Opinion ID: 1415749
Heading Depth: 1
Heading Rank: 5

Heading: Duties under the UTPA after the initiation of a civil action

Text: The district court concluded in its answer to the certified questionas it had concluded in an earlier opinion, McDaniel v. Travelers Property Cas. Ins. Co., 121 F.Supp.2d 508 (N.D.W.Va.2000)that all conduct by an insurance company which takes place after the filing of a civil action against the insurance company's insured, regardless of the nature of that conduct, cannot under any circumstances support a cause of action against the insurance company under the UTPA. As the district court stated in its certification order, quoting its earlier opinion in McDaniel, an insurance company's actions after litigation is instituted cannot be properly introduced as bad faith. See McDaniel, 121 F.Supp.2d at 512. In other words, the district court ruled that an insurance company has absolutely no duty whatsoever to comply with the requirements of the UTPA once a claimant files a lawsuit against an insurance company's insured. The defendant insurance company argues that the district court's interpretation of the UTPA is correct, and argues that the UTPA is designed to regulate conduct relating to claims, not conduct relating to litigation. The plaintiff counters that the UTPA does not distinguish between unfair trade practices committed before or after litigation has commenced, and argues that the UTPA does not state that the provisions of the law become inoperative when a civil action is filed. As the plaintiff's attorney summarized at oral argument, if it's an unfair trade practice the day before suit is filed, it's an unfair trade practice the day after suit is filed. The arguments of the parties illustrate differing views of public policy, views that we believe can be reconciled. On the one hand, the plaintiff argues that the defendant insurance company is claiming complete immunity for its post-litigation conduct that violates the UTPA. The plaintiff suggests that adopting the defendant's arguments would permit an insurance company to abuse the legal system and delay the resolution of valid claims. The public policy encompassed by the plaintiff's arguments is that the UTPA was enacted so that insurance companies would be required to act fairly, promptly resolve valid claims where the issues are not legitimately in dispute, and not use protracted, expensive legal proceedings to exhaust an injured party into accepting a low settlement. On the other hand, the defendant insurance company argues that both defendants and insurance companies are entitled to a zealous defense by an attorney once a lawsuit is filed against an insured, and that it should be permitted to employ defense attorneys to (indirectly) defend their assets by any means once a lawsuit has been filed, regardless of the merits of the defense that is interposed, and to delay the resolution of a case until a settlement favorable to the insurance company can be reached. We believe that the language of the UTPA somewhat reconciles the positions of both the plaintiff and defendant. The UTPA is intended to require insurance companies to deal fairly with individuals seeking to recover under an insurance policy, and to promptly resolve valid claims that are not reasonably in disputeregardless of whether or not a lawsuit has been filed. However, as we discuss in more detail below, the UTPA is decidedly not intended to interfere with the exercise of an attorney's zealous, independent, professional judgment in the defense of a client, and should never be read as doing so. We believe that an attorney retained by an insurance company to defend an insured is ethically required to independently and vigorously defend the interests of the insured. We begin our analysis by looking to the language of the UTPA. Where the language of a statute is clear and without ambiguity the plain meaning is to be accepted without resorting to the rules of interpretation. Syllabus Point 2, State v. Elder, 152 W.Va. 571, 165 S.E.2d 108 (1968). In accord, Syllabus Point 2, State v. Epperly, 135 W.Va. 877, 65 S.E.2d 488 (1951) (A statutory provision which is clear and unambiguous and plainly expresses the legislative intent will not be interpreted by the courts but will be given full force and effect.). The UTPA prohibits individuals in the business of insurance from engaging in certain unfair acts and practices, including a host of unfair claim settlement practices that are set forth in W.Va.Code, 33-11-4(9) [2002]. That section states, in part: No person shall commit or perform with such frequency as to indicate a general business practice any of the following: ... (d) Refusing to pay claims without conducting a reasonable investigation based upon all available information; ... (f) Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear; ... (n) Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement[.] The defendant asserts that the Legislature's choice of the word claim in the UTPA indicates an intent to exclude from regulation by the UTPA insurance company conduct relating to litigation. However, the definition of the word claim includes meanings such as a demand for something as due; an assertion of a right to something; [7] a demand for something due or believed to be due; [8] and a demand for compensation, benefits, or payment (as ... one made under an insurance policy upon the happening of the contingency against which it is issued). [9] In other words, the Legislature's repeated use of the word claim in the UTPA indicates an intent to impose duties upon those in the business of insurance to fairly deal with persons asserting a right or demanding something that is believed