A three-part discussion of LA County Bar Op. 528

Though news to me much more recently, the LA County Bar Ass’n Prof’l Responsibility and Ethics Committee issued an  interesting ethics opinion back in April on a wrinkle that can arise in the tripartite relationship created in insurance defense situations.  You can read the whole thing here, but its summary is pretty to-the-point:

When an attorney engaged by an insurance carrier to defend the interests of an insured obtains information that could provide a basis for the insurance carrier to deny coverage, the attorney is ethically prohibited from disclosing that information to the insurance carrier.  In such a situation, the attorney must withdraw from the representation.

In honor of it being an opinion that hinges on California’s approach to the tripartite relationship, I want to divide this post into a three-part discussion of it.

Part the first: it certainly appears to get the answer right from a California perspective.  The answers appear clear and correct given California’s approach to the question of who is/are the client(s) when an attorney is retained by an insurance company to represent an insured.  While all jurisdictions have reached agreement on using the term “tripartite relationship,” to describe insurance defense arrangements, California is a jurisdiction that treats it as truly being one in which the lawyer involved has two clients, both the insured and the insurance company, and the duties to each are “equal and potentially competing.”  Working from that premise, then the particular scenario confronted in the opinion is certainly one that causes the ultimate result — the lawyer  being prohibited from telling one client the important information learned about the other client’s situation can no longer represent either client and has to move to withdraw.  Though the specific scenario is presented in a way that raises some immediate questions given that it involves the existence of a document and its authentication through a request for admission.  For example, does the opinion just assume both authenticity and that the insured would tell the lawyer not to let the insurer know?

Part the second:  While that is the correct result given California’s approach to the “who is the client?” issue, the outcome is more revealing for serving to demonstrate the folly of the approach California follows.  In Tennessee, for example, the tripartite situation exists but the lawyer only has one client, the insured.  The insurance company hiring the lawyer to defend the insured is not a client of the lawyer.  There are, of course, still thorny ethical issues that can arise (see below) but at least in the scenario in question, the lawyer’s path forward is both clear and one that permits continued representation of the lawyer’s only client and a focused effort to try to use the document to establish the statute of limitations defense.

Part the third:  On the California side of things, what in the world happens next in the scenario to keep things from just playing out the same way all over again?  Because the withdrawing lawyer will not be in a position to tell the insurance company the reason for the withdrawal, the whole scenario is likely to simply repeat itself when the insurance company retains a new lawyer to represent the insured.  That lawyer will eventually learn of the same information – be prohibited from disclosing to the insurance company — and then lather, rinse, and repeat.  Or, at least, that’s how it will go unless either the lawyer shirks the duty of disclosure to the insurance company or the insurance company figures out what is going on that is causing the withdrawals and goes ahead and makes a definitive coverage decision.  Either way, it is a particular example that paints a much more favorable picture of approaches to this relationship structure in which the lawyer’s only client is the insured.

(In fairness, the particular scenario examined in the opinion could be pretty readily spun out just a bit further to demonstrate how no system for this would be perfect by exploring what would happen if the the insured was trying to demand that the lawyer attempt to settle the case for the insured without disclosing to the insurer that the reason for seeking settlement prior to having to respond to the request for admission was to avoid defeating coverage.)

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