Ethical & Other Issues for Handling Insurance Claims: Who s In Charge Anyway?

Ethical & Other Issues for Handling Insurance Claims: Who s In Charge Anyway? 1. Introduction George Fagan Leake & Andersson, L.L.P. New Orleans, Louisiana Disputes over the handling and defense of insured claims may arise out of the adverse or competing interests of the insurer and insured, the insurer s obligation to defend the insured, the representation of multiple clients, and the ethical and other duties owed by the attorney to each client for whom the lawyer has been retained to represent or defend. Denials or reservations of rights based on policy provisions or exclusions, limitations of liability and retention issues, the insured s duty to cooperate with the insurer, and potential excess liability exposure, differences of interests or opinions between the insurer and the insured(s), only serve to increase the potential for conflicts to develop between the insurer and the client insured. These disputes also pose issues and problems for the attorney retained to represent the interests of the client insured. For a variety of reasons, a lawyer retained to represent an insured thus may be faced with a client insured who has priorities and objectives that may be different from those of the insurer who is paying for all or most of the defense costs as well as any settlement or judgment. See Charles Silver and Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 DUKE L.J. 255 (1995). So, who s in charge anyway? Insurers who pay for the insured s defense generally expect to be able to supervise and control the defense costs, to require the insured s attorney to evaluate the merits of the claims and defenses as well as potential liability and exposure ranges, and to be involved in decisions regarding 1

strategy, settlement and other matters. The insured expects the insurer to furnished and pay for competent and qualified defense counsel who will diligently and loyally represent the client insured. While lawyers who are approved or panel counsel for insurers may naturally be wary of placing the interests of the insured over the insurer, an attorney who accepts the representation of an insured is ethically bound to provide competent, diligent and independent representation to the client insured. The attorney has to be loyal to the client insured and be able to exercise independent professional judgment, even if such loyalties or judgment may be adverse to the insurer s interests or to the potential detriment of the attorney s relationship with the insurer. Conceptually, each member of the trio, attorney, client-insured, and client insurer, has corresponding rights and obligations founded largely on contract, and as to the attorney, the Rules of Professional Conduct as well... Communications are routinely exchanged between them relating to the joint and common purpose the successful defense and resolution of the claim. Insured, carrier and attorney, together form an entity the defense team arising from the obligations to defend and to cooperate, imposed by contract and professional duty. American Mutual Liability Ins. Co. v. Superior Court, 38 Cal.App.3rd 579, 592, 113 Cal.Rptr. 561, 571 (Cal. App. 3rd Dist. 1974). This paper discusses some of the ethical and other considerations involved with such tripartite relationships. 2. The Basic Duties of the Insurer, the Insured and the Lawyer (a) Insurers: The standards for interpreting and applying an insurer s duty to defend are similar throughout the various jurisdictions in the United States. An insurance company's duty to defend is part of its contractual obligation and is defined by the language of the insurance policy. Insurers typically have a duty to defend and indemnify the insured for claims that may be covered under the policy, which 2

