When Do Insureds Get Independent Counsel in Illinois? The Seventh Circuit Weighs In
On May 30, 2026, we wrote about the decision in Pan-Oceanic Eng’g Co., Inc. v. Grange Mut. Ins., 2026 IL App (1st) 250511-U, where the Appellate Court of Illinois, First District, provided additional guidance on when a conflict of interest entitles an insured to select independent counsel at its insurer’s expense. The Pan-Oceanic court reiterated that not every reservation of rights creates a conflict. The question is whether the insurer’s and insured’s interests actually diverge in defending the underlying case.
The Seventh Circuit recently addressed the limits of that principle in Consol. Chassis Mgmt. LLC v. Northland Ins. Co., 25-1067, 2026 WL 2254722 (7th Cir. Aug. 5, 2026) (Illinois law). There, Northland insured multiple defendants in an underlying personal injury action and appointed separate counsel to defend them. One of those insureds nevertheless retained its own counsel, arguing that Northland’s reservation of rights, the competing interests among the insured defendants, and potential excess exposure created conflicts entitling it to independent counsel at Northland’s expense. Notably, while Northland initially reserved the right to confirm whether the insured was an additional insured under the policy, it withdrew that reservation when the insured asserted that it created a conflict.
The Seventh Circuit held that none of these circumstances created the serious, actual conflict required under Illinois law. As to the reservation of rights, there was no risk that Northland could use the underlying litigation to develop a basis for denying coverage. Northland had withdrawn its reservation, and the underlying complaint alleged only negligence covered by the policy. The court therefore found no incentive for Northland to steer the defense toward an uncovered result.
The court also rejected the insured’s reliance on the competing interests among the insured defendants. Although the insured had asserted contribution claims against its co-insureds, Northland had no stake in how liability was allocated among them because its coverage obligations remained the same either way. And the co-insureds were not “diametrically opposed”: their primary defenses were not mutually exclusive, as each could deny its own negligence and argue the plaintiff’s comparative negligence.
More broadly, reading Illinois law as requiring an actual, serious conflict between the insurer and insured, the court observed that Illinois cases finding conflicts among co-insureds also involved circumstances where the insurer itself had an incentive to favor one insured or outcome over another. The point is that adversity among insured defendants may be relevant to the analysis, but it does not alone trigger the right to independent counsel.
Chief Judge Brennan disagreed with the majority on this point and, in a separate concurrence, concluded that Illinois law can recognize a right to independent counsel where the interests of multiple insureds are themselves “diametrically opposed,” even without a separate conflict between the insurer and insured. He nevertheless agreed with the result because the insureds here were not actually diametrically opposed.
Although the policy had a $1 million limit and the plaintiff had made a $2.5 million settlement demand, the court further held that potential excess exposure, alone, is not an independent basis for finding a conflict between the insurer and insured. Finding otherwise, the court explained, could allow the exception to swallow the rule: the right to independent counsel is the exception, while the insurer’s right to control the defense remains the general rule.
While Pan-Oceanic may open the door to a broader range of circumstances supporting independent counsel, both decisions recognize that not every potential conflict is enough. The ultimate question remains whether the insurer’s interests actually diverge from the insured’s in defending the underlying case, such that the insurer has an incentive to steer the defense toward an outcome that benefits itself at the insured’s expense.
