Fabyanske, Westra, Hart & Thomson, P.A. v. Western National Mutual Insurance Company The Court of Appeals Resolidifies the Right to Independent Counsel
Category | Alexander B. Athmann
By Alexander B. Athmann, Lucas L. Clayton and Elise R. Radaj
Alexander Athmann, Lucas Clayton and Elise Radaj are members of the firm’s Construction Law Department. Alex can be reached at 612.359.7647 or AAthmann@fwhtlaw.com. Luke can be reached at 612.359.7628 or LClayton@fwhtlaw.com. Elise can be reached at 612.359.7657 or ERadaj@fwhtlaw.com.
The scenario is one in which many construction contractors are well versed – a claim is made against a contractor, the contractor tenders the claim to its commercial general liability insurer, and the insurer, while accepting defense of the claim, issues a reservation of rights letter. Traditionally, the insurer would then select panel counsel to represent the contractor in any litigation that ensued from the claim, and the contractor could request independent counsel in the event that an actual conflict of interest existed between the interests of the insurer and insured. Often times this results in a scenario where contractors are unable to select counsel of their choice, but instead are forced to be defended by counsel selected by the insurer.
For decades, Contractors have argued that the case law in Minnesota allows for the appointment of independent counsel – i.e., counsel of their choice – when the insurer issues a reservation of rights letter picking up defense of a claim while reserving the right to challenge coverage of the claim. In the recent published decision of Fabyanske, Westra, Hart & Thomson, P.A. v. Western National Mutual Insurance Company, A25-1640 (Minn. Ct. App. June 1, 2026), the Minnesota Court of Appeals clarified decades-old Minnesota Supreme Court law, and held that an insured has a right to independent counsel “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.”
I. Prior Minnesota Case Law on Conflicts of Interest and the Right to Independent Counsel
For more than 45 years, Minnesota law has recognized the right to independent counsel where an insurer is both defending itself on a coverage question and defending the insured. In Prahm v. Rupp Construction Co., 277 N.W.2d 389 (Minn. 1979), the Minnesota Supreme Court found a conflict of interest existed because the insurer, who denied coverage, “would be required to take opposing positions at trial to defend [its insured] against plaintiffs’ claim and, at the same time, to defend itself on the coverage question.” Id. at 391. The Court continued, “[t]his conflict of interest does not relieve [the insurer] of its duty to defend, but rather transforms that duty into the duty to reimburse [its insured] for reasonable attorneys’ fees incurred in defending the lawsuit.” Id. Thus, beginning with Prahm, Minnesota has long recognized a right to independent counsel when an insurer plays a dual role of defending the insured and defending its coverage position.
Building on the decision in Prahm, three years later the Minnesota Supreme Court again recognized the right to independent counsel in Grain Dealers Mut. Ins. Co. v. Cady, 318 N.W.2d 247 (Minn. 1982) where there was a question regarding coverage in an underlying action, which spurred a subsequent declaratory judgment action pertaining to the question of coverage. Id. at 249-50. Given the dispute regarding coverage, the Supreme Court found a conflict of interest existed and recognized that the insurer had a duty to reimburse the insured for its attorneys’ fees. Id. at 251. Just four years later, the Minnesota Supreme Court again found that defending under a reservation of rights where coverage arguments were raised created “a conflict of interest for [the insurer].” Jostens, Inc. v. Mission Ins. Co., 387 N.W.2d 161 (Minn. 1986). In particular, the decision in Jostens found that such a conflict of interest existed because the interests of the insured and insurer in the factual determination on the specific issues identified in the insurer’s reservation of rights were opposed.
Decisions from the United States District Court for the District of Minnesota have reached the same conclusion. Going directly to the point, Judge Paul Magnuson in C.H. Robinson Co. v. Zurich American Ins. Co., 2004 WL 2538468, at *5 (D. Minn. Nov. 5, 2004), held unequivocally that “Under Minnesota law, an actual conflict exists when the insurer denies coverage, but is still required to defend the suit.” More recently, Judge Joan Ericksen synthesized the law on reservation of rights letters and the right to independent counsel in Select Comfort Corp. v. Arrowood Indemnity Co., 2014 WL 4232334 (D. Minn. Aug. 26, 2014). Relying on the Minnesota Supreme Court case law described above, Judge Ericksen held that a conflict of interest giving rise to the right to independent counsel exists “when the underlying action will involve trial of a fact issue on which the insured and insurer would be on opposing sides in a coverage dispute that the insurer reserved its right to raise.” Id. at *5. Continuing her discussion, Judge Ericksen found that no other fact besides the insurer’s issuance of a reservation of rights letter in which it reserved its right to challenge coverage relating to a factual issue to be determined at trial is necessary to find a conflict of interest because “Minnesota cases confirm that such reservation creates a qualifying conflict of interest.” Id. at *6.
II. Fabyanske, Westra, Hart & Thomson, P.A. v. Western National Mutual Insurance Company, A25-1640 (Minn. Ct. App. June 1, 2026).
The Fabyanske case arose out of a claim against a contractor and subcontractor following a motorcycle accident in a construction zone and subsequent underlying litigation. The subcontractor held a commercial general liability policy with Western National. The contractor was an additional insured under that policy. Western National agreed to defend the contractor under a reservation of rights and appointed panel counsel to defend the contractor. While litigation of the underlying action was in progress, the contractor objected to the reservation of rights and requested independent counsel due to the conflict of interest created by the reservation of rights letter. Western National refused this request. Despite Western National’s refusal, the general contractor hired Fabyanske, Westra, Hart & Thomson, P.A. (“Fabyanske”) to oversee the defense of the case. Following the settlement of the underlying case, Fabyanske sent Western National a bill for its fees. Western National refused to pay the bill, and litigation ensued between Fabyanske and Western National.
In that litigation, Fabyanske argued that the contractor was entitled to independent counsel due to the conflict of interest that existed because of the reservation of rights letter issued by Western National. More specifically, Fabyanske argued that Western National’s denial and reservation of coverage, combined with the fact that the issues underlying the coverage dispute would be determined in the underlying litigation, created a conflict of interest.
On appeal, the Court of Appeals reviewed the right to independent counsel. The key document in the Court’s analysis was the reservation of rights letter issued by Western National. The reservation of rights letter stated that contractor was “an additional insured, however, only for liability caused, in whole or in part, by [subcontractor’s] acts or omissions. . . . To the extent that [contractor] face[d] liability for its own negligence . . . such liability would not be covered by the additional insured endorsement.” As the Court correctly identified, based on its reservation of rights letter, Western National reserved its right to challenge coverage, specifically whether the liability in question was caused by the conduct of the subcontractor or the conduct of the contractor, which fact would have been determined in the underlying action but for the settlement. The Court of Appeals, analyzing the case law discussed in Part I, found that in this instance a conflict of interest existed between Western National and the contractor, holding that “an actual conflict of interest exists, entitling an insured to independent counsel, 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.”
While the Court of Appeals’ holding may appear groundbreaking, it simply resolidifies the law that has existed for decades under the decisions in Prahm, Grain Dealers, and Jostens. The Court’s decision also ensures consistency between state and federal courts in Minnesota, as the holding in the Fabyanske case is consistent with the holding in the Select Comfort case that has been the law in federal court in Minnesota for 12 years.
III. Conclusion.
Based on the long-standing case law in Minnesota, reaffirmed in Fabyanske, contractors should review any reservation of rights letters they receive from insurers to determine whether (1) the insurer is defending under a reservation of rights, and (2) the facts that need to be determined in the underlying action are the same set of facts that determine coverage. If so, the right to independent counsel exists.
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