California Bar Journal
OFFICIAL PUBLICATION OF THE STATE BAR OF CALIFORNIA - JULY 2001
spacer.gif (810 bytes)
spacer.gif (810 bytes)

California Bar Journal

The State Bar of California


REGULARS

spacer.gif (810 bytes)
Front Page - July 2001
spacer.gif (810 bytes)
News / News Briefs
Two-year fee bill goes to governor
Janet Reno, low-cost MCLE highlight Annual Meeting
Stanley Mosk dies at 88
State Bar wins ABA's Harrison Tweed Award for pro bono, legal access, IOLTA efforts
Foundation will accept grant applications beginning July 16
Winnebago of justice serves those on the road less traveled
spacer.gif (810 bytes)
Trials Digest
spacer.gif (810 bytes)
Legal Tech - Matter management is not just for litigators
spacer.gif (810 bytes)
Opinion
From the President - Public members bring fresh views
Holding judges accountable
Letters to the Editor
spacer.gif (810 bytes)
MCLE Self-Study
Alcohol and the workplace
Self-Assessment Test
MCLE Calendar of Events
spacer.gif (810 bytes)
Ethics update...
spacer.gif (810 bytes)
You Need to Know
spacer.gif (810 bytes)
Public Comment
spacer.gif (810 bytes)
Discipline
Ethics Byte - Level field or a judicial practical joke?
Former DA disbarred for drunken-driving coverup
Attorney Discipline
Insurers, defense counsel at odds over conflicts
spacer.gif (810 bytes)
Continued from Page 1
spacer.gif (810 bytes)

resentation, a court-created relationship which deems a defense attorney appointed by a carrier to defend an insured as also representing the insurance carrier.

The insurance industry, however, favors preserving the current arrangement, under which both the carrier and the insured are regarded as client but the carrier controls the litigation.

A question of money

Legal observers and ethics experts who are wrestling with the conflict characterize it as a pocketbook issue -- on the one hand, the insured wants to spare no expense in defending or settling the matter, and on the other hand, the carrier wants to keep costs down.

"There's a real tension here," explains State Bar President Palmer Madden. "There are very complicated competing interests involved, and we don't want attorneys to have divided loyalties."

In a complex case, with multiple parties insured by multiple carriers, the potential for conflicts abounds.

Ellen PeckThe issue arose from State Farm Mutual Auto Insurance Co. v. Federal Insurance Co., a decision which found that without the consent of clients in an insurance case where a lawyer has two clients, that dual representation violates a lawyer's duty of undivided loyalty and requires disqualification. The legislature ordered the State Bar to study the conflict issues raised by the ruling and report back by July 1, 2001.

But the bar's ethics experts, while noting that the ruling was narrowly drawn, said it has broad implications - too broad, in fact, for them to handle. For example, should there even be an attorney-client relationship between insurance companies as entities and the attorneys they employ to represent their customers?

"This is one of the few times we couldn't make a recommendation," said Ellen Peck, chair of COPRAC, the Committee on Professional Responsibility and Competence, "because the public policy issues impacted are way beyond legal ethics."

The bar board of governors, which ultimately will have a hand in any proposed legislation or rule change, has been lobbied heavily by the insurance industry, defense attorneys and plaintiffs counsel to resolve the conflicts question. 

"This issue has broad implications," said Jim Otto, a board member from Los Angeles. "We don't want to take a band-aid approach but to find a solution to a number of issues." He said a rule change could affect a wide variety of relationships, such as employer-employee, or cases in which a lawyer represents two clients in the same matter.

Friction between insurance carriers and retained outside counsel has escalated in the past decade. "It all deals with the issue of control," says Ted Horton-Billard, in-counsel with Farmers Insurance. "And control is motivated by economic concerns."

He said the issue presented in the State Farm case is technical and probably ought to be resolved, but it exemplifies an extreme example. "The defense bar seized upon it to advance another agenda - resisting controls the carriers have put on them in the last decade," he said.

A question of control

Horton-Billard said that in 95 percent of insurance cases, the insured has nothing at risk when the company hires outside counsel to represent him or her. In fact, he said, the only client at risk is the carrier, which is responsible for controlling litigation.

As it stands now, explains Jack Pierce, an industry representative and managing partner of the San Francisco office of Barger and Wolen, the insured relinquishes control of a case to the carrier in exchange for unlimited defense costs.

Pierce and Horton-Billard warn that if the tripartite relationship is eliminated, the cost of premiums might increase, insureds may not be able to find or afford effective lawyers, the carriers' duty to defend may be eroded, some types of coverage could be affected, and every dollar outside counsel bills could mean a dollar less for any award.

Pierce said 42 states have examined tripartite representation and 36 have adopted a dual client doctrine. Keener disputed those figures, saying more than a dozen states, including New York, do not recognize such representation. In New York and Texas, for example, the carrier is not a client but a third-party payor.

At last month's board of governors meeting, Keener pleaded for some resolution to the conflicts issue. "We have defense lawyers on a daily basis in breach of the Rules of Professional Conduct when they file cross-complaints," he said. "Trying to serve two masters is an extremely difficult task."

It doesn't look like the issue will be solved any time soon. The board accepted a staff recommendation that a joint State Bar/Judicial Council group study the issue with input from both sides and make a recommendation that will be forwarded to the Supreme Court and the legislature.