When an insurer disputes coverage for part of a claim, can the single attorney representing both the insurer and the insured allocate fees and costs between the covered and disputed issues?

Plain-English summary

An insured was sued on several claims, which the insurer divided into claims it conceded were covered, claims it defended under a reservation of rights, and claims for which it denied any responsibility or duty to defend. The insurer asked the attorney to exercise his own judgment in apportioning fees and expenses between the claims it was defending and those it was not. The attorney, representing both insurer and insured, refused to make the allocation without the insured's written consent, which the insured denied; the insured contended all claims were inextricably intertwined and covered.

The committee identified that an attorney hired by an insurer to represent its insured owes duties of loyalty and fidelity to both the insurer and the insured under Rule 5-102, relying on American Mutual Liability Insurance Co. v. Superior Court, Lysick v. Walcom, INA v. Forty-Eight Insulations, Parsons v. Continental National American Group, and Employer's Casualty Co. v. Tilley, and ABA Formal Opinion 282. It identified that the attorney's duties to the insured prohibit disclosing any information to the insurer that is detrimental to the insured (citing Parsons and ABA Informal Opinions 1476 and 949), quoting the view that if insurance companies need further protection from their insureds, it must come from sources other than the attorneys who represent the insureds.

The committee concluded that, in asking the attorney to allocate fees and costs between covered and disputed claims, the insurer is asking the attorney to create facts and build a record it can use against the insured. If the attorney acceded, he would act directly contrary to the insured's express interests and breach his duty of loyalty in violation of Rule 5-102; although the insured agreed to the dual representation, he did not agree that the attorney could assist the insurer in creating records that may be used against him. The committee therefore concluded the attorney acted properly in refusing to allocate the fees and costs without the insured's consent.

Currency note

This opinion was issued in 1984, before California's adoption of later revisions to the Rules of Professional Conduct (including the May 27, 1989 renumbering and the November 1, 2018 renumbering), and before California Civil Code section 2860 (codifying Cumis independent-counsel rules). It interprets former Rule 5-102 (conflicting interests), which corresponds to current Rule 1.7. Subsequent rule amendments, statutes, or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule mentioned here.

View original opinion

Common questions

Q: Can the same lawyer for insurer and insured split fees between covered and disputed claims?

A: Per the opinion, no, where the insurer disputes coverage of part of the claim. The committee concluded the allocation would help the insurer build a record against the insured and breach the duty of loyalty under Rule 5-102.

Q: Whom does insurer-retained defense counsel owe duties to?

A: Per the opinion, both the insurer and the insured, but the duties to the insured prohibit disclosing information detrimental to the insured.

Q: Does the insured's agreement to dual representation cover this?

A: Per the opinion, no. The committee identified that agreeing to dual representation does not mean the insured agreed the attorney could help the insurer create records that may be used against him.

Background and rules framework

The opinion interprets former California Rule 5-102 (representation of conflicting interests), which corresponds to ABA Model Rule 1.7, in the insurance-defense context. The analysis is anchored in American Mutual Liability Insurance Co. v. Superior Court, Parsons v. Continental National American Group, and ABA Formal Opinion 282.

Citations and references

Rules of Professional Conduct (former):

• California Rule 5-102 (conflicting interests)

Cases:

• American Mutual Liability Insurance Co. v. Superior Court, 38 Cal.App.3d 579 (1974)
• Lysick v. Walcom, 258 Cal.App.2d 136 (1968)
• INA v. Forty-Eight Insulations, 633 F.2d 1212 (6th Cir. 1980)
• Parsons v. Continental National American Group, 113 Ariz. 223 (1976)
• Employer's Casualty Co. v. Tilley, 496 S.W.2d 552 (Tex. 1973)

Other opinions cited:

• ABA Formal Opinion 282; ABA Informal Opinions 949, 1476

See also

• LACBA Ethics Op. 464: Independent Insurance-Defense Counsel and Client Control
• LACBA Ethics Op. 528: Insurance Defense Counsel and Coverage-Conflict Withdrawal
• LACBA Ethics Op. 532: Lawyer Indemnity of Opposing Party as a Settlement Condition

Source

• Landing page: https://lacba.org/?pg=ethics-opinions
• Original PDF: https://lacba.org/docDownload/2011003