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