to be rightfully due under an insurance policy. A lawsuit or litigation is simply a means of asserting a right or demanding something by using the judicial process. [10] Furthermore, the purpose of the UTPA, which is plainly stated in W.Va.Code, 33-11-1 [1974], is to: ... regulate trade practices in the business of insurance ... by defining, or providing for the determination of, all such practices in this State which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined. At its heart, the UTPA establishes a legislative policy encouraging prompt settlement of meritorious claims [that] parallels our long-standing judicial policy that encourages compromise and settlement of disputed claims[.] Jenkins, 167 W.Va. at 607, 280 S.E.2d at 258. We find no caveat in the UTPA, and the defendant directs us to no such language, which states that an insurance company or other person in the business of insurance only has a duty to refrain from unfair methods of competition or unfair or deceptive acts or practices prior to the filing of a lawsuit by a party, but has no such duty thereafter. We find nothing to show that the public policy established in W.Va.Code, 33-11-1 is obviated once litigation ensues. We therefore must conclude that the language of the UTPA does not restrict the scope of the conduct that is proscribed by the Act to that which occurred prior to the filing of a lawsuit. In accord, O'Donnell ex rel. Mitro v. Allstate Ins. Co., 734 A.2d 901 (Pa.Super.1999) (bad faith suits may extend to the misconduct of an insurer during the pendency of litigation); Federated Mut. Ins. Co. v. Anderson, 297 Mont. 33, 991 P.2d 915 (1999) (insurance company's prosecution of a meritless appeal could be used to support a claim for unfair trade practices); Gooch v. State Farm Mut. Automobile Ins. Co., 712 N.E.2d 38 (Ind.App.1999) (insurance company's litigation conduct admissible in determining whether company made a bad-faith attempt to force insured to settle uninsured motorist claim); Tucson Airport Authority v. Certain Underwriters at Lloyd's, London, 186 Ariz. 45, 918 P.2d 1063 (Ariz.App.1996) (wrongful litigation conduct of insurance company toward insured during coverage lawsuit was not rendered inadmissible due to litigation privilege); Palmer by Diacon v. Farmers Ins. Exchange, 261 Mont. 91, 121, 861 P.2d 895, 913 (1993) ([A]n insurer's duty to deal fairly and not to withhold payment of valid claims does not end when an insured files a complaint against the insurer.). Our conclusion that the Legislature intended to regulate the actions of companies and individuals in the business of insurance, before and after the initiation of a lawsuit, is also compelled by the manner in which the Legislature regulates the premiums insurance companies may charge, and the profits companies may earn. The insurance business is quasi-public in its character, and the state may, under its police power, ... prescribe the terms and conditions on which it may be conducted and generally to regulate it and all persons engaged in it. Swearingen v. Bond, 96 W.Va. 193, 197, 122 S.E. 539, 540 (1924). The Legislature regulates the premiums insurance companies may charge so as to promote the public welfare by regulating insurance rates to the end that they shall not be excessive, inadequate or unfairly discriminatory[.] W.Va.Code, 33-20-1 [1957]. To achieve this goal, W.Va.Code, 33-20-3(a) [1976] states that when an insurance company sets the premium rates that it will charge customers, the company must give due consideration to past and prospective loss experience and to a reasonable margin for underwriting profit. [11] The insurance company's proposed premium rates are reviewed and approved by the insurance commissioner. So, while there might be some theoretical appeal in the notion that a liability insurer has a right to maximize its financial well-being by aggressively litigating and refusing to pay valid claims, such a notion ignores the fact that, under the law, the premiums the liability insurer charges already account for the financial well-being of the insurance company. An insurance company is not like the average citizen or business defending their assets against a lawsuit; an insurance company exists to pay valid claims, and charges premiums that provide sufficient resources to pay those claims. The regulated premiums charged by an insurance company and paid by the insurance consumer have been approved by the State at a level that ensures a fair profit after the insurance company has paid all past and prospective valid claims. To then allow an insurance company to increase its underwriting profit by unreasonably defending claims, while still charging the same premiums, violates the public policy underlying the premium-rate statutes. Allowing an insurance company to employ unfair practices create[s] market disadvantages for other honest insurance companies because these illicit practices unfairly increase its profits, thereby placing pressure on other insurance companies to also adopt equally reprehensible tactics. Campbell v. State Farm Mut. Auto. Ins. Co., 65 P.3d 1134, 1150 (Utah 2001) ( reversed on other grounds by State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003)). Our conclusion is also compelled by the disparity in economic bargaining power between insurance companies and the average litigant. As we discussed in Poling v. Motorists Mutual Ins. Co., 192 W.Va. 46, 48, 450 S.E.2d 635, 637 (1994): Often in lawsuits, there is a disparity of bargaining power between the plaintiff and defendant. In most cases, the defendant has a resource advantage over the plaintiff and is able to draw out a trial into a prolonged blizzard of mindless