On June 1, 2026, the Minnesota Court of Appeals recognized and expanded an insured’s right to independent counsel based on a conflict of interest between the insurer and the insured. In Fabyanske Westra Hart & Thomson PA v. Western National Mutual Insurance Company, the Court of Appeals held that a “conflict of interest entitling an insured to independent counsel exists when the insurer defends under a reservation of rights and the facts to be determined in the underlying action are the same facts upon which coverage depends.”
This decision represents a new development in Minnesota law regarding the right to independent counsel and the circumstances that may present a conflict of interest between the insurer and the insured. Minnesota now recognizes that a conflict of interest arises between an insurer and the insured whenever the insurer issues a reservation of rights regarding its indemnity obligation that may be determined in the underlying litigation. Prior to Fabyanske, Minnesota courts refused to recognize per se conflicts of interest created by a reservation of rights. See Mut. Serv. Cas. Ins. Co. v. Luetmer, 474 N.W.2d 365, 368 (Minn. Ct. App. 1991). (To demonstrate an “actual conflict of interest,” there must be “substantial evidence” that the insurer acted in a manner that demonstrated a “greater concern for [the insurer’s] interests than [the insured’s] interests.”) Going forward, insurers issuing reservation of rights letters must be aware that a reservation on a factual issue that may be determined at trial could give rise to a conflict of interest that would entitle an insured to independent counsel. And insureds receiving reservation of rights letters should be aware that they may have a right to independent counsel based on any reservation related to a factual dispute that will be determined in the underlying litigation.
Fabyanske Decision
This case arose out of a wrongful death lawsuit related to a construction project. The plaintiff sued the insurer’s named insured—the subcontractor—and an additional insured on that policy—the general contractor—for negligence in maintaining a safe road construction site. The general contractor made a crossclaim against the subcontractor for contribution and indemnity. The insurer defended the named insured and the additional insured in the lawsuit. The insurer agreed to defend the general contractor pursuant to a reservation of rights, reserving the right to limit indemnity coverage to only for claims in which general contractor was found vicariously liable for the acts or omissions of subcontractor. The insurer assigned counsel to defend the subcontractor and separate counsel for the general contractor. The insurer assigned separate claims handlers and maintained separate claims files for the subcontractor and the general contractor.
Over one year into the litigation, personal counsel for the general contractor objected to the reservation of rights and claimed that the reservation of rights letter created a conflict of interest. The insurer maintained no conflict of interest existed and advised the general contractor that, if it chose to hire separate counsel, it would be required to do so at its own expense. The general contractor’s personal counsel appeared in the litigation and began to communicate with appointed counsel and participate in the defense of the claims. Ultimately, both appointed counsel and personal counsel participated in the defense of the case at the dispositive motion stage.
At the dispositive motion stage, both the general contractor and the subcontractor moved for summary judgment. The subcontractor also sought summary judgment on the general contractor’s crossclaim for contribution and indemnity. Both personal and appointed counsel received the subcontractor’s motion for summary judgment on the crossclaim. Neither attorney opposed the motion. In the interim, the plaintiff dismissed its claim against the subcontractor. The district court dismissed the crossclaim as unopposed. After the dispositive motions were heard, the case resolved at mediation with the general contractor’s direct insurer settling the claim on behalf of the general contractor.
After the matter settled, personal counsel sent an invoice for attorney fees incurred in supervising the appointed counsel’s defense of the claim to the insurer. The insurer refused to pay the invoice. The insured assigned its rights under the policy as an additional insured and any right to attorney fees to personal counsel. Personal counsel commenced suit. The district court granted the insurer’s motion for summary judgment. However, on appeal, the court of appeals reversed after determining that the reservation of rights letter created an automatic conflict of interest. The Court of Appeals found that a conflict of interest existed because “the same facts upon which [the insurer] reserved the right to deny coverage—whether the general contractor was negligent—would have been decided in the underlying action absent the settlement. Accordingly, an actual conflict of interest existed that transformed [the] duty to defend into a duty to reimburse.” However, the Court of Appeals emphasized that whether a conflict of interest exists “requires a case-by-case determination to assess whether the reservation of rights creates an actual conflict of interest.”
Practical Effects
The Fabyanske decision carries significant implications for insurers, insureds, and attorneys navigating Minnesota’s litigation landscape. The Fabyanske decision puts insurers and insureds on notice of potential conflicts of interest that may convert the duty to defend to a duty to reimburse attorney fees for the insured’s counsel of their choice.
Insurers defending under a reservation of rights letters in Minnesota must be aware of potential conflicts of interest based on the factual basis of a reservation. Where the factual basis of the reservation creates a genuine conflict between the insurer’s interests and those of the insured, the insurer may lose the right to control the defense.
Insureds who receive a reservation of rights should carefully review the grounds for the reservation to determine whether they have a right to select counsel of their choice to safeguard their rights. Insureds seeking to invoke the right to independent counsel should exercise their rights promptly and proactively to avoid waiver of their rights. Attorneys representing insureds—either as appointed counsel or personal counsel—must be aware of potential conflicts of interest outlined in Fabyanske and advise their clients accordingly.
For questions regarding the right to independent counsel or the Fabyanske decision, please contact Patrick H. O’Neill III at phoneill@larsonking.com.
Read the Decision: Fabyanske Westra Hart & Thomson PA v. Western National Mutual Insurance Company