A Big If

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Representing an insurance company in liability cases on a regular basis can produce a steady flow of income, and many lawyers build their practices around an ongoing relationship with one particular company.

But given that relationship, may the lawyer represent another client in a liability action against a party insured by the company?

The lawyer in that scenario is, in effect, representing the plaintiff against the insurance company. And at first blush, it would seem that doing so creates a conflict of interest for the lawyer.

Rule 1.7 of the ABA Model Rules of Professional Conduct prohibits a lawyer from representing a client “if the representation involves a concurrent conflict of interest.” The rule further states that such a conflict exists when representing one client is directly adverse to the interests of another client; or when there is a “significant risk” that the lawyer’s representation of one client will be materially limited by the lawyer’s responsibilities to another client, a former client or a third party, or by a personal interest of the lawyer.

(The Model Rules serve as the basis for most state ethics codes for lawyers.)

The few jurisdictions that have addressed this scenario generally conclude that a lawyer is materially limited in simultaneously representing both clients. They also say the lawyer opens the door to accusations of appropriating, revealing or misusing detailed information about the insurance company’s operations and strategies on such things as claim-settlement tendencies.

But the ABA Standing Committee on Ethics and Professional Responsibility concludes, in Formal Opinion 05-435 (Dec. 8, 2004), that a lawyer may represent a client against an insurance company the lawyer represents in other cases if the attorney clears conflict-of-interest hurdles.

Addressing the first ground for potential conflicts of interest set forth in Model Rule 1.7, the opinion concludes that simultaneous representation by itself does not produce direct adverseness.

“Although a liability insurer has an economic interest in the litigation that ordinarily is aligned with the interests of its insured, economic adversity alone between the insurer and the plaintiff in the second action is not the sort of direct adversity that constitutes a concurrent conflict of interest under the Model Rules,” the opinion states.

Direct adverseness could occur, however, if the lawyer cross-examines or undertakes discovery of the insurance company in efforts to effectively represent the plaintiff in the second action, the opinion states.

Just The Facts

Even without direct adverseness, representing one client may be materially limited by an attorney’s responsibilities to some other client or party. The opinion states that determining whether material limitation exists should be “fact-specific.”

Conflicts may arise when the lawyer’s interests interfere with the exercise of independent professional judgment on behalf of a client, the opinion states, or when “appropriate representation in one action may create a precedent likely to seriously weaken the position taken on behalf of the other client.”

Another consideration identified by the opinion is whether information acquired by the lawyer about the insurance company’s business practices would be materially helpful to the plaintiff in the second case.

The opinion states that, even if there is conflict of interest, the lawyer may continue to represent both clients if the lawyer believes he or she will be able to provide competent and diligent representation to each client without compromising either client, and if the clients have given their written, informed consent.

But even if ethics rules are satisfied, chances are that a client who has consented to the lawyer representing another party with potentially adverse interests eventually may suspect disloyalty on the lawyer’s part. When that happens, the damage to the client-lawyer relationship is likely to be irreparable.

Eileen Libby is associate ethics counsel for the ABA Center for Professional Responsibility.

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