Conflicts between the insurer and the insured can arise from the fact that the duty to defend is much broader than the duty to indemnify. The insurer’s distinct and independent duty to defend its insured is triggered by claims that give rise to the “potentiality” of indemnification under the policy. Litz v State Farm Fire & Casualty Co., 346 Md. 217, 695 A.2d 566 (1997); Fireman’s Fund v Rairigh, 59 Md. App. 305, 320, 475 A.2d 509, 516, cert denied, 310 Md. 176 (1984); Rivera Beach Vol. Fire Co., Supra. As the Maryland Court of Appeals held in St. Paul Fire & Marine Ins. Co. v Pryseski, 292 Md. 187, 193, 438 A.2d 282, 285 (1980) quoted more recently in Clendenin Bros. v U.S. Fire Ins. Co., 390 Md. 449, 889 A.2d 387 (2006):
In determining whether a liability insurer has a duty to provide its insured with a defense in a tort suit, two types of questions ordinarily must be answered: (1) what is the coverage and what are the defenses under the terms and requirements of the insurance policy? (2) do the allegations in the tort action potentially bring the tort claim within the policy’s coverage? The first question focuses upon the language and requirements of the policy, and the second question focuses upon the allegations of the tort suit.
390 Md. 449 at 458. Given this potential tension between the insurer’s obligations to indemnify and defend, cases do arise wherein conflicts (or the appearance of a conflict) can occur in the insurer’s fulfillment of these two independent duties. In some of these situations, where the insurer sends a reservation of rights letter, the insureds assert the existence of a conflict and claim the right to select their own counsel, at the carrier’s expense.
A true conflict which might require the selection of independent counsel to defend the insured arises in the carrier’s fulfillment of its duty to defend only “when the outcome of a coverage issue can be affected by the manner in which the underlying action is defended.” A. Windt, Insurance Claims and Disputes, §4:20, p. 4-177, (2007 Thompson/ West) quoting Villcana v Evanston Ins. Co., 33 Cal. Reptr 690, 699 (App. 2d Dist. 1994), as mod. on denial of reh’g, (Oct. 19, 1994); see also Britamco Underwriters, Inc. v Nishi, Papagjika & Associates, Inc., 20 F. Supp. 2d 73, 76 (D.DC 1998, decided on Maryland law). Therefore, a conflict requiring the retention of independent counsel does not arise just because: (1) The complaint contains multiple counts including some for which the policy does not contain coverage; (2) the insurer issues a reservation of its rights under the policy on an issue that will not be addressed in the lawsuit against the insured; (3) the insurer issues a reservation of rights based on the insured’s failure to comply with the conditions of the insurance policy; (4) the insurer has issued a reservation of rights solely as to the existence of coverage for punitive or exemplary damages; (5) although coverage is not disputed, the amount of the claim exceeds policy limits; and (6) the insured and the insurer have differing views as to the potential liability of the insured. Roussos v. Allstate Insurance Co. 104 Md. App. 80, 655 A.2d 40, 44-45 (1995); Windt, Supra at § 4:21, pp. 4-177 – 4-181. In the above situations it is understood that the insurer is mindful that retained defense counsel must, as always, adhere to the general ethical obligations that counsel must maintain with any client.
In Cardin v. Pacific Employers Ins. Co., 745 F.Supp. 330 (1990) the United States District Court for the District of Maryland, interpreting Maryland law, stressed the fact that an insured cannot simply declare a conflict to exist, entitling the insured to select counsel of his own choosing, simply because covered and uncovered counts are present in a Complaint. The Court found that the insurer had, in fact, selected counsel to independently represent Cardin. Counsel selected by the insurer was not representing the insurer in any aspect of the case and was given a carte blanche to fully defend Cardin and Cardin alone.
The Court found that the insurer had, in fact, selected counsel to independently represent Cardin. Counsel selected by the insurer was not representing the insurer in any aspect of the case and was given a carte blanche to fully defend Cardin and Cardin alone.
Subsequently, the United States District Court for the District of Maryland, in the case of The Driggs Corporation v Pennsylvania Manuf. Assoc. Insurance Company, 3 F.Supp. 657 (1998), approved the holding in Cardin and found it to be consistent with Maryland law as discussed in Allstate Ins. v Campbell, 334 Md. 381, 639 A. 2d 652 (1994) which also cited Cardin with approval in rejecting the “per se” rule” which would require an insurer to pay counsel selected by the insured any time there was a potential conflict. In Driggs, the Court rejected: a) the insured’s contention that the issuance of a reservation of rights letter created a conflict; b) the insured’s contention that a hypothetical question posed to the insurer’s selected counsel regarding a potential conflict in fact created a true conflict and; c) insured’s contention that the carrier’s selection of defense counsel that was not part of a “mega-firm” was a breach of the duty to defend.
 Maryland law does not follow the “exclusive pleading” rule in determining the potentiality of coverage. Instead in Maryland, in addition to the language found in the Complaint, an insured may rely upon extrinsic evidence (evidence not found on the face of the complaint) to establish the potentiality of coverage, triggering the duty to defend. Extrinsic evidence may not, however, be used by the carrier to defeat the potentiality of coverage. Aetna Casualty & Surety Co. v Cochrane, 337 Md. 98, 111-12, 651 A.2d 859, 866 (1995).
A more extensive analysis of Maryland law regarding the insurer’s duty to defend, conflicts that arise, and the selection of defense counsel can be found by clicking here.