Fifth Circuit Rejects Insured’s Efforts to Secure Independent Counsel

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On October 15, 2012, the U.S. District Court of Appeals for the 5th Circuit – applying Texas law – addressed another Cumis counsel matter. See Coats, Rose, Yale, Ryman & Lee, P.C. v. Navigators Specialty Ins. Co., No. 12-10055, 2012 WL 4858194 (5th Cir. Oct. 15, 2012). The court rejected efforts by a law firm to obtain reimbursement for its independent counsel, despite arguments that the allegations and insurer’s reservation of rights would permit the appointed attorney to develop facts/steer the defense towards noncovered claims. The opinion provides further guidance on how to draft a reservation of rights letter that can avoid raising a conflict of interest.

Coats, Rose, Yale, Ryman & Lee, P.C. (Coats Rose), was sued by a former client, Western Rim Investors 2006-3, L.P. (Western Rim), and others. Western Rim alleged that Coats Rose committed malpractice, engaged in improper/unethical billing practices and breached its fiduciary duty. Western Rim sought disgorgement of the fees charged by Coats Rose and declaratory relief. Coats Rose retained the law firm of Williamson and Rusnak (Williamson), and tendered its defense to its insurer, Navigators Specialty Ins. Co. (Navigators).

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