An issue on which I get a call now and then is whether or when we’re going to recognize that an insurance defense lawyer has two clients—the insured and the insurer. My answer is always the same—even though there’s clear law that says the only client is the insured, it’s a minority approach; many states recognize the two-client approach as both permissible and practical.
There’s a rich body of case law, law reviews and scholarly articles on the problem one judge described as the “iron triangle.” Others refer to it as the “eternal triangle” and, more esoterically, the “tripartite insurance defense relationship.” According to two experts in the field, William T. Barker and Charles Silver, who published an excellent treatise on the ethical duties of insurance defense lawyers, 39 or more states have embraced the notion.
The idea, as explained by Barker in a series of emails he and I exchanged on the issue a few years back, is that the most common scenario is that the insured and the carrier have congruent interests; any potential conflict can simply be waived, or in the more modern parlance, consented to.
Of course, there are a few speed bumps that might make the ability of the lawyer to serve two masters questionable. If there’s a policy defense or coverage dispute, it’s hard to imagine a lawyer representing both parties, but I suppose they could duke that issue out in a different forum with different lawyers.
Apropos of that, I remember speaking with a now-deceased insurance defense fellow years ago who told me he routinely added a jury interrogatory about whether his client’s conduct in the event in dispute had been intentional, thus vitiating coverage. He was surprised when a judge told him that might be a conflict. When I told him I agreed with the judge, he laughed and said he’d done it for years and no one had questioned him. It’d surprise me if anyone does that today. Those courts that have ruled on it have found for the insured.
There are also practical issues arising out of a one or two client approach. If the carrier is a client, communications the lawyer has with the carrier may be privileged. If a two-client approach is taken, what happens when something affecting coverage comes up during the trial? Because it’s a big country and insurance is something governed by state law, there’s a wealth of decisions covering these and many other issues.
As I mentioned, I got into an exchange with Barker a few years ago as I told him that our Supreme Court had been pretty clear that we were a one-client state. He said I was wrong and shared with me a memo he’d prepared for a client (which I assume it was a Connecticut carrier) positing that when push came to shove, Connecticut would join the majority. I thought then and still think he’s wrong. We’ve got ethics opinions saying I’m right. And as recently as last December, the Supreme Court, in a case dealing with whether coverage issues should be decided based upon the record in the underlying case or as developed during the coverage litigation, cited approvingly our established one-client jurisprudence.
The case, Nationwide Mutual Insurance v. Pasiak, a declaratory judgment matter seeking to avoid coverage for a judgment rendered against an insured, noted that that an insurer could not assert its coverage position in conjunction with providing a defense to its insured in the liability case, as doing so would violate its duty to the insured. One-client analysis made the issue easy. As the attorney representing the insured would have had a conflict raising the issue in the first case, the declaratory judgment action, with new lawyers, and with discovery not limited to the record established in the first matter, was the way to go.
That’s all well and good, but my defense friends tell me that they sometimes have to remind claims managers and adjusters who their client is. My guess is that some of these claims folks have Barker’s memo and are using to push the two-client analysis. When the carrier signs the paychecks, this can make for difficult discussions for captive counsel. I tell them to remember the rule as articulated in Martyn v. Donlin over 50 years ago that “an attorney’s allegiance is to his client, not to the person who may be paying for his services.”
Former Connecticut Chief Disciplinary Counsel Mark Dubois is with Geraghty & Bonnano in New London.