includes even frivolous or claims brought in bad faith. Generally, the insurer s duty to defend suits brought against the insured is determined by the allegations of the plaintiff s complaint or petition, with the insurer being obligated to furnish a defense unless the petition unambiguously excludes coverage. Accordingly, the insurer s obligation to defend suits is generally broader than its obligation to provide coverage for damage claims. Thus, if coverage arises based on the allegations of the complaint, the insurer must defend the insured regardless of the outcome of the suit. An insured s duty to defend arises when the pleadings against the insured disclose even a possibility of liability under the policy. An insurer may be required to accept an insured s tender of defense if the insurer has independent knowledge of facts that may establish coverage. See Cort v. St. Paul Fire and Marine Ins. Companies, Inc., 311 F.3d 979, 983 (9 th Cir. 2002)(California law); Steptore v. Masco Construction Co., Inc., 643 So.2d 1213, 1218 (La. 1994); Travelers Property Cas. Co. of America v. General Cas. Ins. Companies, 465 F.3d 900, 903-906 (8 th Cir. 2006)(Minnesota law); Cowan Systems, Inc. v. Harleysville Mut. Ins. Co., 457 F.3d 368, 372-375 (4 th Cir. 2006)(Maryland law); and, Jacobs Constructors, Inc. v. NPS Energy Services, Inc., 264 F.3d 365, 375-376 (3 rd Cir. 2001)(Pennsylvania law). Some states define the insurer s duty to the insured varies from being the champion of the insured s interests whose interests are paramount to those of the insurer, whereas others require the insurer to give the interests of its insured the same faithful consideration it gives its own interests. Compare Maryland Casualty Company v. Dixie Insurance Company, 622 So.2d 698, 701 (La. App. 1st Cir. 1993), writs denied, 629 So.2d 1138 (La. 1993); and, Delancy v. St. Paul Fire & Marine Ins. Co., 947 F.2d 1536, 1549 (11 th Cir. 1991)(Georgia law). Whether by statute or case law, all states generally conclude that an insurer owes its insured the duty to act in good faith and to deal fairly in handling claims. McGregor v. Paul Revere Life Ins. Co., 369 F.3d 1099, 1001-1002 (9 th 3

Cir. 2004); Dadeland Depot, Inc. v. St. Paul Fire and Marine Ins. Co., 483 F.3d 1265, 1276 (11 th Cir. 2007)(Florida law); Gourley v. Prudential Property & Casualty Insurance Company, 734 So.2d 940, 944 (La. App. 1st Cir. 1999), writs denied, 750 So.2d 969 (La. 1999)734 So.2d at 944; Henry v. Mutual of Omaha Ins. Co., 503 F.3d 425, 427-428 (5 th Cir. 2007)(Texas law). Fundamentally, insurer should attempt to avoid adopting policies or procedures that pose material risks of creating conflicts of interest or causing breaches of confidences by attorneys retained by the insurer to represent an insured as a client. (b) Insureds: An insured s basic duties arising from insurance contracts generally include the duty to: provide prompt notice of claims; submit a proof of loss; be examined under oath or produce documents reasonably requested by the insurer; read and know his or her insurance policy provisions; and, cooperate with the insurer in defending claims. Notice provisions are generally contained in both claims-made and occurrence policies. In a claims-made policy, the notice requirement itself is generally the trigger for coverage and thus imposes on the insured a duty to give the insurer notice of claims or potential claim against the insured without regard to when the wrongful act or event occurred the claim itself generally must be first made against the insured and reported to the insurer during a specified period. In an occurrence policy, the insured is likewise required to give prompt notice of an event for which the insured seeks coverage for events that occurred during the policy s term. For these reasons, insurers generally are not required to demonstrate prejudice if the insured failures to comply with the policy s notice or reporting provisions, whereas prejudice is required for insurer s who issue occurrence policies. The duty to notify the insurer generally arises when it would appear to a reasonably prudent person that a claim has been asserted or may be brought against the insured. A provision 4

