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Term: Counsel Selection Provision

17 Feb 2015

DEFINITION OF ‘COUNSEL SELECTION PROVISION’
A liability insurance provision that allows the policyholder to select or approve of the legal counsel that will defend it in the case of a claim. Counsel selection provisions allow directors and other personnel who may be called to testify during a claims case to seek legal counsel that represents their interests as well as the interests of the company that has purchased the liability policy.

INVESTOPEDIA EXPLAINS ‘COUNSEL SELECTION PROVISION’
Companies use indemnification clauses in the insurance contracts they purchase in order to protect their management, such as officers and directors, from certain risks. These clauses allow the company to hire lawyers to defend management if a court trial were to come about. Indemnification can be used as a recruiting tool because it indicates that management will be protected; however, if the company is responsible for choosing the lawyer then managers could wind up not receiving the best defence. Courts have found that the fact that the company has offered the indemnification does not mean that it can prevent those protected by the clause from obtaining the best defence against a claim.

Directors and officers of a company want to ensure that competent lawyers represent them if they are forced to appear in court. While the insured company is ultimately the party that has purchased the liability policy, it may not necessarily force those who are to appear in court to accept inferior legal representation. This is because the individual directors and officers who take the defence stand risk their reputation if they are represented by lawyers who are not concerned with their best interest instead of solely the best interest of the company. The reputation of the indemnified individual is different than that of the company, meaning that the individual’s reputation may be damaged while that of the company’s may be protected.

In some cases, a defence lawyer may wish to take a group defence approach to claims made against the company. In the case of lawsuit involving executives, this approach would treat each executive as the same, and thus would negate any approach that would address a particular director’s unique situation. In reality, however, individual executives may have different backgrounds, responsibilities, and roles in the development of the claim.

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