While plainly obvious in most engagements, a lawyer representing
large institutions and a lawyer hired and paid by third persons to
represent other individuals (or corporate entities) immediately
confront a fundamentally important task fraught with challenges and
risks. A corporate lawyer may find the client's officers and
employees assuming that she represents them personally. The flip
side is also true. A lawyer hired and paid by a corporation to
represent an officer or board member may find the corporation
attempting to assert control over the representation.
The most frequent circumstance is the retention of a lawyer by
an insurer to defend an insured, particularly in "excess exposure"
and "contested coverage" cases. The retained lawyer must answer
these questions: Who is the client? And who is not the client?
Where does the lawyer's loyalty lie? Can the lawyer compromise her
fealty to her client at the direction of a third person who hired
her, controls the litigation strategy and decision-making, and pays
her fees?
Reflecting on the issue, Bo Didley's classic 1950s rock song
comes to mind. Bo Didley sang that he walked "47 miles of barbed
wire" and "used a cobra snake for a necktie" to call out to Arlene:
"Who do you love?"
The relationship between a lawyer and a client is almost always
entirely consensual. The first steps, therefore, in determining who
you love are the terms of the retention agreement. Generally, Rule
1.5 (b) (1) mandates that the "scope of the representation" and the
client's responsibility for fees and expenses be set forth in a
written communication "before or within a reasonable time after
commencing the representation." The scope of the lawyer's
representation, as set forth by Rule 1.2(a), is the pursuit of "the
lawful objectives" of the client "through reasonably available
means permitted by law and these rules." In pursuing the client's
lawful objectives, the lawyer must represent the client "zealously
within the bounds of the law" (Rule 1.3). If the lawyer wishes to
limit the representation, she may do so "if the client consents
after consultation" (Rule 1.2(c)). Any limits to the scope of
representation, therefore, should be spelled out in detail in the
written representation agreement.
With regard to a corporate client, the lawyer "represents the
organization" (Rule 1.13 (a)). The lawyer may also represent the
corporate directors, officers and employees subject to the conflict
of interest rule and only after obtaining informed consent by each
client (Rule 1.13(g) and Rule 1.7). There are no special exceptions
(or "get out of jail free" cards) for lawyers retained and paid by
third persons to represent the client.
In some - indeed, perhaps most - circumstances, a lawyer
retained by an insurer to represent an insured will have
client-like responsibilities to the insurer as well as to the
insured (the so-called "tripartite relationship"). If the
insurance-retained lawyer plans to limit the scope of her
representation of the insured client, she must set forth the
details of the limitations in the representation agreement. Excess
exposure cases (where the insured client faces the real possibility
of a damages award greater in amount than the available indemnity
on the insurance contract), reservation of rights or denial of
coverage cases, and cases involving "wasting policies" (where the
insured's indemnity coverage limits are reduced by litigation fees
and costs) put the insurance retained lawyer directly in the
cross-hairs. When the lawyer confronts both an "excess exposure"
and a "contested coverage" case, the client's interest in ending
the lawsuit quickly, efficiently and within the coverage limits is
magnified exponentially. Efficient resolution within coverage
limits is particularly acute for a financially distressed client in
a case of this type.
The standard of care for trial lawyers is founded on the
simplest of propositions: "Loyalty is an essential element in the
lawyer's relationship to a client" (Comment 1, Rule 1.7, Conflict
of Interest: General Rule). Every lawyer must abide by that tenet
in all actions relating to a client and at all times during the
representation. A lawyer cannot pay homage to it with platitudes or
with a wink and a nod and then undertake actions that are in fact
disloyal to the client.
Rule 1.7 (a) prohibits representation of a client if doing so is
directly adverse to another client and Rule 1.7 (b) bars
representation of a client "if the representation of that client
may be materially limited by the lawyer's responsibilities to
another client or to a third person, or by the lawyer's own
interest." The prohibition is unequivocal; viz., "A lawyer
shall not." The prohibition may be sidestepped if two conditions
are met. First, the lawyer must reasonably believe that the
representation will not adversely affect the relationship with the
other client. And second, the client consents after consultation.
