Source: http://dutytodefend.com/conflicts-of-interest/
Timestamp: 2019-04-22 08:36:54+00:00

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A conflict of interest may arise in any situation in which a person has a duty to more than one person or organization, but cannot do justice to the actual or potentially adverse interests of both parties. California law governing conflicts of interest between an insurer and its policyholder is distinct from the law governing conflicts of interest between an attorney and client. However, these two bodies of law are symbiotic since an attorney cannot represent dual clients whose interests conflict and an insurer must provide independent counsel if dependent counsel has unresolved ethically conflicts representing both the insurer and the policyholder.
An insurer has fiduciary like obligations to its policyholder, which preclude the insurer from interfering with the policyholder’s rights. The insurer’s fiduciary obligations arise from the contract of insurance, statutes and regulations and decisional law of bad faith.
Separately, an attorney cannot represent two clients whose interests potentially or actually conflict. An attorney’s fiduciary obligations to a client are governed by a separate body of law, including the State Bar Act, Rules of Professional Conduct, and decisional law.
A conflict of interest has been defined as “a situation in which a person is in a position to derive personal benefit from actions or decisions made in their official capacity”[4A] and as “a situation in which a person has a duty to more than one person or organization, but cannot do justice to the actual or potentially adverse interests of both parties.”[4B] As applied to a liability dispute with a related coverage contest, two distinct fields of conflicts of interest may emerge: 1) conflicts of interest between in the policyholder/defendant and the insurer; and 2) conflicts of interest between dependent counsel and the client/defendant/policyholder. Conflicts of interest between in the policyholder are governed by insurance law. Conflicts arise from the insurer’s primary obligation to defend and indemnify its policyholder, which obligation contrasts with its desire to minimize the costs of defense and indemnification. In contrast, conflicts of interest between dependent counsel and the client are governed by ethical Rules of Professional Conduct, specifically, Rule 3-310. Conflicts of interest arise from the lawyer’s primary obligation of undivided loyalty to the policyholder, which obligation contrasts with the lawyers desire to be paid by the insurer in this and many other cases.
Dependent counsel always represents the insurer as a client even though the insurer is not technically a party to the policyholder lawsuit. Dependent counsel represents the interests of the insurer and is beholden to the insurer. The difference between dependent counsel and independent counsel is that the latter represents only the policyholder. The phrase “dependent counsel” describes the counterpart to “independent counsel.” This moniker acknowledges that “[a]s a practical matter . . . in reality, the insurer’s attorneys may have closer ties with the insurer and a more compelling interest in protecting the insurer’s position, whether or not it coincides with what is best for the insured”, “[i]nsurance companies hire relatively few lawyers and concentrate their business. A lawyer who does not look out for the Carrier’s best interest might soon find himself out of work.” and “defense counsel and the insurer frequently have a longstanding, if not collegial, relationship”. “In California, an attorney may usually, under minimum standards of professional ethics, represent dual interests as long as full consent and full disclosure occur.” Some dependent counsel may incorrectly assert that they are exempt from compliance with Rule 3-310. A client who is concerned that dependent counsel may have unresolved conflicts of interest may inquire of the lawyer, who must respond. Because dependent counsel are usually reliant upon insurers for their livelihood, some will offer a series of excuses why they have no conflicts of interest, many of which are erroneous.
 Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 306.
 San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 364.
 Lysick v. Walcom (1968) 258 Cal.App.2d 136, 147; See, also Ishmael v. Millington (1966) 241 Cal.App.2d 520, 528; Industrial Indem. Co. v. Great American Ins. Co. (1977) 73 Cal.App. 3d 529, 537.
 Manfredi & Levine v. Superior Court (Barles) (1998) 66 Cal.App.4th 1128, 1134-35 (citations, quotation marks, and ellipses omitted).

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