A nationwide law firm is at work creating a coalition of insurer representatives to oppose a new rule by New York making it mandatory for directors and officers liability insurers to manage any legal defense that policyholders may require.

The insurance department's October Office of General Counsel Opinion is contrary to legal precedent, and comes after a number of years in which the agency has permitted policyholders to pick their own lawyers–which are paid for by the insurer under public company D&O policies, according to Carrie E. Cope, an attorney with Tressler Soderstromp, Maloney & Priess in Chicago.

She issued an e-mail bulletin outlining her objections, which she labeled "a call to arms," that warned if the opinion is not modified, it "may well have a chilling effect upon the D&O industry in New York."

She said the firm at this point is "trying to put together a coalition of different industry representatives" for a meeting with the New York Insurance Department next month for a dialogue hoping to see OCG Opinion No. 08-10-07 retracted.

"We really want to serve the insurance industry and see what's of the most benefit to the industry," she said.

According to her bulletin, the issue came up after various insurers filed proposed D&O products that gave policyholders the ability to choose their own legal counsel.

By Ms. Cope's analysis, the department's "decision is not only incorrect but fails to take the practicalities of doing business in the public company D&O arena–where the stakes are often high and the players sophisticated–into consideration."

She argued that "the opinion is only very loosely based on New York insurance laws and regulations, and conflicts with past court rulings."

Asked for comment, the department e-mailed a statement from Robert H. Easton, deputy superintendent and general counsel, which said that in reaching its conclusions, the OGC "carefully considered the issue presented, the governing legal framework and the practical implications of the result."

The OGC added that "if it were demonstrated that the guidance provided by the opinion somewhat misapprehended or overlooked controlling legal authority that compels a different result, OGC would–as is always the case–entertain revisiting the inquiry in question."

Ms. Cope told National Underwriter she was encouraged by that statement. She said large, sophisticated public companies want to pick their own attorneys and run their own defense, and if this ability is taken away from them, "they won't go through the admitted market and will go to other sources."

Right now, she said, "insureds want regulated policies, and it [the opinion] will also cause problems in general because you've got all these policies out there now that don't comply. What happens with those?"

Special Reports /

N.Y. Challenged On Mandate Over Control Of D&O Lawyers

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