Opinion ID: 1793652
Heading Depth: 1
Heading Rank: 8

Heading: offer to settle conflict

Text: A plaintiff's offer to settle within the policy limits presents a different conflict of interest problem to the defense lawyer. His clients' previously parallel interests then clearly diverge. This moment calls for a halt, and a decision must be made by his two clients, to settle or not to settle. The lawyer's own professional problem depends upon the course of action he then takes. If the offer is accepted, the insured cannot be monetarily harmed because he will not have to pay anything. The company may or may not stand to lose, depending upon the merit and magnitude of the claim. Until the attorney receives the offer of settlement, his entire activity has been devoted towards winning the case or minimizing the damages. Now he must ask the court and opposing counsel for time out, for a decision to be made by his clients on this offer. His first professional and ethical obligation is to see that both their interests are protected insofar as he can do so, and that he does nothing to harm either. The insured and the carrier are both clients: Lieberman v. Employers Ins. of Wausau, supra ; American Mut. Liability Ins. Co. v. Superior Court, 38 Cal. App.3d 579, 591-92, 113 Cal. Rptr. 561, 571 (1974); Purdy v. Pacific Auto. Ins. Co., 157 Cal. App.3d 59, 203 Cal. Rptr. 524 (1984). Thus, the first thing he should do is to attempt to halt trial proceedings so that no trial development will harm either until a decision on the settlement offer has been made by his clients. His next obligation is to fully inform each client the terms of the settlement offer. Cousins v. State Farm Mut. Auto. Ins. Co., supra, 294 So.2d at 275; Rogers v. Robson, Masters, Ryan, Brumund & Belom, 74 Ill. App.3d 467, 30 Ill.Dec. 320, 392 N.E.2d 1365 (1979); Hamilton v. State Farm Mut. Auto. Ins. Co., 9 Wash. App. 180, 511 P.2d 1020 (1973), aff'd 83 Wash.2d 787, 523 P.2d 193 (1974); Yeomans v. Allstate Ins. Co., 130 N.J. Super. 48, 324 A.2d 906 (1974); Lysick v. Walcom, 258 Cal. App.2d 136, 65 Cal. Rptr. 406 (1968); Ivy Pacific Auto. Ins. Co., 156 Cal. App.2d 652, 320 P.2d 140 (1958); American Cas. Co. of Reading, Pa. v. Glorfield, 216 F.2d 250 (9th Cir.1954), applying Washington law; Betts v. Allstate Ins. Co., 154 Cal. App.3d 688, 717, 201 Cal. Rptr. 528, 545 (1984). But following this, what should the attorney say to his clients? Unfortunately for the defense counsel, following an offer of settlement within policy limits he now has superimposed upon his ethical proscription against simultaneously serving two adverse master two other canons of professional ethics. Rule 1.4 of the Mississippi Rules of Professional Conduct states: Rule 1.4 Communication. (a) A lawyer shall keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information. (b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation. The comment under this rule makes it clear the rule requires the attorney to fully explain to his client all the ramifications of any offer of settlement. Also, there is Rule 2.1: Rule 2.1 Advisor. In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client's situation. The comment under this rule makes it clear that the lawyer must give completely honest and straightforward advice to his client, even though unpalatable, at all stages of his legal representation. This obviously would include the duty to be open and candid about any settlement offer. Also: Hamilton v. State Farm Auto. Ins. Co., supra. Should defense counsel be forbidden to give his clients what he sincerely believes is an honest assessment of the case? If an offer has been made to settle for the policy limits, and he advises the company to settle, he has most certainly helped the insured, but he may have harmed the carrier, which has nothing to gain by accepting the offer, and the case could be worth much less. On the other hand, if he advises the company to refuse, he most certainly is placing the insured at some risk. Yet what should defense counsel do? To say nothing is to deprive his clients of what could be extremely important advice. Even more disturbing to the conscientious attorney faced with such a situation will be a concern that in any recommendation he subconsciously may be favoring one client at another's expense, because his loyalty is then divided. Mallen and Levitt, Legal Malpractice, (2d Ed.), § 539, contains two sentences. On page 664, we read: The obligation of loyalty requires the attorney to secure and utilize necessary settlement authority and to obtain the insured's consent for any settlement which affects his rights. Page 665 contains the following sentence: Defense counsel's obligations to the insured may require that he actively seek funds from the insurer to attempt settlement of a case of serious liability which portends an excess exposure. [10] Neither of the above sentences cites case authority. It is difficult to gather precisely what the authors