Insurance Contract
Performance: Ethics in
Defending Third-Party Claims
Michael Kasdin
Partner, Chicago
Dentons
+1 312 876 ...
Third-Party Insurance Creates Many Different
(often conflicting) Relationships
2May 20, 2014
Model Rules of Professional Conduct
• Rule 1.6 – Confidentiality of Information
• Rule 1.7 – Conflict of Interest
• Rule 1...
Rule 1.6
(a) A lawyer shall not reveal information relating to the
representation of a client unless the client gives info...
Rule 1.7
(a) Except as provided in paragraph (b), a lawyer shall not
represent a client if the representation involves a c...
Rule 1.7 (cont.)
(b) Notwithstanding the existence of a concurrent conflict of
interest under paragraph (a), a lawyer may ...
Rule 1.8(f)
(f) A lawyer shall not accept compensation for representing a
client from one other than the client unless:
(1...
Rule 5.4(c)
(c) A lawyer shall not permit a person who recommends,
employs, or pays the lawyer to render legal services fo...
The Relationship Between The
Insurer and The Insured
in Litigation
9May 20, 2014
Read the Policy
• Is there a duty to defend?
• Is there a right to defend?
• Is there a right to control the defense?
• Is...
11
Competing Duties Can Arise
May 20, 2014
Scenario 1
12
Plaintiff
Defense Counsel
Defendant
May 20, 2014
Relationships are simple
• There are no competing duties of defense counsel
• Defense counsel owes loyalty to client, and ...
Scenario 2
14
Plaintiff
Insurer
Defendant Insured
Defense Counsel
May 20, 2014
This is where problems begin
• Now, defense counsel is being paid by a third party –
directly implicating Rules 1.8(f) and...
Not so Fast…
• Who controls settlement?
• Read the policy
• Who controls strategy?
• Read the policy
• Is the insurer enti...
17
What Do The Cases Say?
And What Should We Do?
May 20, 2014
Privilege and the insurer
• Joint or common interest doctrine generally permits
disclosure without fear of waiver
• See Co...
In some jurisdictions, an insured has no right to
claim privilege as against his insurer
• Nationwide Mut. Fire Ins. Co v....
Tripartite relationship creates a joint interest
• Insurer and insured’s interests are purely aligned. They
both seek to m...
Common interest must be legal and not merely
commercial
• See Square D Co. v. E.I. Elec., Inc., 264 F.R.D. 385, 391
(N.D. ...
The interest must also be identical and not merely
similar
• See Duplan Corp. v. Deering Miliken, Inc., 397 F. Supp.
1146,...
Some states have even gone so far as to recognize
an insurer/insured privilege for just this reason
• Illinois – People v....
Scenario 3
24
Plaintiff
Insurer
Defendant Insured
Defense Counsel
Coverage Counsel
May 20, 2014
Insurer has reserved rights and may dispute
coverage
• The dynamics have now changed
• The insurer and insured are no long...
Major Issues
• When conflicts arise insured is entitled to independent
counsel – paid for by the insurer
• Cumis, 162 Cal....
A reservation of rights does not necessarily create a
complete conflict requiring Cumis counsel
• See Blanchard v. State F...
Rule 5.4(c) governs defense counsel
When defense counsel defends a client, while being paid by
an insurer that is assertin...
Rule 1.7 also governs defense counsel
• Defense counsel owes a duty of disclosure to the insured
in three aspects:
1) Pote...
Scenario 4
30
Plaintiff
Insurer
Defendant Insured
Defense Counsel
Reinsurance Coverage Counsel
Coverage Counsel
Reinsurers...
Same Analysis
• Are the parties’ interests aligned?
• Is the insurer contesting coverage?
• Is the reinsurer contesting co...
Important considerations
• What does the treaty/facultative certificate provide with
respect to the rights of the reinsure...
Scenario 5
33
Excess Insurer
Plaintiff
Insurer
Defendant Insured
Defense Counsel
Coverage Counsel Excess Coverage Counsel
...
This situation is different than with a reinsurer
because the excess carrier will be in privity with the
insured
• Are int...
© 2014 Dentons
Dentons is an international legal practice providing client services worldwide through its member firms and...
