When an insurer hires a lawyer to defend its insured, who is the client, and what can the lawyer do about coverage disputes and multiple insureds?

Plain-English summary

An insurer retained a lawyer to defend its insured under a reservation of rights. The insured was one of several defendants insured by the same company; the suit pleaded both covered (negligent) and non-covered (intentional) conduct, and sought damages exceeding policy limits. The insurer asked the lawyer to represent all its insureds. The Commission answered four questions, after soliciting bar input because the authorities were inconsistent.

On who the client is, the Commission concluded the lawyer represents the insured, not the insurer, even though the insurer pays. Rule 3.6(h) provides that a person who pays for legal services to another may not regulate or direct them; the beneficiary of the services is the client. A lawyer's wish to satisfy a regular insurer-referral source, or even listing such companies as 'clients,' does not change that the insured is in court with his rights at stake and is the client for all purposes. The relationship does not bar communication with the insurer: the lawyer should keep it apprised of non-confidential information (as the policy's cooperation clause usually requires), tell the client he intends to do so, and otherwise protect client confidences as paramount counsel to the insured.

On multiple insureds, the Commission applied the ordinary conflict analysis of Rules 3.4(b), (c), and (d): joint representation is allowed only if it is obvious the lawyer can adequately represent each and all consent after full disclosure. On coverage disputes, Rule 3.4(d) bars the lawyer from also advising the insurer against his own client, so the insurer must be referred to separate counsel; the lawyer may represent the insured on coverage issues adverse to the insurer only under Rule 3.4(f), after fully disclosing his relationship with the insurer and its possible inhibiting effect and getting the insured's written consent. The same Rule 3.4(f) disclosure-and-consent requirement applies before the lawyer represents the insured on claims outside the policy, because how the defense is framed can shift financial responsibility between insured and insurer.

Currency note

This opinion was issued in 1985, before Maine's replacement of the former Maine Bar Rules with the Maine Rules of Professional Conduct (effective August 1, 2009). Subsequent rule amendments 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, deadline, or requirement mentioned here.

Common questions

Q: When an insurer hires a lawyer to defend its insured, who is the client?

A: The opinion concluded the insured is the client, not the insurer. The insurer's payment does not make it the client; under Rule 3.6(h) the person paying for services to another may not direct them, and the insured is entitled to the full duties of the client relationship.

Q: Can one lawyer represent several insureds in the same suit?

A: The opinion concluded only on a case-by-case basis, under the ordinary conflict rules: joint representation is permitted only if it is obvious the lawyer can adequately represent each interest and all clients consent after full disclosure.

Q: Can the lawyer advise the insurer on whether the claim is covered?

A: The opinion concluded no. Because the insured is the client, the lawyer cannot also advise the insurer in a way adverse to the client, so the insurer must be referred to separate counsel on coverage.

Q: Can the lawyer handle coverage or out-of-policy claims for the insured?

A: The opinion concluded yes, but only under Rule 3.4(f): the lawyer must fully disclose his relationship with the insurer and its possible inhibiting effect, and obtain the insured's written consent, before doing so.

Background and rules framework

The opinion interprets former Maine Bar Rule 3.6(h) (a third party who pays for legal services may not direct them), Rule 3.4(b), (c), and (d) (multiple and differing-interest representation), and Rule 3.4(f) (the lawyer's own interest affecting judgment, curable by informed written consent). These correspond to ABA Model Rule 1.8(f) (compensation from a third party), Model Rule 5.4(c) (no direction by the payer), Model Rule 1.7 (concurrent conflicts and joint representation), and Model Rule 1.6 (confidentiality).

Citations and references

Rules of Professional Conduct:

• Model Rule 1.7 (concurrent conflicts; joint representation); Model Rule 1.8(f) (third-party compensation); Model Rule 5.4(c) (payer may not direct services); Model Rule 1.6 (confidentiality)
• Maine Bar Rules 3.4(b), 3.4(c), 3.4(d), 3.4(f), 3.6(h)

Cases:

• Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187, 355 N.E.2d 24 (1976)

Other opinions cited:

• ABA Informal Opinion 728; Maine Ethics Commission Opinions No. 21, No. 37, No. 44

See also

• Maine Ethics Op. 72: Insured Refusing to Cooperate
• ABA Formal Op. 01-421: Insurer Litigation Guidelines

Source

• Landing page: https://mebaroverseers.org/attorney_services/opinion.html?id=91088

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Issued by the Professional Ethics Commission

Date Issued: November 5, 1985

Facts

Pursuant to the terms of an insurance policy, an insurance company has retained an attorney to provide a defense to its insured. The insurance company has notified its insured that the company will provide such defense at the company's expense, but under a so-called 'reservation of rights.' The insured is one of several defendants, each of whom is insured by the same company. The company, in an effort to save legal expense, has requested the attorney to represent all its insureds. The claims in the lawsuit include ones which are both within and outside the scope of the policy (e.g., the suit claims negligent and intentional conduct by the defendant insured. The policy only covers negligent acts). The damages sought in the complaint also exceed the coverage of the policy.

Questions Presented

In the foregoing situation, the following general questions are presented:

• Who is the attorney's client?

• May the attorney represent multiple defendants?

• May the attorney provide advice to the insured or the company in a dispute over coverage?

• May the attorney provide representation on claims outside the scope of the policy?