requiring notice as soon as practicable requires that notification be provided within a reasonable time. See American Safety & Risk Services, Inc. v. Legion Indem. Co., 153 F.Supp.2d 869, 875-878 (E.D.La. 2001)(Louisiana law); Country Mutual Ins. Co. v. Livorsi Marine, Inc., 833 N.E.2d 871, 873 (Ill. App. 2004). Sigma Financial Corporation v. American International Specialty Lines Insurance Company, 200 F. Supp.2d 710, 716-717 (E.D. Mich. 2002); Clark v. Chubb Group of Ins. Cos., 337 F.3d 687, 691-692 (6 th Cir. 2003)(Ohio law); Pizzini v. American International Specialty Lines Ins. Co., 210 F. Supp. 2d 658, 669-670 (E.D. Pa. 2002); Pope v. Leuty & Heath, PLLC, 87 S.W. 3d 89, 94 (Tenn. Ct. App. 2002); and, International Ins. Co. v. RSR Corp., 148 Fed.Appx. 226, 231 (5 th Cir. 2005(Texas law); and, McCraw v. Mensch, 461 F.Supp.2d 872, 876 (W.D. Wis. 2006)(Wisconsin law). Proof-of-loss provisions are generally enforceable, and the insured has the duty to substantially comply with the information or documents reasonably requested by the insurance contract in the event a claim is submitted for a loss. Coverage may be avoided if the insured fails to provide material information requested by the insurer. See Halcome v. Cincinnati Ins. Co. 254 Ga. 742, 334 S.E.2d 155 (1985); American Centennial Ins. Co. v. Wiser, 712 S.W.2d 345, 346 (Ky.Ct.App.1986); Mello v. Hingham Mut. Ins. Co., 421 Mass. 333, 336, 656 N.E.2d 1247 (1995). Courts generally regard the insured s duty to submit to an examination under oath or to furnish or produce information or documents reasonably requested by insurers as independent of the duty to cooperate if such requirements are included in the insurance contract. Coverage may be avoided if the insured breaches this duty, though some states require that prejudice be demonstrated. Employers Mut. Cas. Co. v. Skoutaris, 453 F.3d 915, 923-924 (7 th Cir. 2006)(Indiana law); Temple v. State Farm Mut. Ins. Co., 548 S.W.2d 838 (Ky.1977); Rymsha v. Trust Ins. Co., 51 Mass.App.Ct. 414, 417, 746 N.E.2d 561 (Mass. Ct. App. 2001); MetLife Auto. & Home v. Cunningham, 59 5

Mass.App.Ct. 583, 797 N.E.2d 18, 22 (Mass. Ct. App. 2003); and, Miller v. Augusta Mut. Ins. Co., 157 Fed.Appx. 632, 639-640 (4 th Cir. 2005)(Virginia law). While an insured has a duty to cooperate, the insured s breach must be material and prejudicial to the insurer in order for coverage to be voided or excluded. The insurer must make reasonable efforts to obtain the cooperation of the insured. This requires the insurer to demonstrate that it made a diligent effort to obtain the information or that it was prejudiced by the insured s failure to cooperate. See Insurance Co. State of Pennsylvania v. The Roman Catholic Archbishop of Los Angeles, 227 Fed.Appx. 643, 644 (9 th Cir.2007)(California law); Desadier v. Safeway Insurance Company, 712 So.2d 925, 928 (La. App. 3rd Cir. 1998), writs denied, 719 So.2d 1058 (La. 1998); Romano v. Arabella Mut. Ins. Co., 429 F.Supp.2d 202, 208 (D.Mass. 2006); National Union Fire Insurance Company of Pittsburgh, Pa. v. Cagle, 68 F.3d 905, 912 (5th Cir. 1995). (c) Lawyers: A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. See Rule 1.1, Model Rules of Professional Conduct ( MRCP Rule ). Subject to paragraphs (c) and (d), a lawyer shall abide by a client's decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued. A lawyer may take such action on behalf of the client as is impliedly authorized to carry out the representation. A lawyer shall abide by a client's decision whether to settle a matter. See MRPC 1.2(b). A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent. See MRPC 1.2(c). A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed 6

course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law. See MRPC 1.2(d). Model Rule 1.4 imposes these duties on the lawyer: promptly inform the client of any decision or circumstance with respect to which the client's informed consent is required; reasonably consult with the client about the means by which the client's objectives are to be accomplished; keep the client reasonably informed about the status of the matter; promptly comply with reasonable requests for information; and, consult with the client about any relevant limitation on the lawyer's conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law. Model Rule 1.6(a) provides that a lawyer may not reveal information relating to the representation of a client unless the client gives informed consent, or the disclosure is impliedly authorized in order to carry out the representation, or if the disclosure is permitted by one of the exceptions described in Model Rule 6.1(b) in order to prevent death or bodily harm, the commission of a crime, prevent damage that may be caused by a client s fraud or criminal conduct, secure legal advice, defend or prosecute a claim involving the client, or as ordered by any court or competent authority. In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client's situation. See MRPC 2.1. A lawyer shall not permit a person who recommends, employs or pays the lawyer to render services for another to direct or regulate the exercise of the lawyer s professional judgment in rendering such services. See MRPC 5.4(c). 7

