If your insurer sends a “Reservation of Rights” letter, you can choose your own lawyer (not one assigned by the insurance company) and the insurer has to pay the reasonable fees of defending you on covered claims.
When suits seek recovery under multiple counts, some may be covered by insurance, some may not. The insurer has a duty to defend the covered claims but can reserve its rights to reject paying for those claims that are not covered.
If the insurer issues a reservation of rights letter, the insured can choose its own lawyer. In an interesting case the Massachusetts Appeals Court declared that insurers have to pay reasonable rates for lawyers chosen by the insured. The rate of $275/hour was reasonable for attorney’s fees in Massachusetts in the case Rass Corporation v Travelers.
Former business partners sold sauce. When they split up, one emailed a customer – it’s my sauce and my former business partner’s attempt to sell sauce is “illegal” and “unethical”. There was no trade secret protection for the sauce. The subject of the email sued claiming under trade secret law and under defamation. Insurance covers business claims for trade disparagement but not for trade secret violations.
The insured told its carrier, who agreed to pay the insured’s chosen lawyer to defend. As trial neared, the insurer offered only a small fraction of settlement demands and conditioned its offer on a release from the insured. The insured paid with its own money and sued its insurer.
The court said that when an insurer agrees to defend but reserves its rights to rely on exclusions, the insurer must pay the attorney fee rates of the defense lawyer chosen by the insured and not merely the rates insurers force their counsel to accept.