Introduction

In the complex landscape of insurance litigation, the question of whether and when an insurer should intervene in an underlying tort lawsuit is increasingly critical. With rising exposure to mixed claims – those involving both covered and non-covered damages – insurers must navigate a legal minefield to protect their interests without compromising their insureds’ defenses.

During a recent Goldberg Segalla webinar, partners David L. Brown and Michael A. Hamilton explored the legal framework governing insurer intervention, the strategic reasons for doing so, and the jurisdictional nuances that influence outcomes. Their insights offer valuable guidance for insurers seeking to balance coverage rights with ethical obligations and litigation risks.

The Legal Framework for Intervention

Federal Rules of Civil Procedure

Intervention in federal court is governed by Rule 24, which provides two pathways:

• Intervention as of Right (Rule 24(a)): Courts must permit intervention when the movant is given an unconditional right to intervene by a federal statute or the movant has a direct interest that may be impaired by the disposition of the action and that interest is not adequately represented by existing parties.
• Permissive Intervention (Rule 24(b)): Courts may allow intervention when the movant is given a conditional right to intervene by statute or the movant has a claim of defense that shares a common question of law or fact with the main action. This route offers broader discretion but requires an independent jurisdictional basis.

Intervention under Rule 24 requires that the motion be made timely. Courts have broad discretion in assessing timeliness, but courts will generally consider the length of time the movant knew of its interest before filing the motion and any prejudice to the parties if the motion is granted or denied.

State Court Rules

State courts typically have similar procedures governing motions to intervene. In fact, many states’ rules of civil procedure mirror the federal framework, but important nuances may exist. For example:

• Florida permits intervention, but under its civil procedure rules the intervention “shall be in subordination to, and in recognition of, the propriety of the main proceeding …”
• Appellate rights concerning the trial court’s intervention decision are also important. Pennsylvania, as one illustration, recognizes denial of intervention as an immediately appealable collateral order.
• Ohio, on the other hand, generally does not allow the immediate appeal of intervention denials, emphasizing the insurer’s ability to litigate coverage separately.

Strategic Reasons for Insurer Intervention

Intervention may provide the insurer an opportunity to clarify coverage issues, provide tactical advantages in connection with coverage litigation, or help protect the insured’s interests and rights in the underlying litigation. More specifically, strategic reasons for intervention include the following:

• Preserving Allocation Rights: Intervention may provide the insurer with an opportunity to propose special interrogatories or a jury verdict form. This may avoid general verdicts that obscure the distinction between covered and non-covered damages.
• Seeking a Stay: Intervention may support a motion to stay the tort action pending resolution of a declaratory judgment coverage action.
• Defending Against Defaults: If the defendant-insured is in default in an underlying tort action, a carrier may seek to intervene in that action to assert defenses on behalf of the insured or reopen judgments.
• Conducting Discovery: Intervening in the underlying action may be necessary to access factual discovery relevant to coverage issues.
• Managing Limited Policy Limits: In scenarios where there are multiple claimants and insufficient policy limits to address the insured’s potential liability, intervention can help allocate limited insurance coverage fairly and transparently.

Jurisdictional Considerations

Insurers should give careful thought before filing a motion to intervene, taking into consideration the required procedures in the applicable jurisdictions. The permissibility and impact of intervention vary by jurisdiction:

• Allowed: For example, courts in Missouri, Kansas, and Kentucky have permitted intervention to stay underlying tort proceedings, seek declaratory relief on insurance coverage questions, or obtain factual findings relevant to coverage.
• Not Allowed: In contrast, courts in Indiana, Maryland, New Jersey, and Ohio have denied an insurer’s attempt to intervene in the underlying tort action, citing to concerns over jury confusion, conflicts of interest, or the insurer’s contingent interest.

Insurers must also weigh the potential impact if they choose not to attempt to intervene in the underlying action. For instance, failure to intervene may result in collateral estoppel, barring insurers from litigating coverage issues in subsequent actions. Conversely, some jurisdictions, like South Carolina, have clarified that insurers need not intervene in every case to preserve allocation rights between covered and non-covered claims.

Best Practices and Strategic Considerations

When defending an insured in underlying tort actions that also present insurance coverage questions, intervention can be a helpful tool to advance the resolution of the coverage issues and to ultimately reduce litigation costs. Insurers, however, must keep in mind a multitude of factors, including the following:

1. Timely and Targeted Intervention: Courts favor motions that are timely and narrowly tailored to specific issues. Early filing demonstrates diligence and helps avoid procedural objections, while specificity ensures the motion addresses only the relevant coverage issues. Courts are more likely to approve interventions that minimize disruption and clarify the insurer’s role.
2. Reservation of Rights Letters: Insurers should include language reserving the right to intervene in the underlying tort action, especially when allocation between covered and non-covered damages may become an issue. While not strictly required by procedural rules, this proactive step helps avoid disputes with the insured and demonstrates transparency. Additionally, updating the ROR letter as the case evolves – particularly after discovery or before mediation or trial – ensures that the insurer’s position remains aligned with the facts and preserves flexibility for strategic intervention.
3. Jurisdictional Awareness: Understanding local rules and appellate procedures is essential. Jurisdictions vary widely – not only in whether they allow intervention but also in whether denial of intervention can be immediately appealed or leads to collateral estoppel. Knowing these distinctions helps insurers make informed, strategic decisions about when and how to intervene and whether to pursue parallel declaratory judgment actions.
4. Sensitivity to the Role of Defense Counsel: Effective coordination between the insurer and defense counsel is essential, especially when coverage issues arise that defense counsel cannot ethically address. Defense counsel represents the insured and may be limited in asserting positions that could undermine the insured’s liability defense – such as requesting allocation between covered and non-covered damages. In such cases, the insurer may need to intervene directly to protect its coverage interests. This is particularly important when the insured is unavailable, in default, or when ethical rules prevent defense counsel from appearing without client contact.
5. Declaratory Judgment Actions: Filing a declaratory judgment can be a strategic move for insurers, especially when coverage issues are complex or jurisdictionally sensitive. A declaratory judgment action allows the insurer to litigate coverage questions – such as allocation between covered and non-covered damages – in a separate forum, often in a jurisdiction with more favorable law. This can help the insurer maintain control over evidentiary issues, avoid jury confusion in the tort case, and preserve the right to contest coverage even if intervention is denied.

Conclusion

Insurer intervention in underlying tort lawsuits is a nuanced and jurisdiction-dependent strategy that can significantly impact coverage outcomes. By understanding the legal framework, evaluating strategic reasons, and adhering to best practices, insurers can protect their interests while maintaining ethical and procedural integrity. Early and thoughtful intervention – supported by clear documentation and jurisdictional awareness – can be the key to resolving complex coverage disputes effectively.