As noted above, states vary about whether the lawyer retained by an insurer only represents the insured or whether the insurer and the insured may be considered clients. Compare Tank v. State Farm, 105 Wn.2d 381, 388, 715 P.2d 1133 (Wash. 1986)(Insured is the only client); Oregon State Bar Formal Ethics Opinions 2005-30, 2005-77, and 2005-121 (Lawyer represents the insured as a "primary" client and the insurer as a "secondary" client). 2. The Insurance Broker s Role Insurance brokers routinely assist insureds with the submission and processing of claims for their insured customers, and consult about the scope and extent of available coverage. Insurance brokers also generally have written agreement with insurers or with other brokers through whom retail brokers may authorize to submit requests for insurance or even bind certain coverages. Thus, while insurance brokers presumably prefer to maintain good relations with their insurers and wholesale brokers, insurance brokers may also act be called on to act as advocates for the interests of their insured customers for the same reasons. Insurance brokers may have direct contacts with the insurers underwriters employed, who likewise have an interest in maintaining good relations with their insureds if the insured risk or business is a profitable one. The role of the insurance broker can likewise involve potential disputes and conflicts with the insurer, and may lead to awkward situations for the broker if the broker eventually has to furnish sworn testimony or choose between sides. 3. Circumstances Leading to Conflict: Antagonistic Interests There are many circumstances that can lead to conflict between the insurer and the insured, but some are more prevalent than others. The insurer may be motivated by economic considerations such as the overall profitably of the risk that is insured, the business relationship with the insured, the individual defense costs that may be incurred in a single lawsuit when compared against settlement 8

values, the level of reinsurance available for the risk, and how the insurer s long-term objectives may be affected or impacted by known and potential risks of exposure. These financial determinants may cause insurers to impose restrictions or guidelines on attorneys retained by the insurer in order to limit the cost of defending claims or reducing the exposure for settlements or verdicts, which may be viewed as compromising the professional independence and duties that the attorney owes to the client-insured. The insurer may be motivated to settle a claim early on in order to save costs because contesting the claims poses greater economic or other risks and expenses. Conversely, the insured may be influenced by principled considerations like maintaining its goodwill and reputation, which may mean advocating a vigorous defense to protect the company or demanding large amounts to settle claims based on perceived moral or other obligations to any injured persons. Proving innocence may not mesh with the insurer s valuation of the claim. Tension also arises in situations where settlement offers come within policy limits, or where differences in strategies for defending the case arise. The insured may prefer settlement, leaving the insurer accountable for the entire settlement amount, while the insurer may rather to litigate the claim due t coverage or other defenses, hoping for a settlement or verdict below the amount of the anticipated risk. Judgments in excess of available policy limits likewise pose additional risks to insurers, and may prompt more liberal settlements in order to protect broth the insured and the insurer. Additionally, conflict arises when the insurer brings a coverage defense, claiming that coverage may be barred in whole or in part. The insurer may file a declaratory judgment action seeking to exonerate itself from liability for the claim or potential risk, leaving the insured responsible for defending the case and paying for all subsequent damage awards. In each situation, the attorney representing an insured must determine whether he or she can 9

provide adequate, competent, diligent and independent representation to the client, in light of the circumstances involved in the case. 4. Disputing Coverage and Waiver Concepts Because the insurer may be sued at the same time as the insured, selection and assignment of counsel must be carefully considered and handled. The insurer must first determine if the case presents any potential for coverage dispute. An insurer does have a reasonable amount of time to conduct any investigation of a loss without being barred from denying suspected coverage liability. To protect its own interests, an insurer can simultaneously provide its insured with a defense and contest coverage with its insured. An insurer is generally charged with the knowledge of the contents of its own policy. In addition, notice of facts which would cause a reasonable person to inquire further imposes a duty of investigation upon the insurer, and failure to investigate constitutes a waiver of all powers or privileges which a reasonable search would have uncovered. Peavey Co. v. M/V ANPA, 971 F.2d 1168, 1176 (5th Cir. 1992). The assignment to the attorney defending the insured should specifically exclude any representation on coverage disputes. Insurers generally are under no obligation to hire counsel for an insured to litigate coverage disputes with the insurer. The assignment letter should specifically advise the attorney that the scope of what he will be paid to do is to defend the insured on the merits. Obviously, situations will arise where defense of the merits will concern or involve issues which bear on the liability of the insured. Many insurance policies exclude or limit coverage punitive or other types of damages. Nonetheless, the insurer s duty to defend will extend to the defense of the merits of such non-covered claims if the policy provides coverage for some of the types of damages or losses at issue. In such instances, the insurer may have the duty to furnish a defense to the insured against covered and uncovered claims. So long as the case involves one issue 10