motions, countless continuances, and dreadful delay. The mere fact that after months of delay and hassle the insurance company deigns to speak to the injured party and settles the case for the policy limits after realizing that the plaintiff is not going to accept some outlandish low-ball offer, does not automatically preclude the plaintiff from later bringing a bad faith action.... Put simply, the goal of the UTPA is to make bad-faith behavior by those in the business of insurancewhether or not a lawsuit has been filed by the claimanteconomically unattractive. Were we to adopt the defendant's argument, and hold that the UTPA did not apply to insurance company conduct occurring after litigation ensues, would be to suggest that the Legislature intended to reward obstinacy by insurance companies in the compromise and settlement of claims. Such an interpretation of the UTPA would provide a disturbing incentive for insurance companies to push meritorious claims into litigation, thereby consuming limited judicial resources, further crowding congested dockets, and burying claimants in a prolonged blizzard of mindless motions, countless continuances, and dreadful delay. Poling, 192 W.Va. at 48, 450 S.E.2d at 637. The prompt resolution of meritorious claims would be delayed by insurance companies, even where liability was reasonably clear, simply to starve out claimants to obtain a settlement more favorable to the owners or shareholders of the insurance company. We reject such an interpretation of the UTPA. The UTPA, however, was not intended to restrict a defense attorney's representation of a client or deter the attorney's vigorous protection of the client's interests. The fact that the defense attorney is being paid by an insurance company should not alter the attorney's actions, and the UTPA should never be read to infringe upon an attorney's legitimate actions taken in the course of a lawsuit. Attorneys have long struggled with the contractual and ethical quandaries presented by the tripartite relationship between defense attorney, insurance company, and insured. The Supreme Court of Mississippi once observed that the ethical dilemma thus imposed upon the carrier-employed defense attorney by the relationship between insurer, client-insured, and insurance-company-paid defense attorney is one that would tax Socrates. Hartford Accident & Indemnity Co. v. Foster, 528 So.2d 255, 273 (Miss.1988). However, as our holding in Rose v. St. Paul Fire & Marine Ins. Co., 215 W.Va. 250, 599 S.E.2d 673 (2004) supports, the Legislature did not intend to impose an additional ethical dilemma upon insurance-company-paid defense attorneys by requiring them to measure their actions in defense of a client under the UTPA, because attorneys are not in the business of insurance. We therefore agree with the defendant's argument in the instant case that a defense attorney, employed to represent an insured in a liability matter, is not bound by the UTPA and is not an agent of the insurance company, because the attorney is professionally obligated to represent only the interests of the client/insured, not the interests of the insurance company. In State ex rel. Allstate Ins. Co. v. Gaughan, 203 W.Va. 358, 508 S.E.2d 75 (1998), we concluded that a defense attorney represents only the insured, and not the insurer that is paying the defense attorney's fee. While it has been argued that the attorney represents both the insurer and insured, we acknowledged that [i]n reality, the insurer actually hires the attorney to represent the insured. 203 W.Va. at 372, 508 S.E.2d at 89. Our examination of the Rules of Professional Conduct supports our statement in Gaughan. We find that there are at least three applicable provisions in the Rules which preclude an attorney paid by an insurance company from jointly representing both the insurance company and the insured in a liability matter: Rules 1.7, 1.8(f), and 5.4(c). [12] Rule 1.7 [13] is the first rule that weighs against an attorney's joint representation of both the insurance company and the insured. Rule 1.7 was adopted to ensure an attorney's loyalty to a client and preclude the attorney from undertaking the simultaneous representation of another client with interests that are actually or potentially adverse to the existing client without both clients' knowledgeable consent. The rule does not require a current conflict of interest or current material limitation on the attorney's behavior before the attorney may be precluded from jointly representing two clients. Rather, all that is required by Rule 1.7 is that there may be such a conflict or limitation in the future. A conflict of interest between an insurance company and an insured occurs whenever their common lawyer's representation of the one is rendered less effective by reason of [the lawyer's] representation of the other. Spindle v. Chubb/Pacific Indemnity Group, 89 Cal.App.3d 706, 713, 152 Cal.Rptr. 776, 780-81 (1979). Even the most optimistic view of human nature requires us to realize that an attorney employed by an insurance company will slant his efforts, perhaps unconsciously, in the interests of his real clientthe one who is paying his fee and from whom he hopes to receive future businessthe insurance company. U.S. Fidelity and Guaranty Co. v. Louis A. Roser Co., 585 F.2d 932, 938 n. 5 (8th Cir.1978). An attorney should not be permitted to put himself in a position where, even unconsciously, he will be tempted to `soft pedal' his zeal in furthering the interests of one client in order to avoid an obvious clash with those of another. Committee on Legal Ethics v. Frame, 189 W.Va. 641, 645, 433 S.E.2d 579, 583 (1993) (citation omitted). In insurance defense, if