Biting The Hand That Feeds You: Is It Ever Ethical For A Panel Counsel To Sue Its Insurer Client?

Is it ethical for a lawyer to sue a current client?  That was the question posed to me last week by an insurer.  It seems that one of the insurer’s primary panel counsel firms that does both coverage and defense work for the insurer has inquired about taking on a plaintiff case against the insurer.

To begin with, let’s be very clear on this point.  Suing a current client is not a potential conflict of interest, it is an actual conflict of interest.  See ABA Model Rules of Prof. Conduct (RPC) 1.7(a).

At issue are the duties of “loyalty” to the client and the overriding duty to protect “confidential information” about the client (RPC 1.6) that is acquired during the course of the representation.  But while it is considered a conflict of interest to sue a current client, the RPC, which purportedly are in place to protect clients (and not lawyers), do give lawyers an out.  In fact, RPC 1.7(b) gives the lawyers several outs.

One of those outs given in RPC 1.7(b)(4) is that the lawyer can obtain “informed consent” (in writing) to waive the conflict from each affected client. And according to RPC 1.0(e) Informed Consent, to obtain informed consent the lawyer must communicate “adequate information and explanation about the material risks of  . . . the proposed course of action.” Put another way, a lawyer cannot just sell the “sizzle” or the positives of the proposed representation (such as having a “friendly” opponent), but the lawyer must also lay out any negative consequences that might result.

At a minimum, an insurer’s lawyer would be obligated to convey to the insurer that the lawyer would have a duty to the other client to use whatever information the lawyer may have gained through its work for the insurer. The reason for this is because RPC 1.7(b)(1) obligates an attorney to provide “competent and diligent representation to each affected client.” And to discharge this duty to a client that is suing the insurer would obligate the attorney to use any and all information the lawyer may have learned about the insurer from past representations including how the insurer may have dealt with similar claims.

On the other hand, any attempt to “cut a deal” with the insurer and agree to not use certain information learned through the representation of the insurer in order to obtain the insurer’s informed consent would be to favor one client over another and would be disloyal to the client that is suing the insurer. More importantly, the lawyer would not be providing “competent and diligent” representation to that client as the lawyer is ethically obligated to do.

While obtaining “informed consent” from both an insurer client and a client that wants to sue the insurer is a theoretical possibility, I do not think that an ethical attorney would ever get to the point of considering it. This is because RPC 1.7(b)(1) mandates that before the lawyer can ever consider asking for informed consent, the lawyer must first come to a determination that the lawyer can provide “competent and diligent representation to each affected client.” And in my judgment no ethical lawyer would ever believe that a reasonable basis exists to come to that conclusion.

While it is unethical for a lawyer who represents an insurer to also represent a client who sues the insurer, is it ethical for that lawyer to represent claimants against other insurers?  The answer is that it could be under certain circumstances. But I will cover this point in a future post.

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One Response to Biting The Hand That Feeds You: Is It Ever Ethical For A Panel Counsel To Sue Its Insurer Client?

  1. Ted Waggoner says:

    I agree with your analysis, if the lawyer is aware of the direct conflict. Having been an Indiana Insurance policyholder, through American States, Safeco, and now Liberty Mutual (I may have missed one or two iterations in there), it is possible to be suing a companion company and not recognize it. I think Farm Bureau is Farm Bureau, but not sure who some of the others are. Once known, I agree the lawyer cannot sit with the Co. In Superior Ct. #1 on Monday and at at opposing counsel table in Superior Ct. #2 on Wednesday.

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