or claim which may be covered, the insurer has a duty to defend the insured for all claims made under the policy. Insurers generally cannot piecemeal representation to an insured s attorney on certain issues which relate to a defense of the merits. 5. Confidentiality and Privilege Issues for Billing Information While insurers who retain counsel for insureds routinely request or require such attorneys to provide detailed billing sheets to the insurer or to independent auditors, attorneys should be mindful of confidentiality and privilege issues when doing so. For these reasons, the client s written consent should generally be obtained prior to complying with such requests by insurers. While a lawyer may be paid for services by another person so as long as the lawyer's professional judgment on behalf of the client remains unaffected, confidential or privileged communications regarding litigation strategy and opinions are protected and cannot be disclosed without the client s consent. Insurers requests for such billing information have garnered substantial commentary within the last decade. In 1998, the Louisiana State Bar Association noted that potential attorney-client privilege waiver implications abounded, recommended that before bills should be submitted, counsel should obtain consent from the insured and then take steps to ensure the confidentiality of the material. The Committee recommended obtaining a signed confidentiality agreement from the outside auditors and making adjustments to the files that would depersonalize the confidential information. In 1999, the Ethics Committee of the Mississippi Bar recommended that a lawyer could only disclose information to a third-party auditor if he could reasonably conclude there to be some benefit to the insured which outweighs any reasonable expectation of prejudice or that the insured could not be prejudiced by a release of the confidential information. See Ethics Committee of the Mississippi Bar, Opinion No. 246 (1999). In 2000, the Montana Supreme Court ruled that defense counsel could not ethically disclose 11

bills to outside auditors. In The Matter of the Rules of Professional Conduct and Insurer Imposed Billing Rules and Procedures, 2 P.3d 806 (Mont. 2000). In the opinion, the Court held that auditors were not a vital part of the legal representation of the insured, nor did an insured impliedly consent to the disclosure when purchasing an insurance policy. The Court further went on to state that disclosure by defense counsel of detailed descriptions of professional services to third-party auditors without first obtaining the contemporaneous fully informed consent of the insured violates client confidentiality under the Rules of Professional Conduct. Id. at 822. In 2000, the Texas Supreme Court State Ethics Committee made a similar recommendation, requiring the insured s informed consent before any confidential information could be divulged to independent auditors. See Texas Supreme Court State Ethics Committee, Opinion No. 532 (2000). In 2001, the American Bar Association weighed in on the issue, and concluded as follows: In representing an insured, a lawyer must not permit compliance with "guidelines" or other insurer directives relating to the lawyer's services to impair materially the lawyer's independent professional judgment. There may be rare instances when the lawyer reasonably believes a limitation imposed by the insurer's directives is materially compromising the lawyer's ability to provide competent representation to both the insured and insurer. In such situations, if the lawyer is unable to persuade the insurer to withdraw the limitation, the resulting conflict between the insurer's directives and the insured's interests requires the lawyer to protect the immediate interests of the insured while preparing to withdraw from representing both the insured and the insurer. A lawyer may disclose the insured's confidential information, including detailed work descriptions and legal bills, to the insurer if the lawyer reasonably believes that doing so will advance the interests of the insured. However, the lawyer may not disclose the insured's confidential information to a third-party auditor without the informed consent of the insured. It is also the opinion of the Committee that unless the lawyer reasonably believes that disclosure of the insured's confidential information to the insurer will not affect a material interest of the insured adversely, the lawyer must not disclose such information without the informed consent of the insured. ABA Standing Committee on Ethics and Professional Responsibility, Formal Opinion No. 01-421 12