an attorney simultaneously represents the interests of both the insured and the insurance company, there is a substantial likelihood that the attorney's representation of either party may in the future be materially limited. See Robert E. Keeton and Alan I. Widiss, Insurance Law 809 [1988] (There is a very substantial prospect that actual or potentially conflicting interests between an insurer and an insured will exist in regard to almost any tort claim that may be covered by liability insurance.). [14] Accordingly, because of that likelihood, Rule 1.7 generally precludes a defense attorney from jointly representing both the insurance company and the insured in a liability matter. Rules 1.8(f) [15] and 5.4(c) [16] of the Rules of Professional Conduct also weigh against an attorney's joint representation of both an insurance company and the client/insured in the liability insurance context. These two Rules of Professional Conduct discuss the limitations upon an attorney when the attorney is hired and paid by a third party to represent a client. These two rules do not prohibit an attorney from being paid by an individual other than the client, such as an insurance company. Rather, the Rules impose a duty upon the attorney to represent the sole interests of the client and to fully inform the client of the individual's payment arrangement, and prohibits the individual who is paying the attorney from interfering with the attorney's zealous, independent representation of the client. [17] Arguably, the language of both Rules 1.7 and 1.8(f) might allow an attorney hired and paid by an insurance company to protect the insurance company's interests, and comply with the insurance company's directives and restrictions, in the representation of an insured if the insured consents after consultation. However, the Rules also require that there must also be no interference with the lawyer's independence of professional judgment, Rule 1.8(f)(2), and the attorney must reasonably believe that the representation will not be adversely affected by the joint representation. Rule 1.7(b)(1). More specifically, Rule 5.4(c) prohibits a third-party who pays for an attorney's services from direct[ing] or regulat[ing] the lawyer's professional judgment in rendering such legal services. In sum, our Rules of Professional Conduct compel us to the conclusion that when an insurance company hires a defense attorney to represent an insured in a liability matter, the attorney's ethical obligations are owed to the insured and not to the insurance company that pays for the attorney's services. In accord, In re Rules of Professional Conduct and Insurer Imposed Billing Rules and Procedures, 299 Mont. 321, 333, 2 P.3d 806, 814 (2000); Higgins v. Karp, 239 Conn. 802, 810, 687 A.2d 539, 543 (1997); Petition of Youngblood, 895 S.W.2d 322, 328 (Tenn.1995); Atlanta Intern. Ins. Co. v. Bell, 438 Mich. 512, 520, 475 N.W.2d 294, 297 (1991); First American Carriers, Inc. v. Kroger Co., 302 Ark. 86, 89-91, 787 S.W.2d 669, 671 (1990). Because a defense attorney is ethically obligated to maintain an independence of professional judgment in the defense of a client/insured, an insurance company possesses no right to control the methods or means chosen by the attorney to defend the insured. As one court stated, an insurance company cannot control the details of the attorney's performance, dictate the strategy or tactics employed, or limit the attorney's professional discretion with regard to the representation [of the insured]. Petition of Youngblood, 895 S.W.2d at 328. Accordingly, an attorney hired by an insurer to defend an insured must be considered, at least initially, to enjoy the status of an independent contractor. Givens v. Mullikin ex rel. Estate of McElwaney, 75 S.W.3d 383, 394 (Tenn.2002). [18] It therefore appears clear that an insurance company cannot be held liable under the UTPA for the actions of an attorney hired to defend the interests of an insured, when the defense attorney's strategy and tactics are a result of the attorney's independent, professional discretion with regard to the representation of the client-insured. See O'Donnell v. Allstate Ins. Co., 734 A.2d 901 (Pa.Super.1999) (insurance company's statutory duty to act in good faith did not end upon initiation of lawsuit; however, the statute clearly does not contemplate actions for bad faith based upon allegation of discovery violations.). [19] In summary, we hold that the conduct of an insurance company or other person in the business of insurance during the pendency of a lawsuit may support a cause of action under the West Virginia Unfair Trade Practices Act, W.Va.Code, 33-11-1 to -10. In so holding, we reject the district court's conclusion in McDaniel, supra, that the word claim in the UTPA precludes the application of the UTPA to litigation conduct by an insurance company or other person in the business of insurance. However, we also hold that an insurance company cannot be held liable under the West Virginia Unfair Trade Practices Act, W.Va.Code, 33-11-1 to -10, for the actions of a defense attorney retained to defend an insured, when the defense attorney's strategy and tactics are a result of the attorney's independent, professional discretion with regard to the representation of the client-insured, and are not otherwise relied upon or ratified by the insurance company in a manner contrary to the Act. The district court's certified question asked, in part, whether under the UTPA an insurance company could be liable for conduct [that] took place during and after the initiation of a civil action against the insurer's insured[.] We answer this portion of the district court's certified question yes.