When a defense lawyer represents both the insured and the insurer, can the lawyer advise on a consent settlement that adds a punitive-damages claim the insurer says it does not cover?

Plain-English summary

This inquiry mirrors RPC 112 but adds a punitive-damages wrinkle. Attorney X was retained by the insurer to defend Driver Two. The plaintiff moved to amend the complaint to add a punitive-damages claim supported by evidence of impaired driving, and proposed a consent order that would (a) allow the amendment but make no punitive-damages judgment enforceable against the insured or insurer and (b) cap any compensatory judgment at policy limits. The insurer took the position that it provided no coverage for punitive damages. The proposal favored the insured, shielding him from personal liability while putting only the insurer's coverage at risk.

The opinion concluded that, because Attorney X represented both the insured and the insurer, he was obligated under Rule 6 to communicate the proposal to both. But because of the potential conflict between the insured (who would likely favor the agreement) and the insurer (who could be adversely affected by the amended complaint), Attorney X could not advise either on the advisability of accepting it, citing RPC 91 and Rule 5.1, and should advise the parties to consider separate counsel on the limited questions presented. The opinion stated that neither Attorney X's assessment of the probability of an adverse verdict, nor how a verdict might compare to the policy limits, made a difference.

Currency note

This opinion was issued in 1991, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. The conflict-of-interest provision it applies (Rule 5.1) has since been renumbered and revised. 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 Treat this page as historical context, not current guidance.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: How is this different from RPC 112?

A: The facts are the same dual-representation problem, but here the proposal also allows the plaintiff to add a punitive-damages claim the insurer says it does not cover. The opinion reached the same result: communicate to both, advise neither.

Q: Must the lawyer relay the proposal to both insured and insurer?

A: Yes. The opinion concluded that, representing both, the lawyer was obligated under Rule 6 to communicate the proposal to both of them.

Q: Can the lawyer advise either client on whether to accept it?

A: No. The opinion held that the conflict between the insured's and insurer's interests barred the lawyer from advising either on the advisability of accepting, and that he should suggest separate counsel on the limited questions, citing RPC 91 and Rule 5.1.

Background and rules framework

The opinion applied North Carolina Rule 6 (communicating with and informing the client, corresponding to Model Rule 1.4) and Rule 5.1 (conflicts of interest, corresponding to Model Rule 1.7), together with RPC 91 on the insured-insurer conflict. The added punitive-damages exposure, which the insurer disclaimed covering, sharpens the divergence between the insured's and insurer's interests but does not change the analysis.

Citations and references

Rules of Professional Conduct:

• North Carolina Rule 6 (communicating with and informing the client)
• North Carolina Rule 5.1 (conflicts of interest)
• MR 1.4 (communication); MR 1.7 (conflict of interest, current clients)

Other opinions cited:

• North Carolina RPC 91 (conflict between insured and insurer)

See also

• NC Ethics Op. RPC 112: representation of insured and insurer
• NC Ethics Op. RPC 91: conflict between insured and insurer
• NC Ethics Op. RPC 151: representation of insured and insurer

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-111/

Original opinion text

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

Introduction:

Driver One sued Driver Two for personal injury sustained in a motor vehicle accident. Driver One is represented by Attorney A. The automobile liability insurance company (Liability Co.) that provided coverage to Driver Two retained Attorney X, who has appeared for and is engaged in the defense of Driver Two.

The complaint filed by Attorney A seeks only compensatory damages. It does not allege conduct by Driver Two that would support a claim for punitive damages and does not ask for punitive damages. However, there is evidence that Driver Two was driving while impaired, and that evidence is probably sufficient to support a claim for punitive damages.

On behalf of Driver One, Attorney A has moved to amend the complaint to seek punitive damages and allege the requisite conduct by Driver Two. Attorney A has also proposed to Attorney X that the parties enter into a binding consent order, stipulation, or other agreement allowing Driver One's motion to amend the complaint, but providing further that (a) no judgment for punitive damages shall be enforceable against either Driver Two or Liability Co. and (b) no judgment for compensable damages shall be enforceable in excess of the auto liability insurance coverage provided by Liability Co.

The proposal appears to be in the best interest of Driver Two, because it would fully protect Driver Two from personal liability and would put at risk only the liability coverage provided by Liability Co.

It is the position of Liability Co. that it provides no coverage to Driver Two for punitive damages.

Inquiry #1:

How should Attorney X handle the proposal communicated by Attorney A?

Opinion #1:

Because Attorney X represents both the insured (Driver Two) and the insurer (Liability Co.) in connection with the defense of the action, Attorney X has an obligation to communicate the proposal to both of them. Rule 6. However, because of the potential conflict between the interests of the insured (who would likely favor the agreement) and the insurer (who may be adversely impacted by the amended complaint), Attorney X may not advise either of them concerning the advisability of accepting the proposal. See RPC 91. Rule 5.1. Attorney X should advise the parties that it would be appropriate to consider employing separate counsel on the limited questions presented.

Inquiry #2:

Does Attorney X's assessment of the probability of an adverse verdict, on issues of liability for compensatory or punitive damages, make a difference?

Opinion #2:

No.

Inquiry #3:

Does it make any difference whether, in the opinion of Attorney X, any verdict against Driver Two for damages, if reached, will probably be much less than, or somewhere close to, or much more than, the liability coverage that Liability Co. has agreed it provided Driver Two?

Opinion #3:

No.