(2001); See Also Alaska State Bar, Ethics Opinions 99-1 and 99-3; Arizona State Bar, Formal Opinion 06-04; Comments to California Rule of Professional Conduct 3-310; Idaho State Bar, Formal Ethics Opinion 136; Oregon State Bar, Formal Ethics Opinion 2005-166; and, Washington State Bar, Formal Ethics Opinion 195. In 2002, the Utah State Bar Association provided a lengthy summary of the various commentary and ethics opinions, and concluded: [W]e conclude that an insurance defense lawyer s agreement to abide by insurance company guidelines is not per se unethical and that the ethical implications of insurance company guidelines must be evaluated on a case-by-case basis. An insurance defense lawyer must not permit compliance with guidelines and other directives of an insurer relating to the lawyer s services to impair materially the lawyer s independent professional judgment in representing an insured.26obligations of attorneys under the Utah Rules of Professional Conduct cannot be diminished or modified by an agreement between the attorney and the attorney s client or by an agreement between the attorney and an insurer. Before accepting a representation of an insured party that will be governed in part by insurance company guidelines, a defense lawyer must determine that compliance with the guidelines will not be inconsistent with the lawyer s professional obligations. If compliance with the guidelines will be inconsistent with the lawyer s professional obligations, and if the insurer is unwilling to modify the guidelines, the lawyer must not undertake the representation. See Utah State Bar Ethics Advisory Opinion Committee, Opinion No. 02-03 (February 27, 2002). In 2006, the State Bar of Arizona addressed the issue: When an attorney agrees to accept payment for services from someone other than the client, it must be cognizant of applicable ethical obligations. In such situations, the attorney (1) "must preserve the insured/client s confidences"; (2) "must not allow any interference with the exercise of his independent professional judgment... regardless of who is paying for the lawyer s services"; and (3) "cannot ethically allow [anyone other] than the client to direct or regulate the lawyer's professional judgment in rendering... legal services." Arizona Ethics Opinion 06-04 (July 2006). Accordingly, attorneys retained by insurers to represent insureds should generally advise the 13

insured that the insurer requires the attorney to submit billing statements that include descriptions of the work performed by the attorney. Obtaining the insured s written consent to the submission of detailed bills is the better practice, and may be required in some states. The more difficult questions involve the attorney s requests for authority to incur costs or expenses, or recommendations for settlement authority that the insurer may be reluctant or unwilling to pay or to which even the insured may be demanding or refusing to consent. Ultimately, such circumstances place the attorney in the difficult position of vigorously and diligently advocating such expenditures on behalf of the insured client even in circumstances where the attorney has a longstanding relationship with the insurer. In such instance, the foregoing commentary indicates that the attorney cannot ethically avoid advancing and maintaining recommendations or opinions in the face of criticism or dissent from the insurer. Likewise, circumstances may arise where the client insured refuses to consent or disagrees with the requests or recommendations made by the attorney retained and paid by the insurer. Where the client insured s attorney and the insurer agree, and the insured does not, even more difficulties may arise, particularly where provisions of the insurance contract may allow the insurer to hammer the insured notwithstanding the insured s objections to the proposed course of action. 5. Issues with Representation of Multiple Clients Attorneys retained to represent multiple insureds are presented with further challenges and requirements. We conclude that the Canons of Ethics imposed upon lawyers hired by the insurer creates an obligation to explain to the insured and the insurer the full implications of joint representation in situations where the insurer has reserved its right to deny coverage. San Diego Federal Credit Union v. Cumis Ins. Soc. Inc., 162 Cal.App.3rd 358, 375, 208 Cal Rptr. 494, 506 (Cal. App. 4th Dist. 1984). Courts have not hesitated to disqualify attorneys representing multiple 14

