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Loyalty and clienthood go together.

Loyalty and Clienthood Go Together

A defense lawyer owes a client complete and unqualified loyalty but has no duty of loyalty to a non-client. This means that:

* A lawyer who represents only an insured owes no duty of loyalty to a carrier.

* A lawyer who represents only a carrier owes no duty of loyalty to an insured.

* A lawyer who represents both an insured and a carrier owes unqualified loyalty to each.

The duty of loyalty prohibits an attorney from acting against a client's interests without the client's informed consent. In co-client representations, each client is entitled to this same degree of respect. Therefore, a defense lawyer who represents both a carrier and an insured is generally free to take only those actions that are expected either to help both clients or to help one client without harming the other. Except in unusual circumstances, actions that reduce the expected loss to the claimant at trial fit this description. They make one or both clients better off, and they usually expose neither to harm.

Some discussions of insurance defense ethics argue that, like other lawyers with multiple clients, defense lawyers are subject to the no subordination rule (NSR). This rule prohibits a lawyer from acting to the detriment of any client without the client's informed consent. Other discussions contend that the primary client rule (PCR) governs defense lawyers' obligations. This rule requires defense lawyers to side with policyholders against insurers in conflict situations.

Although this guide endorses NSR, the decision to use one standard or the other probably has little practical importance. Neither rule leaves a defense lawyer free to sacrifice an insured's interests for the sake of an insurer. Both rules protect insureds reasonably well, and this is the most important point. The only remaining issue is whether a defense lawyer may permissibly protect a policyholder by harming an insurer. As a practical matter, this is something that few defense lawyers would do lightly even under PCR. Defense lawyers participate in long-term relationships of mutual advantage with liability insurers, and are strongly motivated to keep them happy.

Because insurance contracts are well designed, opportunities to help one client at the other's expense are not normal in most defense lawyers' experience. Far more common are opportunities to help both clients by minimizing the pay out to a liability claimant. This is as it should be. One purpose of a liability insurance contract is to create a community of interest between a carrier and a policyholder for the purpose of responding to liability claims. When both clients have the same goal, it is easier to help both at once than to harm one so that the other will gain.

Be Alert for "Conflict Clues"

The vast majority of insurance defense representations are free of substantial conflicts between the company and the insured. The company's only interest usually is to minimize the sum of defense costs and liability payments to the claimant, and the insured's only interest is to have the carrier take care of things. The company therefore wants an efficient defense, and the insured is happy to see the company achieve this goal.

Conflicted representations usually are marked by clues that should alert a competent attorney to the possibility that one of the clients has an unusual interest at stake. An obvious clue is an expression by the company or the insured of a special interest in the conduct of the defense. For example, when the claimant is a policyholder's customer, the policyholder may display great concern for the claimant and want to help the claimant recover. A policyholder also may display extreme hostility toward a claimant who happens to be, for example, a neighbor with whom the insured does not get along. This should alert defense counsel to the possibility that the insured may strongly favor settlement or that the insured may oppose settling with the claimant on any terms. In either event, defense counsel should confer with the insured after learning of the insured's interest in the liability suit.

An insurance company also may express an unusual interest in a liability suit. For example, suppose a claims professional says that the company has decided to allow a default judgment to be entered against the insured or that it wishes to wage all-out war in litigation when, in the defense lawyer's opinion, neither of these extreme actions seems warranted. Although not conclusive evidence of conflict in and of themselves, statements like these are clues that the company may have unusual interests at stake. Defense counsel should regard the discovery of such clues as a reason for investigating further.

Conflict clues also come in other recognizable forms. Standard clues include:

* coverage questions, especially those memorialized in reservation of rights letters and non-waiver agreements;

* significant exposure of the insured to excess liability;

* affinal, marital and financial relationships between policyholders and claimants;

* concurrent civil and criminal actions against insureds;

* serious allegations of intentional, willful or malicious wrongdoing against an insured accompanied by punitive damages claims;

* the insured's refusal to testify or appear for deposition;

* a request by one of the clients to withhold material information from the other; and

* insureds with strong reputational interests, especially doctors and other professionals.

When clues like these are encountered, a defense lawyer should be alert to the possibility that loss-minimizing conduct may harm one of the clients.

Communicate Often with Both Clients to Give Them Opportunities to Raise Conflicts

The clients are their own best advocates. Consequently, a defense lawyer who uncovers a "conflicts clue" should communicate with them, keep them fully informed about major developments in the representation, and give them an opportunity to speak up when their interests may be impacted. Often, an easy way to accomplish this is by copying both clients on all correspondence. Since there are no secrets within the tripartite relationship when it comes to defense-related information, it is perfectly proper to do this.

Regular communication protects the defense lawyer by letting the clients tell the lawyer when a vigorous defense may hurt their interests. All lawyers rely on clients to bring interest conflicts to their attention. By telling a policyholder and a carrier that a deposition will be taken, that a motion for summary judgment will be filed, or that some other action is contemplated and by explaining the predicted consequences, a defense lawyer gives the clients an opportunity to bring hidden interests to light. A client who fails to speak up when being told about the course of action a defense lawyer recommends should not be heard to complain about a conflict of interest after the fact.

When Conflicts Arise, Let the Clients Decide

A defense lawyer who knows or fears that a particular course of conduct may harm the policyholder or the carrier should refrain from acting until the matter is properly aired and the endangered client consents. Because carriers give most defense-related instructions, the danger most often confronted is that the insured may be harmed if the defense lawyer does as the carrier asks.

Airing the matter properly means apprising both clients of the predicted defense-related costs and benefits of a proposed course of action and giving them an opportunity to obtain information about other costs and benefits from other sources. Airing the matter also means giving the clients an opportunity to work out the conflict for themselves.

When clients disagree as to the path their joint attorney should follow, their disagreement may concern the means of the representation or its ends. A disagreement over means exists when the clients agree that the expected loss to the claimant should be minimized but think this can best be accomplished in different ways. A disagreement over ends exists when they do not share the view that loss minimization is the appropriate goal.

Disagreements over means are as common as grass and are rarely more dangerous. Stick any two clients and a lawyer in the same room, and there are bound to be disagreements over strategy. An important part of lawyering is helping clients work through disagreements and select good strategies by educating them.

Defense lawyers can, do and should get deeply involved in conflicts over means. They identify defensive options and, by exploring their implications, help clients figure out which options to select. These activities are completely proper.

Conflicts over ends raise issues that defense lawyers should avoid, including issues relating to coverage. The objective of a defense representation is fixed when a lawyer is retained and flows naturally from the defense clause in the underlying insurance agreement. This aim is part of the retention agreement and cannot be changed unless both clients and the lawyer agree.

A client who expresses a desire to change the object of a representation from loss-minimization to something else--for instance, enrichment of a claimant--is sending a defense lawyer a "conflict clue."

Former Client Conflicts

Defense lawyers are subject to the same disqualification rules as other attorneys. Consequently, after defending a policyholder and a carrier on a liability claim, a defense lawyer may not be adverse to either client in a substantially related matter. To avoid breaching this rule, defense lawyers should use the same conflict-related precautions that other attorneys employ. A good conflict-checking system is a sound investment. The risk of being disqualified from handling all or part of a major client's work is one that a prudent attorney will both track and avoid.
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Title Annotation:part 4
Publication:Defense Counsel Journal
Date:Oct 1, 2003
Words:1561
Previous Article:Be a defense lawyer: help your clients minimize losses.
Next Article:Obedience.
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