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(Article from Insurance Law Alert, April 2015)

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A Wisconsin federal district court ruled that insurers were estopped from requiring a policyholder to accept the insurers’ choice of counsel because of the insurers’ delay in selecting counsel. Haley v. Kolbe & Kolbe Millwork Co., Inc., 2015 WL 1505686 (W.D. Wis. Apr. 1, 2015).

Policyholder Kolbe Millwork tendered defense of a product liability suit to its insurers in February 2014. That same month, Kolbe notified its insurers of its choice of counsel. The insurers acknowledged their defense obligation and did not object to Kolbe’s counsel selection, but noted their consideration of other potential defense firms. In June 2014, the insurers provided Kolbe with a choice of two law firms to serve as defense counsel. By that time, Kolbe’s original counsel had answered the underlying complaint, prepared initial disclosures, filed preliminary motions, issued and prepared responses to discovery requests and retained experts. As a result, Kolbe refused to consider the insurers’ counsel choices. Thereafter, the insurers filed a motion to intervene in the underlying action and sought a declaration that they had the right to choose defense counsel. The court disagreed.

In deciding whether the insurers had the right to select counsel, the court assumed, without deciding, that the insurers did not forfeit their right to control the defense (including the selection of counsel) by issuing a reservation of rights. However, the court concluded that the insurers were equitably estopped from enforcing the insurers’ choice of counsel by their inaction over the course of four months. The court explained that estoppel applied because Kolbe reasonably relied on the insurers’ inaction as to choice of counsel and would be prejudiced by a change of counsel after its own attorneys had "already invested significant time and resources into the case." The court also pointed to the insurers’ delay in seeking relief from the court as a basis for its estoppel ruling.