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Insurance Contract Performance: Ethics in Defending Third Party Claims

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Insurance Contract Performance: Ethics in Defending Third Party Claims

  1. 1. Insurance Contract Performance: Ethics in Defending Third-Party Claims Michael Kasdin Partner, Chicago Dentons +1 312 876 3444 michael.kasdin@dentons.com CLE Seminar for In-House Counsel May 20, 2014 Kansas City, MO
  2. 2. Third-Party Insurance Creates Many Different (often conflicting) Relationships 2May 20, 2014
  3. 3. Model Rules of Professional Conduct • Rule 1.6 – Confidentiality of Information • Rule 1.7 – Conflict of Interest • Rule 1.8(f) – Conflict of Interest • Rule 5.4(c) – Professional Independence 3May 20, 2014
  4. 4. Rule 1.6 (a) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b). 4May 20, 2014
  5. 5. Rule 1.7 (a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: (1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer. 5May 20, 2014
  6. 6. Rule 1.7 (cont.) (b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) each affected client gives informed consent, confirmed in writing. 6May 20, 2014
  7. 7. Rule 1.8(f) (f) A lawyer shall not accept compensation for representing a client from one other than the client unless: (1) the client gives informed consent; (2) there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and (3) information relating to representation of a client is protected as required by Rule 1.6. 7May 20, 2014
  8. 8. Rule 5.4(c) (c) A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services. 8May 20, 2014
  9. 9. The Relationship Between The Insurer and The Insured in Litigation 9May 20, 2014
  10. 10. Read the Policy • Is there a duty to defend? • Is there a right to defend? • Is there a right to control the defense? • Is there a right to associate with the defense? • Is there a duty to cooperate? • Is there a right to approve settlement? • Is it an indemnity policy? • Is it a liability policy? • What are the expectations of the insured? 10May 20, 2014
  11. 11. 11 Competing Duties Can Arise May 20, 2014
  12. 12. Scenario 1 12 Plaintiff Defense Counsel Defendant May 20, 2014
  13. 13. Relationships are simple • There are no competing duties of defense counsel • Defense counsel owes loyalty to client, and there is no question that communications are privileged (unless they fall into an exception to Rule 1.6) 13May 20, 2014
  14. 14. Scenario 2 14 Plaintiff Insurer Defendant Insured Defense Counsel May 20, 2014
  15. 15. This is where problems begin • Now, defense counsel is being paid by a third party – directly implicating Rules 1.8(f) and 5.4 • In this situation, we presume a covered claim, and there is no dispute with respect to coverage • Should be straightforward, right? 15May 20, 2014
  16. 16. Not so Fast… • Who controls settlement? • Read the policy • Who controls strategy? • Read the policy • Is the insurer entitled to information? • Does disclosure to insurer waive privilege? • Does the contractual duty to cooperate conflict with an insured’s right to attorney-client privilege? 16May 20, 2014
  17. 17. 17 What Do The Cases Say? And What Should We Do? May 20, 2014
  18. 18. Privilege and the insurer • Joint or common interest doctrine generally permits disclosure without fear of waiver • See Continental Cas. Co. v. St. Paul Surp. Lines Ins. Co., __ F.R.D. __, No. CIV S-07-1744, 2010 WL 1266926, *5-6 (March 30, 2010, E.D. Cal.) (applying California Law) • Asbury v. Beerbower, 589 S.W.2d 216 (KY. 1979) • North River Ins. v. Philadelphia Reins., 797 F. Supp. 363, 366 (D.N.J. 1992) 18May 20, 2014
  19. 19. In some jurisdictions, an insured has no right to claim privilege as against his insurer • Nationwide Mut. Fire Ins. Co v. Bourlon, 172 N.C. App. 595, 605 (2005) (No right to privilege except for matters unrelated to defense or for matters adverse to insurer) • Northwood Nursing v. Continental Ins. Co., 161 F.R.D. 293, 297 (E.D. Pa. 1995) (Insured has no reasonable expectation of privilege as against his insurer who is defending the action) 19May 20, 2014
  20. 20. Tripartite relationship creates a joint interest • Insurer and insured’s interests are purely aligned. They both seek to minimize or eliminate liability. • Typically, both the insured and the insurer are considered clients of defense counsel and privilege is shared between them. See San Diego Navy Fed. Credit Un. v. Cumis Ins. Society, 162 Cal. App. 3d 358, 364 (4th Dist. 1984) 20May 20, 2014
  21. 21. Common interest must be legal and not merely commercial • See Square D Co. v. E.I. Elec., Inc., 264 F.R.D. 385, 391 (N.D. Ill. 2009) 21May 20, 2014
