DEFINITION of Counsel Selection Provision
A counsel selection provision is part of a professional or corporate liability insurance contract – a provision that allows the policyholder to select or approve the legal counsel that will represent him or her in the case of a claim. More specifically, counsel selection provisions allow directors and other corporate personnel who may be called to testify during an insurance claims case to be represented by an attorney who defends their interests as well as the interests of the company that has purchased the liability policy.
BREAKING DOWN Counsel Selection Provision
Counsel selection provisions are an adjunct to the indemnity clauses of the insurance policies companies purchase in order to protect their senior management, such as officers and directors, from certain risks. Often an important recruiting tool in attracting executive talent, these indemnity clauses allow the company to hire lawyers to defend employees in case of a trial arising from a lawsuit. Directors and officers of a company naturally want to ensure that competent lawyers represent them if they are forced to appear in court; however, if the company is responsible for choosing the counsel, then managers could wind up not receiving the best defense. It's possible that they will be represented by lawyers who are not concerned with their best interests, but rather the best interests of the company. Even though he or she is a corporate employee, 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.
Enter the counsel selection provision, which allows the individual some say in the choice of representation. It might read something like "In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee" (italics added).
Courts have found that the fact that the company has offered indemnification does not mean that it can prevent those protected by the clause from obtaining the best defense against. 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 – the in-house counsel, say, instead of an experienced litigator or trial attorney.
Another Use of Counsel Selection Provisions
Counsel selection provisions don't always deal with questions of legal competence; some have to do with legal strategy. In a lawsuit involving several executives, for example, the company counsel may wish to take a group defense approach: This would treat each executive as the same. In reality, however, individual executives may have different responsibilities and roles in matters or events relating to the claim. This sort of issue could be addressed by a counsel selection provision that reads something like, "the Holders of a majority of the Registrable Securities covered by any such registration may select one counsel to represent all Holders of Registrable Securities; provided, however, that in the event that the counsel selected as provided above is also acting as counsel to the Company, the remaining Holders shall be entitled to select one additional counsel to represent all such remaining Holders."
(Both provision examples are taken from Law Insider, a contract database that offers selections from actual corporate contracts.)