Ethical Issues and Conflicts of Interest in Insurance Defense

Local defense counsel can often provide valuable insight into local law and practice to avoid or appropriately handle conflicts of interest and ethical concerns. Avoiding or appropriately handling conflicts can result in numerous benefits to the insurer, including retention of its right to control the defense and avoidance of bad faith claims. Contact us to schedule a consultation to discuss how an attorney from our firm can assist in avoiding or appropriately handling conflicts of interest and ethical concerns that arise in the context of insurance defense.

Ethical Issues and the Duty to Defend

In many jurisdictions, and at least to the extent that the interests of the insured and the insurer are the same, an attorney hired by the insurer to defend the insured represents both the insured and the insurer. However, courts vary on whether dual representation is ever possible, and local counsel who is familiar with local law and practice regarding dual representation can help to avoid potential conflicts of interest.

Because of the "tripartite relationship" between the insurer, the insured, and counsel hired to defend the insured, questions as to the client's identity and situations in which dual representation may be inconsistent with counsel's ethical obligations are common. Similarly, in situations where a coverage dispute arises or where policy limits are insufficient to protect the insurer against potential exposure, dual representation becomes impossible.

Strategies for Handling Conflicts of Interest

Local defense counsel who is familiar with the types of conflicts that arise in duty to defend cases and who is knowledgeable of local ethics rules and practice can be critical to avoiding conflicts that affect the insurer's right and duty to control the defense.

If the interests of the insurer and the insured diverge, an attorney must determine if dual representation of clients with conflicting interests is permissible under American Bar Association Model Rule of Professional Conduct 1.7 ("Model Rule 1.7") and/or other applicable state and local ethics rules.

Because courts vary on whether dual representation is possible where conflicts of interest arise, local defense counsel who is experienced with state and local ethics rules can often provide valuable insight into how a particular conflict will be treated by local courts and help to plan a strategy to avoid or appropriately handle ethical concerns.

Experienced defense counsel can also take steps to avoid potential conflicts of interest by facilitating a clear agreement at the start of litigation regarding the scope of his or her representation. For example, based on local counsel's knowledge of local laws and practice regarding dual representation, he or she may be able to limit his or her representation to avoid situations in which conflicts between the insured and insurer that cannot be cured by informed consent may arise.

Independent Counsel Doctrine

Local counsel who is familiar with the laws of the jurisdiction in which the case is pending can identify situations where the insured is likely to be entitled to independent counsel. By notifying the insured of its right to independent counsel as early as possible, future conflicts and costly delays can often be avoided. Similarly, local defense counsel who is not hired as duty to defend counsel may be able to advise an insurer on ways to avoid application of the independent counsel doctrine, such as waiving certain coverage defenses, and enable the insurer to retain its right to control the defense.

Contact us to schedule a consultation to discuss how an attorney from our firm can assist in avoiding or appropriately handling conflicts of interest and ethical concerns that arise in the context of insurance defense.

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