7th Circuit Examines Insured’s Right to Independent Counsel

By Don R. Sampen, published, Chicago Daily Law Bulletin, September 15, 2026

The 7th U.S. Court of Appeals, construing Illinois law, recently held that the only type of conflict of interest giving rise to the need for an insurer to allow its insured to appoint its own independent counsel, is a conflict of interest between the insured and insurer.

The case is Consolidated Chassis Management LLC v. Northland Insurance Co., 2026 U.S. App. Lexis 23506 (7th Cir. 2026). The insured, Consolidated, was represented by Sullivan O’Malley LLC of Chicago. Amundsen Davis LLC of Chicago represented the insurer, Northland.

In 2016, a semi-tractor owned by Midwest Transport Corp. was involved in a traffic accident with Ryan Gilliam-Nault. At the time, the semi-tractor was pulling an intermodal chassis that was part of a chassis pool established and managed by Consolidated or its affiliates. Gilliam-Nault named Midwest, the driver and Consolidated as defendants.

Northland had issued Midwest a commercial insurance policy having a $1 million limit, and the policy included Consolidated as an additional insured. Northland thus appointed counsel to represent Midwest and the driver, but informed Consolidated that Northland would defend it under a reservation of rights pending a determination that Consolidated was, in fact, an insured.

At that point Consolidated retained its own counsel. It also filed a cross-claim against Midwest and its driver, contending that they were primarily at fault.

Subsequently, Northland withdrew its reservation and offered to appoint counsel for Consolidated, separate from counsel appointed for Midwest. Consolidated, however, maintained it was entitled to its own independent counsel appointed by Consolidated itself due to the conflict of interest between Consolidated and Midwest. It further contended that a second conflict arose because the liability in the case could exceed Northland’s $1 million limit.

As a consequence, Consolidated maintained its own counsel while, at the same time, Northland-appointed counsel entered an appearance on behalf of Consolidated. Consolidated then claimed that Northland owed it reimbursement for its own appointed counsel, which Northland denied.

While the tort action was still pending, Consolidated brought this declaratory judgment lawsuit seeking attorney fee reimbursement and alleging that Northland had acted in bad faith.

On cross-motions for summary judgment, the district court ultimately agreed with Consolidated and held that it was entitled to reimbursement because of a conflict of interest, but that Northland was not guilty of any bad faith.

At about the same time, the underlying tort action settled within the Northland $1 million limit, and it paid the entire settlement on behalf of all insureds.

Northland appealed the declaratory judgment against it and Consolidated cross-appealed on the bad faith issue.

Analysis

In an opinion by Judge Rebecca Taibleson, the 7th Circuit reversed the declaratory judgment against Northland and affirmed on the bad faith claim. She began by observing that an insurer’s duty to defend in Illinois is a broad one, but with that duty comes the right to control the defense through its appointment of counsel.

This general rule, however, is subject to an exception when there is a conflict of interest such that the insurer’s interests would be furthered by providing a less than vigorous defense to its insured in the underlying suit. In such a situation, the insured is entitled to appoint its own counsel paid for by the insurer.

In this case, Consolidated argued that, once Northland dropped its reservation of rights, the primary conflict of interest giving rise to Consolidated’s right to select independent counsel arose from the conflict between Consolidated and Midwest by virtue of Consolidated’s crossclaim. Taibleson disagreed that the insured versus insured conflict triggered Consolidated’s right to appoint counsel.

She turned to Murphy v. Urso, 88 Ill. 2d (1981), and cases following it, for her interpretation of Illinois law. That case raised the issue whether the driver of a van and the van owner were both liable for an accident involving the van, or just the driver. The issue turned on whether the driver had permission to drive the van. If he did, then he and the owner would both be liable, which gave rise to a conflict between the driver and owner. If not, then only the driver would be liable.

In addition, however, if the driver did not have permission, then the insurer would be off the hook, because its coverage extended to the driver only if he had permission.

According to Taibleson, it was only the conflict between the insurer and driver in Murphy that entitled the driver to independent counsel paid for by the insurer.

Subsequent cases recognizing the right of an insured to select independent counsel likewise involved the same circumstances: an actual conflict between an insurer and insured or prospective insured. No case, wrote Taibleson, recognized such a right based on an insured versus insured conflict alone.

In the instant case, during the time that Northland adhered to its reservation of rights a conflict may have temporarily arisen, but Northland withdrew that reservation after Consolidated’s counsel asserted that it created a conflict. That temporary reservation did not give rise to an actual, serious conflict.

In addition, Taibleson found that Northland had no stake in the dispute between Consolidated and its co-defendants because Northland’s policy coverage remained unaffected.

That dispute therefore did not trigger Consolidated’s right to counsel of its own choosing. Moreover, with respect to any tension between or among Consolidated, Midwest and the driver, Northland appointed separate counsel for each.

Taibleson then went a step further to find that even if Murphy recognized a standalone conflict based on adverse interests between co-insureds, the right to independent counsel would arise only where those interests are “diametrically opposed.” That standard was not met here because the pleadings in the underlying case demonstrated that the best strategy was for Consolidated, Midwest and the driver to each deny their own negligence and argue for the underlying plaintiff’s comparative negligence. Consolidated appeared not to disagree with that position.

The court therefore reversed and found in favor of Northland to the effect that Northland had no obligation to reimburse Consolidated’s attorney fees. It also affirmed the ruling on Northland’s lack of bad faith.

Judge Michael Brennan concurred in the judgment but expressed disagreement with respect to when independent counsel is necessary when two insureds have adverse interests.

Key Point

According to this court, when an insurer has a duty to defend under a liability insurance policy, an insured has the right to select its own independent counsel paid for by the insurer only when its interests conflict with the insurer’s interests such that the insurer’s interests would be furthered by providing a less than vigorous defense. An insured’s conflict of interest with another insured does not trigger the right to independent counsel.