INSURERS’ RIGHT TO CHOOSE:

A July 2, 2004 Texas Supreme Court decision will preserve insurers’ ability to properly manage the settlement and defense of insurance claims under liability insurance policies, according to the American Insurance Association (AIA). The AIA said the Texas Supreme Court reversed a previous appellate ruling (Northern County Mutual Insurance Company v. Timoteo Davalos) from the Texas Court of Appeals (Thirteenth District). The AIA led a joint amicus effort supporting the position of Northern County Mutual. The appellate court had concluded that a mere dispute between an insured and its insurer over the proper venue for an action created a conflict requiring the insurer to relinquish control of the defense to the insured and to allow the insured to select its own counsel. Insurer control of the defense, through the attorney of the insurer’s choice, allows claims to be defended efficiently, competently, and economically, the association maintained. Removing or impairing those controls, as the lower court decision would have done, could have led to higher legal services costs (and higher insurance premiums) for Texas consumers, the AIA said. If upheld, the appellate ruling also could have opened the flood-gates to subsequent litigation raising alleged conflicts between insurers and insureds designed to undermine an insurer’s legitimate, contractual right to manage claims. In the association’s view, the Texas Supreme Court avoided these consequences when it rejected the appellate court’s decision, while also reaffirming the insurer’s right to control the defense in all but limited conflict situations, primarily those based on coverage disputes.

Topics Texas Carriers