Can a firm that regularly does insurance defense work take plaintiff's cases against defendants insured by those same insurance companies?

Plain-English summary

A firm that regularly handles insurance defense, so that it usually has at least one active file open for certain insurers, was considering taking more plaintiff's work, including cases in which a defendant is insured by one of those insurers. The opinion answered three questions.

First, the opinion concluded that the firm has an attorney-client relationship with both the insured and the insurer in a case the insurer refers; if conflicts develop between insured and insurer, the firm should frankly discuss them with both and advise each of the right to seek independent counsel. Second, the firm may represent a plaintiff against a defendant insured by a company for which the firm has active files, without that insurer's consent, though the firm may wish to notify the insurer; the representation should not be undertaken without the plaintiff's informed consent about the firm's relationship to the defendant's insurer. Third, if the firm abandoned all insurance defense work, the general knowledge it has of an insurer's settlement practices and personnel would not bar it from later taking cases against defendants insured by that former client.

Currency note

This opinion was issued in 1980 under North Carolina's former Code of Professional Responsibility (the DR/EC framework), before the State Bar replaced the Code with the Rules of Professional Conduct (adopted 1985) and before the 2003 revisions to those Rules. The principles it applied correspond to today's Model Rule 1.7 (current conflicts) and Model Rule 1.9 (duties to former clients). 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 Treat this page as historical context, not current guidance.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 refers a defense case, who is the firm's client?

A: Both. The opinion concluded there is an attorney-client relationship with the insured and with the insurer, and that conflicts between them should be discussed frankly with each, who should be told of the right to independent counsel.

Q: Does the firm need the insurer's consent to sue that insurer's insured?

A: No. The opinion concluded the firm may represent the plaintiff without the insurer's consent, though it may wish to notify the insurer; it does need the plaintiff's informed consent about the firm's relationship to the defendant's insurer.

Q: If the firm stops doing insurance defense work, is it barred from suing a former insurer client's insureds?

A: No. The opinion concluded the firm's general familiarity with the insurer's settlement practices and personnel does not bar later plaintiff's cases against defendants that former client insures.

Background and rules framework

The opinion applied the conflict-of-interest provisions of the former Code of Professional Responsibility (EC 5-14 through EC 5-19), which correspond to today's Model Rule 1.7 for concurrent conflicts and Model Rule 1.9 for duties to former clients. The analysis turned on the dual representation inherent in insurance defense and on whether general background knowledge of a former insurer client rises to a disqualifying confidence.

Citations and references

Rules of Professional Conduct:

• North Carolina Code of Professional Responsibility, EC 5-14 through EC 5-19 (conflicting interests; multiple clients)
• MR 1.7 (conflicts of interest)
• MR 1.9 (duties to former clients)

See also

• NC Ethics Op. CPR 94: lawyer-trustee representing the bank in a contested foreclosure
• NC Ethics Op. CPR 2: interviewing a rank-and-file employee of an adverse corporation

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/cpr-255/

Original opinion text

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

Inquiry: Law firm does insurance defense work on a regular basis for certain insurance companies such that there is always at least one active file at the firm for those insurers. Other insurance companies occasionally refer cases involving their insureds to the firm so that there will often but not always be an active file at the firm for those companies. By virtue of these long-term relationships, the firm is generally familiar with settlement policies and personnel at the insurance companies. Now considering taking more plaintiff's cases, the firm is concerned with the ethical problems raised by those cases in which a defendant, in a plaintiff's suit, is insured by one of the companies from which the firm has either regularly or occasionally received business.

1. Given the control exercised by an insurer over the disposition of cases involving its insureds under the terms of its policies, including the payment of attorney's fees, is there an attorney/client relationship between the law firm and the insured involved in a case referred to the firm by the insurer, as well as between the law firm and the insurer?

Opinion: Yes. If conflicts of interest develop between the insured and insurer, such conflicts should be frankly discussed with both, and each should be advised he/it has the right to seek advice from other, independent counsel. EC 5-14 through EC 5-19.

2. Can the firm represent a plaintiff seeking to recover from a defendant who is insured by an insurance company for which the firm has, or has had and will have active files without that insurer's consent?

Opinion: Yes. The firm may wish, however, to notify the insurer. Further, the proposed representation should not be undertaken without the plaintiff's informed consent concerning the relationship between the firm and the defendant's insurer.

3. If the firm were to abandon all insurance defense work, would the general knowledge that the law firm has of an insurance company's settlement practices and its familiarity with insurance company personnel bar it from taking cases in which a defendant or potential defendant is insured by that former client?

Opinion: No.