7th Circuit rejects lawsuit on insurer’s use of in-house counsel

The 7th Circuit Court of Appeals Tuesday agreed that a woman’s lawsuit against State Farm Mutual Automobile Insurance Co. should be dismissed because state law creates no obligation for an insurer to provide advance notice to an insured that it uses in-house counsel to defend its policyholders.

Cindy Golden, who is insured by State Farm, brought her lawsuit after State Farm in-house attorney Patrick J. Murphy represented her in a lawsuit that was a result of an accident she was in. Her policy says that in the event of the accident, State Farm will pay “attorney fees for attorneys chosen by us to defend an insured who is sued” for damages.

Murphy sent Golden a letter telling her that he worked full time for State Farm. The lawsuit went to trial, and State Farm paid the nearly $4,000 judgment entered against Golden.

She filed her purported class action, claiming that State Farm had a duty to disclose at the time of the policy issuance the possibly that house counsel would be used in the event of a third-part lawsuit. She alleged breach of “special, confidential and fiduciary duties and common law duties to disclose,” breach of duty of good faith and fair dealing, and unjust enrichment.

Golden cited Cincinnati Insurance Co. v. Wills, 717 N.E.2d 151, 155-56 (Ind. 1999), saying the state’s justices acknowledged such a duty exists. But the case is not on point with hers, the 7th Circuit noted, as the insurance company in that suit used in-house counsel but made it seem like they were from an outside firm.

Current law does not require an insurer to disclose at the outset that its choice of counsel in the event a claim arises may be in-house counsel. The level of disclosure required is up to the insurance commissioner to decide, and the Indiana Department of Insurance has not chosen to require the type of notice that Golden requests, Judge Ilana Rovner wrote in Cindy Golden v. State Farm Mutual Automobile Insurance Company, 12-3901.

The judges also rejected Golden’s request that the court certify the question of policy disclosure to the Indiana Supreme Court.

“As our discussion of Wills should make clear, we are not ‘genuinely uncertain’ about whether an insurer is obligated to disclose, at the time of policy issuance, its practice of using house counsel to defend insureds,” she wrote. “Nor do we believe this case presents a ‘matter of vital public concern’ worthy of certification to the Indiana Supreme Court.”