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Insurer Prevails in Rhode Island Supreme Court Appeal Interpreting the Duty to Defend under a Liability Insurance Policy

            The Rhode Island Supreme Court recently affirmed a judgment in favor of RCFP’s client, an insurer, in a case involving the insurer’s duty to defend under a liability insurance policy.  RCFP argued, and the Court ultimately agreed, that where the insurer assigned defense counsel in response to a claim, but reserved its right to deny coverage for punitive damages, the insurer was not required to provide its insured with independent counsel in the absence of an actual suit. 

            The opinion is Quality Concrete Corp. v. Travelers Prop. Cas. Co. of Am., 43 A.3d 16 (R.I. 2012), available at the Court’s websiteR. Kelly Sheridan and Daniel E. Burgoyne, from RCFP’s Insurance Defense Practice, represented the insurer.

            This coverage dispute related to a claim involving the death of a minor on the insured’s premises.  After beginning its investigation, the insurer notified its insured that it had appointed defense counsel, but reserved the right to deny coverage for punitive damages.  In response, the insured requested that the insurer also appoint “independent” counsel.  The insurer declined, and eventually settled the underlying claim without a lawsuit having been filed.  However, the insured retained its own separate counsel, and after the claim was resolved, it sued the insurer to recover $74,000 in legal costs allegedly incurred.  RCFP’s attorneys promptly moved to dismiss the insured’s complaint, prevailed, and the insured appealed to the Rhode Island Supreme Court. 

            The insured relied upon the Rhode Island Supreme Court’s seminal opinion in Employers' Fire Ins. Co. v. Beals, 103 R.I. 623, 240 A.2d 397 (R.I. 1968).  In Beals, an insurer provided its insured with a defense to a liability suit, while at the same time sought a declaratory judgment that it need not provide indemnity coverage under a policy exclusion for intentional conduct.  The same attorney, appointed to represent the insured in the liability suit, also represented the insurer in the coverage dispute.  Analyzing this conflict of interest, the Court remarked that it could be solved by the appointment of independent counsel, at the insurer’s expense, to represent the insured in the liability suit.

            RCFP’s attorneys distinguished the Beals case, however, pointing out that because the insurer had settled the claim, no suit was ever brought against the insured.  Under Beals, the scope of an insurer’s duty to defend is determined by the allegations contained in a complaint.  Without a complaint, it was premature to assert a conflict of interest.  Nevertheless, the insured argued for an extension of the Beals principle, arguing that a routine demand letter triggered the insurer’s duty to defend.

            The Court ultimately agreed with the insurer’s position advocated by RCFP’s attorneys.  It declined to extend Beals to the situation where an insured merely received an “adversarial communication,” as opposed to a lawsuit, from a potential plaintiff.  In the absence of an actual complaint, which would indicate whether punitive damages were being sought, the mere potential for a future conflict of interest did not require the insurer to pay for independent counsel.



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