held that an insurer may use staff counsel to represent insureds in some circumstances, including "captive firms." The Court limited these circumstances to instances in which the insurer and the insured are congruent. A significant portion of the matter involved who the attorneys actually represent in a particular case: The insurer, or the insured. The Court noted that it has never stated that an insurance defense lawyer cannot represent both the insurer and the insured. In recent years, insurers have sought to use "captive counsel" where possible, ostensibly to save costs and pass those savings along to the insured. Insurance companies also state that captive counsel develop more expertise in these cases, because that is their sole area of business.

In his dissent, Justice Phil Johnson, formerly of the Amarillo Seventh Court of Appeals, noted that "it defies reason that staff attorneys will be immune from cost-cutting of the same nature," and indicated that the impact could be more pressure on defense attorneys to accept even more cases at lower costs, thereby reducing the quality of representation.

This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.