An unspecified conflict of interest between multiple insured defendants was not enough to require a liability insurer to retain separate counsel or relinquish control over an unqualified defense to the preferred attorney of the insured, the Dallas Court of Appeals held Wednesday.  In Marquis Acquisitions, Inc. v. Steadfast Insurance Co., No. 05-11-01663-CV, 2013 WL 4083614 (Tex. App.—Dallas Aug. 14, 2013), the Court affirmed summary judgment in favor of Steadfast on the breach of contract and common law and statutory bad faith claims asserted by Marquis Acquisitions, the insured, which had tendered the defense of an underlying lawsuit involving a fire at an apartment complex.  Steadfast tendered an unqualified defense to Marquis and a number of other insureds, and assigned counsel to the defense.

An attorney with an ongoing business relationship with the insured defendants sent multiple letters to Steadfast claiming a conflict of interest between the set of defendants with ownership interests in the apartment complex and the set with management interests.  Steadfast asked for additional information — or indeed any information beyond the bare claim that a conflict existed or could exist — but none was forthcoming.  However, a few weeks after Steadfast tendered its defense, retained counsel submitted a detailed report that explained that while there was no present conflict, a potential conflict existed.  Steadfast then assigned a second attorney to the defense so that the parties with the potential conflict had independent representation.

The Court of Appeals first addressed Marquis’ contract claim, which the Court summarized as a complaint that Steadfast did not timely secure the second attorney after first being notified of the potential conflict.  The Court observed that there is no Texas law requiring an insurance company to independently evaluate potential conflicts among multiple insureds. Moreover, the Court concluded that once Steadfast had the well-developed opinion of assigned counsel that a potential conflict existed — as opposed to the self-interested statements of an attorney who sought to handle the defense himself at an increased billing rate — Steadfast immediately retained a second attorney to handle the defense of the parties implicated by the possible conflict of interest.  The Court finally determined that even if Marquis’ contract liability theory had any merit, Marquis could not base its damages solely on attorneys’ fees incurred in an effort to force Steadfast to provide separate counsel; because Marquis had no independent contract damages, attorneys’ fees alone were not recoverable.

The Court concluded that Marquis’ common law bad faith claims failed because a bona fide dispute existed between Marquis and Steadfast as to the possibility that a conflict of evidence existed between the defendants in the underlying lawsuit.  Indeed, the summary judgment evidence showed that Steadfast never denied Marquis’ request for separate counsel, but instead determined that the request was premature, and that early evaluations did not indicate that a conflict existed.  There also were no damages suffered by Marquis because of any delay.  The Court resolved Marquis’ statutory bad faith claims by holding that Marquis’ appellate arguments for statutory liability were waived, and that even if they had not been waived, Marquis could not show damages.  Having concluded that there was no merit to Marquis’ claims, the Court of Appeals affirmed the summary judgment in Steadfast’s favor.

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