A mere reservation or rights by an insurer does not require the insurer to supply independent counsel to its insured.

A bill recently introduced in the Illinois State Senate known as the Insureds Independent Counsel Act, while, if enacted, will only apply in that State, is instructive as to when an insurance company must supply independent counsel. Significantly, the bill limits the requirement of providing independent counsel to situations in which there is significant and actual conflict of interest. The bill then provides that none of following constitute a significant and actual conflict of interest requiring an insurer to provide independent counsel: (1) claims or facts in a civil action for which the insurer denies coverage; (2) the mere issuance of a reservation of rights letter by the insurer; (3) a claim of damages in excess of the policy limits; (4) a claim of punitive damages; or (5) any other conflict that is not significant and actual. Thus, while the law will only apply in Illinois, it shows that many circumstances where an insurer reserves its rights, such as to advise that the damages claimed exceed the policy limits or that punitive damages are claimed, should not be the basis for requiring the insurer to supply independent counsel.