Opinion

Maine Bar Rule 3.4 establishes the standards of conduct that apply to this situation. Since our review of those Rules, the Code of Professional Responsibility on which the Bar Rules are modeled, and the relevant case law, yields inconsistent answers to the questions posed, see Annotated Code of Professional Responsibility, 233-237 (American Bar Foundation 1979), and in recognition of the complexity of this issue and the probable impact of any ethics opinion on a substantial sector of the bar, we requested the assistance of Maine lawyers prior to undertaking this opinion. A notice by the Ethics Commission was published in the January 1985 Bar Bulletin soliciting input on these general questions. Only three written responses were received. The conclusions below have been reached with due consideration to both the legal precedent and limited response of the bar.

Question 1: In our opinion, the attorney represents the insured, notwithstanding that he is hired and paid by the insurance company. The fact that the insurance company pays for the service rendered to its insured does not mean that the insurance company is the client. Rather, the insurance company is simply providing a defense for the benefit of the insured, not the company. Rule 3.6(h) provides that a person who pays a lawyer to render legal services to another person shall not regulate or direct the legal services thus provided. In circumstances such as this, it is the person who is the beneficiary of services who is the client, not the paying person or entity. See for example Maryland Casualty Co. v. Peppers, 64 III.2d 187, 355 N.E.2d (1976); ABA Informal Opinion 728.

We recognize that it may not be uncommon for the lawyer to think of the insurance company as the client, especially where the attorney has an ongoing relationship with the insurance company and is regularly referred cases by the company. Sometimes the lawyers will even list such companies as 'clients' in Martindale-Hubbell entries. However, such perceptions do not determine the true identity of the client. Obviously, the lawyer in such a situation will have a desire to produce results satisfactory to the insurance company. Such desire is, however, not necessarily inconsistent with the lawyer's duty to the insured as his client. Although the insurance company is contractually obligated to pay for a defense for the insured and the cost of damages within the policy limits, it is the insured who is in court and it is his rights which are at stake in the litigation. The lawyer appears in court as the attorney for the insured, not as the attorney for the insurance company. The insured is, therefore, entitled to be considered as the client for all purposes and the attorney has the duty to treat the insured with the full measure of care accorded to all client relationships.

Such attorney-client relationship with the insured does not, of course, prohibit communications between the company and the lawyer. Both the insured and counsel ought to keep the insurance company fully apprised of all non-confidential information (e.g., copies of discovery information) and developments in the suit. Cooperation with the insurance company is ordinarily required by the terms of the policy. In providing non-confidential information to the insurance company and otherwise cooperating with it, the attorney is assisting the insured in complying with this common policy requirement. However, the fact of such cooperation does not alter the attorney-client relationship with the insured. The attorney is required to maintain client confidences consistent with his paramount role as counsel to the insured, and he should inform his client of his intention to provide non-confidential information to the insurance company.

Question 2: Whether the attorney may represent multiple insureds requires a case by case analysis of the applicable facts. The fact that the question arises in the context of an insurance defense lawsuit does not alter the customary analysis required by Rules 3.4(b), (c) and (d). See for example Ethics Commission Opinions #21, 37 and 44. In all cases, multiple employment is permitted only if (1) it is 'obvious' the lawyer can adequately represent both interests and (2) all clients consent after full disclosure. Unless both tests are met, multiple representation is prohibited.

Question 3: The question of whether the attorney may represent the insurance company on coverage issues while also representing the insured/client on the basic claim is resolved by reference to Rule 3.4(d). Since we start with the premise that the insured is the client, even though the company pays the fees, we conclude that the attorney cannot also provide advice to the company that could adversely affect his client. Even if the insured/client and company both consent, we do not think it is 'obvious' that the lawyer can adequately represent the interests of either party in that circumstance. Hence, we conclude that the company must be referred to separate counsel.

Although the lawyer may not represent the company on coverage issues, the question still remains as to whether he may represent the insured/client on such issues. The appropriate rule to apply is 3.4(f). Such representation is not automatically barred, but is permitted provided that the lawyer fully discloses to the insured the lawyer's relationship to the insurance company (see discussion under Question 1 supra) and the effect such relationship might have on the lawyer's effort on the insured's behalf. If the client provides written consent after such disclosure, the attorney may represent him or her on coverage issues that are adverse to the company. It is important to emphasize, however, that the lawyer's disclosure must fully inform the client of the continuing relationship between the company and the lawyer and the possible inhibiting effect such relationship could have on the lawyer.

Question 4: Whether the lawyer may provide representation to the insured/client with respect to claims outside the scope of the policy is also subject to analysis under Rule 3.4(f). In certain circumstances, it is possible that the structure of the defense could affect the allocation of financial responsibility between the insurance company and the insured. In such a case, it is in the insured's interest to frame the defense in such a way that all potential liability falls within the coverage of the policy thereby avoiding the risk of uninsured liability. Such a consideration would also affect the insured's decisions regarding settlement. Presumably, the insurance company would have a contrary view and would wish to avoid liability to the maximum extent possible. Since we have already noted that an ongoing relationship between the lawyer and company could affect the lawyer's representation of the insured on coverage disputes, the same would also hold true in the case. Therefore, the lawyer should fully disclose the situation to this client and obtain written consent before providing representation on claims outside the scope of the policy.