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Spring 2015 // Journal of American Law 25 client and face disciplinary or malpractice exposure or re- moval by the court. 15 4. Deductibles and Retentions Occasionally, counsel for the developers or general contractors will seek to recover the deductible, a form of uninsured exposure, 16 from the enrolled contractors as an indemnity payment. Some of the enrolled contractors will be responsible for their own deductible or retention but may feel the loss is not their fault. Counsel should consider re- quiring informed written consent if the clients will be asked to pay a portion of their self-insured retention or deductible. 5. Contractual Joint Defense Provisions Some insurers have inserted joint defense provisions into their wrap-up liability insurance policies. Te joint de- fense language provides that, by accepting the insurance, the contractor (insured) is prospectively waiving conficts of in- terest that may arise as to other contractors on the same job site. Tis includes agreeing to waive rights of contribution and to be represented by a single lawyer. Tese provisions have not yet been tested in published decisions and present some difcult issues. While it may be a reasonable goal to avoid infghting against a single lawsuit, an insured is entitled to a con- fict-free defense to a lawsuit. Terefore, courts may view such joint defense provisions as conficting with the "sepa- ration of insureds" condition in the policy, which states that the policy will apply individually to named insureds as if they are the only named insured. 17 Ultimately, it seems likely that courts will view the lawyer's ethical obligations in the context of public policy as set forth by statute and fnd that any contractual provision that would confict with that poli- cy is void and unenforceable. 18 6. One of the Clients Has an Afrmative Claim or In- demnity Claim 15 In an unpublished opinion showing the minefeld for insurer appointed defense counsel, the California Court of Appeals, afer noting the reservation of rights by the insurer, stated: "[Te de- fense] frm had an ethical duty to [the insured] to try to establish that the workers were employees [and therefore the loss was cov- ered] and, at the same time, had an ethical duty to [the insurer] to try to establish that the workers were independent contractors [and therefore the loss was not covered]." Schaefer v. Elder, 217 Cal. App. 4th 1, 8 (2013). Te reservation of rights letter directly afected how the lawyer could respond to discovery. 16 Aerojet-General Corp. v. Trans. Ind. Co., 17 Cal. 4th 38 (1997). 17 See e.g., Villicana v. Evanston Ins. Co., 28 Cal. App. 4th 631 (Cal. App. 2d Dist. 1994), where the court remarked that an insurer was not entitled to summary judgment on a coverage claim because it failed to establish that it provided a confict-free defense. 18 Maxwell v. Allstate Ins. Co., 102 Nev. 502, 506, 728 P.2d 812 (Nev.1986). In a defect claim, if one subcontractor fles a mechan- ic's lien action against the owner and general contractor for payment under the contract, ethical problems for an insurer-appointed defense counsel may arise. In that case, the client has an afrmative claim against the owner, which the insurer will not pay to prosecute despite the separation of insureds condition. 19 Te owner will usually assert that the defective work (and potential deductible or other back charged claims) ofset the afrmative claim. Te lawyer's client (the subcontractor in the defect claim) will want the construction defect claim paid so the owner has funds to pay on the contract. Te insurer, on the other hand, will want to vigorously defend the merits of the defect claim and seek to have the client compromise their afrmative claim. Such circumstance will place the lawyer in a confict between the insurer and the client. Claims Handling and Bad faith Concerns for Wrap-up insurers Te claims professional and outside coverage counsel ofen see themselves as the drivers of the wrap-up liability "bus," i.e., they decide how to respond to the claims presented. As such, insurer personnel must be aware of all the potential conficts of interest and challenges as they impact the claims decisions. Is the party being sued an insured? Is the injury caused by the failure of a safety professional, supervisor, or outside consultant that is not an enrolled party? Can the in- surer hire a single law frm to represent the insureds that are involved? Is there a perspective that is unique to the insur- er that is not shared by the other members of the team, in- cluding the owner, insurance broker, wrap-up administrator, lawyer, or contractor? Te Choice of Counsel Issues Peculiar to Wrap-Up Claims Whenever a lawsuit is tendered to the insurer, it must respond by either accepting or rejecting coverage or by agreeing to de- fend under a reservation of rights. While states vary, in Cal- ifornia, if the insurer reserves rights and the outcome of that coverage issue can be controlled by insurer-appointed defense counsel, the insured is entitled to independent counsel. 20 As outlined above, the reservation of rights may create a confict between the contractors that requires the insurer to retain separate counsel for each one. Te frst question, therefore, is whether the reservation of rights to deny coverage is the best claims-handling decision under the facts of the entire loss and the coverage provided. If it ultimately is a covered claim as to the plaintif, it is a questionable tactic for the insurer to reserve rights and be forced to hire multiple lawyers because of the conficts thereby created. Insurers face a second issue apart from defending or not. In some states, the insurer may reserve its right to recover amounts spent for defense or indemnity from the insured that do not relate to covered claims. In California, the insurer may 19 James 3 Corp. v. Truck Ins. Exch., 91 Cal. App. 4th 1093, 1105 (2001). 20 Cf. California Civ. Code ยง2860.