Ethics Opinions

Opinion No. 91-5

Summary: Once an attorney hired by an insurance carrier to represent an insured makes a good faith determination that there is a potential for an award in excess of the policy limits, the attorney may not provide the carrier with the attorney's opinion as to the merits of the claim or its value for settlement purposes if the attorney knows or has strong reason to believe that the case can be settled within the policy limits. The insurer must retain separate counsel for such purposes.

Facts: An attorney is assigned by an insurance carrier to defend its insured in a negligence lawsuit against the insured in a case where the amount of the claim exceeds the policy limits. The lawyer is appointed and paid by the insurer pursuant to its duty to defend claims covered by the policy. The lawyer learns that the plaintiff will settle within the policy limits. The insurance carrier requests an opinion from the attorney as to the insured's liability, and as to the value of the claim for settlement purposes. May the attorney provide such an opinion to the carrier?

Discussion: DR 5-105(A) provides:
A lawyer shall decline proffered employment if the exercise of his professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve him in representing differing interests, except to the extent permitted under DR 5-105(C).
DR 5-105(C) provides:
In the situations covered by DR 5-105(A) and (B), a lawyer may represent multiple clients if it is obvious that he can adequately represent the interest of each and if each consents to the representation after full disclosure of the possible effect of such representation or the exercise of his independent professional judgment on behalf of each.
In Opinion No. 77-16 we stated that "[w]hen an attorney is retained by a casualty insurance company to represent an insured, the attorney is in fact representing not only the insurance company's interest in defeating the plaintiff's litigation, but also is representing the insured." When a claim is made that is within the policy limits, the interests of the insurer and the insured will in most cases be similar, and it seems obvious that the attorney can represent both interests adequately. In most cases, the insured does not care whether the company litigates or settles the case against him because either way there will be little or no adverse financial effect on the insured. Assuming that the insured is covered by the policy, and that the insurer is not defending under a reservation of rights, normally no conflict will exist and the lawyer may properly render an opinion of the type in question here. (We do not address those special cases where the insured may have reasons for settling or not settling apart from his immediate financial exposure.)
However, where the claim is in excess of the policy limits, or where the insurer is otherwise defending its insured under a reservation of rights, the interests of the insured and insurer are clearly adverse. The Supreme Judicial Court has indicated that, because the interests of the insured and insurer in such cases are adverse, the insurer is under a duty to "disclose to its insured its adverse interest with respect to the extent of its liability under the policy," which the insured satisfied in Murach by advising the insured "of the possibility of a verdict in excess of the policy limit and suggesting that they retain personal counsel." Murach v. Massachusetts Bonding and Insurance Co., 339 Mass. 184, 189 (1959).
The rationale of Murach applies with equal force to the present question. Where the claim exceeds the policy limits, and where the attorney knows or has strong reason to believe that the case can be settled within the policy limits, the insured's interest normally lies in convincing the insurer to settle for any amount up to the policy limit, and the insured will want its counsel to advocate that position as aggressively and persuasively as possible. The insurer's interest, however, is in paying the least amount possible, and in minimizing the adverse, precedential effect of the lawsuit. The insured, by contrast, normally will have no similar concerns. When the attorney is requested by the carrier to provide a professional opinion as to the merits of the claim or its value for settlement purposes, the attorney cannot even begin to consider the matter objectively without adversely affecting the attorney's obligation to the insured to settle the case for any amount up to the policy limit. DR 5-105(A) thus prohibits the dual representation. For an exhaustive discussion of this issue, see Hartford Accident & Indemnity Co. v. Foster, 528 So. 2d 255 (Miss. 1988).
DR 5-105(C) does not permit the dual representation in this situation. Because the conflict is inherent and serious, and because the situations in which the conflict is likely to arise are complicated and multifarious, we do not believe that it is obvious that the attorney can represent both parties' interests adequately and effectively, even if we were to assume, which seems doubtful, that the attorney can obtain an effective consent, particularly from the insured.
Thus, to summarize, where the claim is indisputably for an amount within the policy limits, the interests of the insured and insurer are normally the same, and the lawyer may render an opinion as to the liability of the insured and the appropriateness of settlement to the insurer. Where, however, there is a potential for an award in excess of the policy limits, or where the insurer is otherwise defending under a reservation of rights, the interest of the insurer and the insured are adverse, and the insurer should retain the services of a separate lawyer to advise it on the questions of liability and settlement. Our opinion is limited to cases where the attorney knows or has strong reason to believe that the claim can be settled within the policy limits, and we express no opinion as to whether an impermissible conflict would exist in other circumstances where the claim exceeds the policy limits.
We recognize that frivoulous lawsuits may be filed where there is technically the potential for an award in excess of the policy limits, but where any recovery in excess of the policy limits is highly improbable. A conflict does not necessarily arise in such cases until the attorney determines that the claim for damages in excess of the policy limits is not frivoulous. However, once the attorney forms a good faith belief that the claim for damages in excess of the policy limits is not frivolous, he may not render an opinion to the insurer concerning the merits of the claim or its value for settlement purposes.


Permission to publish granted by the Board of Delegates on June 7, 1992. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.
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