clients with adverse interests in connection with litigated matters. Cinema 5, Ltd. v. Cinerama, Inc., 528 F.2d 1384 (2d Cir. 1976); Strategem Development Corp. v. Heron Int'l N.V., 756 F. Supp. 789 (S.D.N.Y. 1991). Model Rule 1.7 disallows concurrent representation of clients where there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer. The same rule allows a lawyer to concurrently represent clients if the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client, the representation is not prohibited by law, the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal, and, each affected client gives informed consent, confirmed in writing. Before accepting any representation, the attorney should provide each prospective client with a comprehensive disclosure letter that describes and examines the implications, advantages, and risks of joint representation, and the duties imposed on the attorney. The lawyer should describe any factors that support any conclusion that joint representation likely will not adversely affect the interest of any client or the attorney s exercise of independent professional judgment; any potential risks posed by the joint representation should likewise be explained. Importantly, each client should be advised that while no client is required to disclose confidential information to the attorney, that doing so may require the lawyer to disclose such information to all clients. Each client should be cautioned that the attorney should not be advised of information that one client may not want the other client to know. If one client indicates that the information needs to be disclosed to the attorney for consultation about the client s representation or rendering of an opinion, the client should be 15

warned that providing notice of the need t make such disclosures will likely require the attorney to withdraw as counsel for both counsel if there is a conflict of interest between the represented clients. The attorney should explain the disclosure letter with each prospective client face-to-face if possible, and the better practice is to individually meet with each prospective client when discussing such matters with each prospective client alone. Consent to the attorney s joint or multiple representation of clients should be accepted in writing by each client, and signed duplicate originals should be retained by the lawyer and furnished to the clients. The attorney should likewise explain and document various circumstances that may arise in the course of representing multiple clients: Is there a retention or deductible amount, and if so, does the attorney have to bill and collect such amounts from the client insured(s)? What if the insured does not pay, delays paying, or disputes the obligation to pay? What happens when differences of opinion arise in case handling between insurer, insured(s) and the attorney? Whose decision should the lawyer follow? What about experts? Juries? What happens if the insurer files a separate declaratory judgment action on coverage? Is the attorney s duty of loyalty only to the insured under the law of the forum state? May the insurer ask the insured s counsel to furnish opinion letters and detailed bills (adverse)? Is the joint defense privilege applicable to the joint representation? Should the employer and employee sign a joint defense agreement? Who should draft such an agreement? May the attorney who represents one or more client insureds continue to represent one of the client insureds if a conflict arises and all insured clients agree or consent to such representation? May the attorney advise the client insured that separate counsel should be retained to address coverage issues or to opine on facts that impact coverage issues? How much control may the insurer exercise over the insured s counsel? Can you select counsel for the insured and deny or reserve coverage? Is the insurer obligated to use different representatives if there are coverage disputes or different attorneys representing different insureds? What must the insurer do if the policy limits are eroded by defense costs (update insured)? 6. Conclusion An attorney retained by an insurer to represent one or more client insureds should define the scope of the attorney s obligation and course of conduct from the outset. Further, the attorney 16

should consider the client insured in the same manner as though the client insured is the one paying the attorney s fees and costs. Confirming to the client insured in writing and verbally that the representation will be competent, diligent and independent is essential. By the same token, the client insured should be asked to consent to the attorney providing updates and bills in accordance with the insurer s guidelines so long as the client insured s confidences are not disclosed and the same should be true for privileged communication between the client insured and the attorney. The attorney needs to recognize that on certain matters that any discussions or disputes may only properly involve the insurer and insured, such as issues regarding reservation of rights, the payments of amounts recommended by the attorney, or settlement authority. When situations develop that the attorney cannot competently or diligently handle without compromising his or her independent professional judgment or creating or becoming involved in conflicts of interests, the only prudent and ethical option may be to withdraw as counsel. C:\DOCUMENTS AND SETTINGS\GEORGE\MY DOCUMENTS\GEORGE\ALFA ICS\2008\ETHICAL DUTIES - 2008 ALFA ICS.DOC 17