ETHICAL CONSIDERATIONS IN SURETY COUNSEL REPRESENTING PRINCIPAL IN PRINCIPAL S AFFIRMATIVE CLAIM AND SURETY COUNSEL SEEKING TO RECOVER A FIDELITY LOSS FROM A THIRD PARTY INVOLVING AN INSURED S SUBSTANTIAL DEDUCTIBLE R. Scott Krause, Esq. Eccleston & Wolf, P.C. Hanover, Maryland Surety and Fidelity Claims Institute June 26-28, 2013
R. Scott Krause, Esq. Eccleston and Wolf, P.C. Hanover, Maryland Scott Krause is a shareholder and supervising attorney with the law firm of Eccleston and Wolf, P.C., with offices in Maryland, Washington, D.C. and Virginia. He joined Eccleston and Wolf in 1998, after working for a time in a small general practice environment. Scott is a general civil litigator, with an emphasis on insurance defense litigation. A primary focus of his practice is the defense of professional negligence actions, with a particular concentration in legal malpractice defense. Scott s practice also includes the representation of licensed professionals in defense of ethical complaints before various professional boards, including matters under investigation by the Maryland Attorney Grievance Commission. Scott has lectured on the subject of avoiding and defending malpractice claims in programs sponsored by the Maryland State Bar Association and the Maryland Association for Justice (formerly the Maryland Trial Lawyers Association). After obtaining a B.A. in Economics from Villanova University, Scott received his J.D. from the Catholic University of America, Columbus School of Law. He is admitted to practice in the Court of Appeals of Maryland, the U.S. District Court for the District of Maryland, the U.S. Court of Appeals, Fourth Circuit and the District of Columbia Court of Appeals. Scott has been named one of The Best Lawyers in America in the area of legal malpractice defense and has been recognized as one of Baltimore s and Washington DC's Top Attorneys.
ETHICAL CONSIDERATIONS IN SURETY COUNSEL REPRESENTING PRINCIPAL IN PRINCIPAL S AFFIRMATIVE CLAIM AND SURETY COUNSEL SEEKING TO RECOVER A FIDELITY LOSS FROM A THIRD PARTY INVOLVING AN INSURED S SUBSTANTIAL DEDUCTIBLE I. INTRODUCTION A. MRPC 1.7; 1.8; 1.9 and 1.10 Largely Govern B. MRPC Provide Guidance But Not Much Help Identifying Conflicts II. CONFLICTS OF INTERESTS GENERAL RULE (MRPC 1.7) A. Attorney Cannot Represent A Client If There Is A Conflict Of Interest B. A Conflict Of Interest Exists If The Representation: 1. Is adverse to another client; or 2. May be limited by the lawyer s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer. C. However, A Lawyer May Represent A Client If: 1. The lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; 2. The representation is not prohibited by law; 3. The representation does not involve a claim by one client against another client represented by the lawyer in the same litigation or other proceeding; and 4. Each affected client gives informed consent in writing D. Examples 1. A lawyer takes a minority interest in the client s business to reduce legal fees. a. What happens when the lawyer s interest becomes the controlling vote? 2. Adding lawyers to firms
R. Scott Krause, Esq.: Ethical Considerations in Surety Counsel Representing Principal in Principal s Affirmative Claim and Surety Counsel Seeking to Recover a Fidelity Loss for a Third Party Involving an Insured s Substantial Deductible a. If new attorney is experience and has own book of business, there will be a plethora of potential conflicts b. Before adding the attorney, run all the new lawyer s clients through the firm s conflict system to determine whether either the attorney to be added or the firm must withdraw from representation c. Internal Screening (f/k/a Chinese Walls ) i. Permitted by MRPC ii. Intended to keep the conflicted attorney from even seeing the file in question E. Unique Surety and Fidelity Issues 1. The Agreement of Indemnity gives the Surety authorization to control the claim. a. What is the potential conflict in a tender situation? In theory: i. Surety has full authority to control what happens. ii. iii. The contractor s rights are fairly limited. Why does it matter who follows and executes the surety s directions? b. However: i. Attorneys, have fiduciary obligations, and ii. While there may be no reasonable alternative, the client is entitled to independent advice and guidance from someone whose loyalties are directed solely to the client. III. CONFLICT WAIVERS A. Some Conflicts Are Incapable Of Waiving. 1. An attorney can never represent both sides of a dispute B. Some Conflicts May Be Waived If: 1. The client is given Informed consent and it is 2
R. Scott Krause, Esq.: Ethical Considerations in Surety Counsel Representing Principal in Principal s Affirmative Claim and Surety Counsel Seeking to Recover a Fidelity Loss for a Third Party Involving an Insured s Substantial Deductible 2. Confirmed in Writing C. Informed Consent Confirmed In Writing (MRPC 1.0) 1. Informed consent is the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed conduct 2. Confirmed in writing, when used in reference to the informed consent of a person, denotes informed consent that is given in writing by the person or a writing that a lawyer promptly transmits to the person confirming an oral informed consent 3. Former Maryland Bar Counsel has said that if the writing took more than one page to explain the conflict, it was one that could not (more appropriately should not) be waived 4. How far should informed consent go? a. It depends on the judges who will hear determine whether the disclosure was adequate and whether a reasonable alternative has been laid out. 5. Example Dear Mr. Contractor: The Wiz Bang Insurance Company has asked me to represent it in the pending claim being brought by the Mighty Unhappy Customer. If you consent I ll represent both you and the insurer. By written contract you have already given the insurer the right to compromise this claim as it wishes, and if the insurer directs me to act I will do so, even though you might disagree and believe some other action would be both cost effective and warranted. The alternative to me acting for both you and the insurer would be for each of you to have completely independent lawyers. If you do not want me to represent the insurer I will remain your lawyer and will advocate your cause to that entity. However, at the end of the day, given the contract that you signed, I seriously doubt anything will change, other than your fees will increase. Please let me know what you want me to do. 3
R. Scott Krause, Esq.: Ethical Considerations in Surety Counsel Representing Principal in Principal s Affirmative Claim and Surety Counsel Seeking to Recover a Fidelity Loss for a Third Party Involving an Insured s Substantial Deductible a. Does that suffice? IV. MRPC 1.8: CONFLICT OF INTEREST: CURRENT CLIENTS: SPECIFIC RULES A. (f) A Lawyer Shall Not Accept Compensation For Representing A Client From One Other Than The Client Unless: 1. The client gives informed consent; 2. There is no interference with the lawyer s independence of professional judgment or with the client-lawyer relationship; and 3. The information relating to representation of a client is protected as required by Rule 1.6. B. If Representing Both The Surety And Contractor And They Give Contradictory Instructions, What Should The Attorney Do? 1. Is this a conflict worth asking the client to waive? 4