  22. 22. The interest must also be identical and not merely similar • See Duplan Corp. v. Deering Miliken, Inc., 397 F. Supp. 1146, 1172 (D.S.C. 1974) 22May 20, 2014
  23. 23. Some states have even gone so far as to recognize an insurer/insured privilege for just this reason • Illinois – People v. Ryan, 30 Ill. 2d 456 (1964) • Indiana – Richey v. Chappell, 594 N.E.2d 443, 446 (Ind. 1992) • Missouri – State v. Barker, 540 S.W.2d 50 (Mo. 1976) • See also Linde Thomson v. Resolution Trust Corp., 5 F.3d 1508, 1515 (D.C. Cir. 1993) (some insurer-insured communications are protected by the attorney-client privilege) 23May 20, 2014
  24. 24. Scenario 3 24 Plaintiff Insurer Defendant Insured Defense Counsel Coverage Counsel May 20, 2014
  25. 25. Insurer has reserved rights and may dispute coverage • The dynamics have now changed • The insurer and insured are no longer aligned • Insurer may desire a litigation result that creates liability for the insured while eliminating coverage (e.g. the insured undertook some intentional act outside of coverage as opposed to an accidental act) • Insured seeks to either avoid liability or have his actions determined to fall within coverage 25May 20, 2014
  26. 26. Major Issues • When conflicts arise insured is entitled to independent counsel – paid for by the insurer • Cumis, 162 Cal. App. 3d 358 (4th Dist. 1985) • Maryland Cas. Co. v. Peppers, 64 Ill. 2d 187 (1976) • At this point, the insurer loses its contractual right to control the defense of its insured 26May 20, 2014
  27. 27. A reservation of rights does not necessarily create a complete conflict requiring Cumis counsel • See Blanchard v. State Farm, 2 Cal. App. 4th 345 (2d Dist. 1991) (There is no right to independent counsel where coverage issues cannot be influenced by counsel) • L&S Roofing Supply Co., Inc. v. St. Paul Fire & Marine Ins. Co., 521 So. 2d 1298 (Ala. 1987) • Tank v. State Farm Fire & Cas. Co., 105 Wash. 2d 381, 387-88 (1986) (Defense under a reservation of rights enhances insurer’s duty to its insured. Breach of this liability may result in liability to insurer or to retained defense counsel.) 27May 20, 2014
  28. 28. Rule 5.4(c) governs defense counsel When defense counsel defends a client, while being paid by an insurer that is asserting a reservation of rights, counsel must understand that he or she represents only the insured. Van Dyke v. White, 55 Wash. 2d 601, 613 (1960). 28May 20, 2014
  29. 29. Rule 1.7 also governs defense counsel • Defense counsel owes a duty of disclosure to the insured in three aspects: 1) Potential conflicts must be fully disclosed and resolved in favor of the insured. 2) All information related to the insured’s defense must be communicated to the insured. 3) All offers of settlement must be offered to the insured as they are presented. The insurer may not exercise both its right to approve settlement and its reservation of rights. • See Tank, 105 Wash. 2d at 388-89. 29May 20, 2014
  30. 30. Scenario 4 30 Plaintiff Insurer Defendant Insured Defense Counsel Reinsurance Coverage Counsel Coverage Counsel Reinsurers Plaintiff Insurer Defendant Insured Defense Counsel Reinsurance Coverage Counsel May 20, 2014
  31. 31. Same Analysis • Are the parties’ interests aligned? • Is the insurer contesting coverage? • Is the reinsurer contesting coverage? • Does the reinsurer have any right to associate with the defense of the insured? • If the reinsurer has challenged coverage, does this affect the relationship between the insured and the insurer? 31May 20, 2014
  32. 32. Important considerations • What does the treaty/facultative certificate provide with respect to the rights of the reinsurer? • Is there a following fortunes clause? • Following settlements? • Duty of utmost good-faith? • Right to associate? • Salvage rights? 32May 20, 2014
  33. 33. Scenario 5 33 Excess Insurer Plaintiff Insurer Defendant Insured Defense Counsel Coverage Counsel Excess Coverage Counsel May 20, 2014
  34. 34. This situation is different than with a reinsurer because the excess carrier will be in privity with the insured • Are interests aligned? • Has the primary insurer accepted coverage? • Does the excess policy incorporate the underlying cover? • Does the excess carrier have rights with respect to the conduct of the defense of the insured? 34May 20, 2014
  35. 35. © 2014 Dentons Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Please see dentons.com for Legal Notices. Thank you! Michael Kasdin Dentons US LLP 233 S. Wacker Dr. Chicago, IL 60606 USA

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