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This program was recorded on December 7, 2018
“No one can serve two masters.” (Matthew 6:24.) Invoking this Biblical maxim, Rules of Professional Conduct, Rule 1.7 prohibits all lawyers from simultaneous representation of dual clients with current conflicting interests. This prohibition especially impacts “insurance defense counsel” in all jurisdictions, who are regularly hired by liability insurance companies to simultaneously represent the interests of the insurer and the interests of the policyholder when conflicts of interest may exist between the client because of a reservation of rights or inadequate coverage limits at settlement time.
This advanced course will explain: 1) The conflict of interest rule; 2) The possible adverse consequences of a breach of the rule; and most importantly, 3) How clients and their independent counsel, plus plaintiffs and their tort counsel can easily protect against a breach by insurance defense counsel.
The course will focus on a common situation that occurs hundreds of thousands of time per year across the nation: 1) a plaintiff files a civil suit against a defendant; 2) the defendant notifies a liability insurer; 3) the insurer agrees to defend its policyholder under a reservation of rights to later deny coverage; 4) the insurer hires its usual insurance defense counsel to represent the interests of both the insurer and of the policyholder; and 5) insurance defense counsel fails to comply with Rule 1.7. Oops!
In a truly dramatic development, California recently (11/10/18) reorganized and revised its ethical Rules, including that there are “some matters in which the conflicts are such that even informed written consent may not suffice to permit representation.” Thus, California lawyers are absolutely barred from dual representations which “involve the assertion of a claim by [the insurer] against [the policyholder through a reservation of rights]”, even if “the lawyer reasonably believes that [she or he] will be able to provide competent and diligent representation.” Power to the policyholder!
As a practical matter, policyholders and their chosen independent counsel in all jurisdictions are primed to benefit by enforcing the applicable ethical standard requiring insurance defense counsel to do an analysis of “potential” conflicts of interest, make written disclosure of the analysis to the policyholder/client, and perhaps obtain the policyholder’s informed written consent to representation – all before starting work. Insurance defense counsel who fail to adhere to this standard risk State Bar discipline, civil liability, loss of revenue is each such case, loss of continuing business from insurer/clients, and professional humiliation.
Principal fields of study include: duty to defend, conflicts of interest, reservations of rights, Cumis counsel, lawyers’ ethical obligations, reasonableness of attorney fees, insurer reimbursement claims, good faith reliance on counsel, insurer good or bad faith, insurance coverage in construction defect, professional liability, personal injury, many business and personal torts, products liability, malicious prosecution, false imprisonment, libel, slander, wrongful eviction, invasion of privacy, discrimination, sexual harassment, and pollution claims. Represented insurance companies or policyholders in coverage disputes. Defended policyholders for insurers in a wide variety of liability suits.
1 Ethics Credit
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- New Rule 1.7
- Subpart (a): Directly Adverse Representation
- Subpart (b): Risk of Limitation
- Subpart (d): Adverse Claim Is “Involved”
- Application of Rule 1.7 to the California Cumis Test
- All Reservations of Rights Always Create Some Conflict of Interest That Require Complex Analysis
- Dependent Counsel Has a Duty to Do the Required Conflict Analysis
- The “Nothing to Do With” Test Controls a Proper Analysis
- Dependent Counsel in California May Not Ethically Represent Policyholders Unless the Defense Has “Nothing to Do With” the Reserving Insurer’s Coverage Defenses