Rule 1.7 (b) goes on to mandate that the consultation with the
client "shall include explanation of the implications of the common
representation and the advantages and risks involved." Comment [10]
explains the requirements for insurance defense cases where there
is an imminent coverage dispute: "[W]hen an insurer and its insured
have conflicting interests in a matter arising from a liability
insurance agreement, and the insurer is required to provide special
counsel for the insured, the arrangement should assure the special
counsel's professional independence."
"'Each affected client [must] be aware of the material respects
in which the representation could have adverse effects on the
interests of that client,' and a 'lawyer is responsible for
assuring that each client has the necessary information.' A lawyer
who does not personally inform the client assumes the risk that the
client is inadequately informed and that the consent is invalid."
Ellen S. Pryor, Charles Silver, Defense Lawyers' Professional
Responsibilities: Part II - Contested Coverage Cases,
Georgetown Journal of Legal Ethics, Vol. 15-29, 72 n. 97 (2001),
citing RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS
§122, cmt. c(i).
"Obviously, an insured would reasonably want to know about
alternative arrangements that might be offered if the first offer
were rejected. Consequently, an insured would want to know about
the duty to provide independent counsel. It is one thing to be left
out in the cold after rejecting a standard defense; it is something
else entirely to be outfitted with a new lawyer whom one directly
controls." Ellen S. Pryor, Charles Silver, Defense Lawyers'
Professional Responsibilities: Part II - Contested Coverage
Cases, Georgetown Journal of Legal Ethics, Vol. 15-29, 72-73
(2001).
Others have written that an insurance company has such control
over an insurance defense law firm that it has an economic
incentive "to lick the hand that feeds it." The Court of Appeals
for the Eight Circuit put it this way:
"Even the most optimistic view of human nature requires us to
realize that an attorney employed by [or retained by] an insurance
company will slant his efforts, perhaps unconsciously, in the
interest of his real client - the one who is paying his fee and
from whom he hopes to receive future business - the insurance
company." U.S. Fid. & Guar. Co. v. Louis A. Roser &
Co., 585 F. 2d 932, 938 n. 5 (8th Cir. 1978).
Admonitions about conflicts of interests for insurance defense
lawyers are manifest and manifold:
"Conflicts of interests in a tripartite relationship often arise
when the insurer issues a reservation of rights to deny coverage
partially or fully, when claimed damages exceed coverage, when the
insurer attempts to limit the costs of the defense to reduce
expenses, or when the insurer and insured disagree over whether to
settle or litigate the claims." Desmond T. Barry, Jr., Justin M.
Schmidt, The Tripartite Relationship and Joint Defense
Agreements: Benefits and Pitfalls, American Bar Association,
Tort Trial & Insurance Practice Section, Aviation and Space Law
Committee Seminar, October 20-21, 2011; see also Douglas
R. Richmond, Walking a Tightrope: The Tripartite Relationship
Between Insurer, Insured and Insurance Defense Counsel, 73
Neb. L. Rev. 265, 278, N. 2 (1994).
The tripartite relationship among a purchaser of insurance, the
provider of insurance coverage and a defense to claims made against
the purchaser, and the attorney assigned by the insurer to defend
the claim should end when the insurer denies coverage through a
reservation of rights. A lawyer operating under such circumstances
should be very specific in identifying the client and any
limitations to the scope of the representation in the written
representation agreement.
Arlene eventually hearkened to Bo Didley, took him by the hand
and said: "Ooo-wee, Bo, you know I understand." When you accept an
engagement, you must determine who you love, and your client must
understand the nature and scope of the relationship.
Richard P. Campbell is a fellow of the American
College of Trial Lawyers and a past president of the Massachusetts
Bar Association. He founded Campbell Campbell Edwards & Conroy,
P.C., a firm with a national practice, in 1983.
Suzanne Elovecky practices at Todd & Weld LLP,
where she enjoys a diverse complex commercial litigation practice
representing individuals and corporations in contract disputes,
employment disputes, automobile dealership matters, shareholder
disputes, and trademark, trade secret and copyright disputes.
Suzanne is a member of the Women's Bar Association, the Boston Bar
Association and the Massachusetts Bar Association (Complex
Commercial Litigation Committee; Professional Ethics
Committee).