Insured Builder Entitled to Counsel of Choice
— by Calvin R. Stead, Esq.
In Schaefer v. Elder (filed May 16, 2013, publication ordered June 12, 2013, Third District) the property owner sued the builder in connection with work done on the premises, and the contractor tendered the defense to its insurer. A coverage dispute arose as to whether certain damages allegedly caused by independent contractors were covered under the “contractor’s special condition.” The appellate court concluded that the insured contractor was entitled to independent counsel, even if the insurer’s filing of a declaratory relief action against insured did not create a conflict of interest by itself. The court found that a conflict existed because insurer-retained counsel had an ethical duty to the builder to try to establish that the responsible workers were employees, and at the same time, had an ethical duty to the insurer to try to establish that the workers were independent contractors. The appellate court also held that the trial court did not abuse its discretion by disqualifying conflicted defense counsel, rather than merely permitting the builder to hire independent counsel at the insurer’s expense, where conflicted counsel had actually engaged in simultaneous representation of the builder and his insurer.
The case appears helpful in at least a couple of ways to builders and subcontractors. Builders seeking a defense based on an additional insured endorsement from a subcontractor’s carrier are now more than ever entitled to use counsel of their choosing instead of counsel appointed by the insurer due to the inherent conflicts. And in the case of representation by a direct carrier, the contractor has a right to use counsel of its choice to defend itself where there is a question of coverage that imperils the defense. We see this issue coming up ever more frequently in cases where the additional insured carrier or its representatives attempt to settle a case against the best interests of the additional insured builder and also threaten assigning the defense to its own counsel who will have a dual conflict in their fiduciary duty to the builder and to the carrier.