mean. As to the latter sentences, a defense counsel recognizing a serious case of liability and danger of excess exposure may very well have an affirmative duty to call it to the carrier's attention. We are not called upon to address this question in this case. As to the first sentence, if it is meant that the moment the insured demands acceptance of an offer within policy limits it is the duty of the attorney to call upon the carrier to ante up, it takes little exploring to realize that this will not work out in actual practice. Lawyers employed to defend motor vehicle cases generally are specialists who have for many years depended upon the insurance industry for their livelihood. To suggest that they forget the client who employs them and affords them a living in favor of an isolated client they may never again represent, or even see, has only an idealistic image to support it. Purdy v. Pacific Auto. Ins. Co., supra, 203 Cal. Rptr. at 534-535, holds that failure by the defense attorney to advise the carrier client to settle a case did not give the insured client a cause of action against him, even though the carrier was itself liable for wrongful refusal to settle. To make it the ethical duty of such attorney to ignore his obligation to the carrier, and urge or advise a settlement which he views is against its interest would place a greater burden on the attorney than this Court cares to impose. Furthermore, it is the attorney's ethical obligation to have undiluted loyalty to both clients. It is just as repugnant ethically to ask him to ignore the interest of his insurance carrier client as it would be the other way around. The case of National Farmers Union Property & Cas. Co. v. O'Daniel, supra, at 66, states that the duty of an attorney when such an offer of settlement has been made and the insured demands settlement is to withdraw from the case. Although that may have been proper under the facts of that case, and there may be cases where this would be necessary, we likewise reject this as the solution to the problem. [11] It is a matter of utmost gravity to suggest that because of an ancillary dispute between clients on whether or not to settle, and having nothing to do with the trial of the case, that both clients should be deprived of who may very well be the best lawyer available to defend their interests. Professor Keeton in his Harvard Law Review treatise, written more than thirty years ago, footnote 2, supra, anticipated many of the problems since encountered by carrier-employed attorneys. 67 Harvard Law Review 1167-71. Recognizing the delicacy and difficulty of the problem, he suggested that, with full disclosure, it should be permissible for the attorney to represent only the company with respect to any settlement offers. Indeed, it was his view that the primary obligation of the defense attorney was to represent the insured in defense of the claim, but that as to a settlement, the attorney's obligation was to the carrier. We must disagree that in such a settlement offer the attorney's obligation in the ordinary case would be to the carrier. Furthermore, full initial disclosure of the prospect that in event of a settlement offer the attorney proposes to represent only the carrier may create problems as well. The insured client should not have to worry that his lawyer, who owes him complete loyalty, may on an offer of settlement forsake his insured client and look solely after the carrier's interests. In Vol. 28, Insurance Company Counsel, July, 1961, A Ancillary Rights of the Insured Against His Liability Insurer, pp. 412-413, Professor Keeton, while again suggesting that the attorney might with full disclosure represent only the carrier's interest in a settlement offer, also might, as respect to a settlement, represent neither the carrier nor the insured. We are persuaded the latter is preferable, and that in an offer of settlement the attorney should not attempt to represent either. Tacit in any employment by the carrier of an attorney to defend the insured should be the understanding that the attorney has a duty to make full disclosure to the insured all areas of possible conflicts of interest. It may very well be prudent on the part of the attorney, after he has made some investigation and evaluation of the case, to consider the necessity of advising his insured client well in advance that in event of a settlement offer within policy limits, he will not be able to represent him, and that this will be a matter between him and the carrier. If there is a settlement offer made, our view is that the attorney, after accurately informing each client of its terms, should advise the insured that he cannot offer him any legal advice as to the offer other than it is obviously to his monetary advantage that the offer be accepted, and that he should promptly inform the carrier what he wants the carrier to do regarding the offer. [12] If there is any objective reason for the insured to have additional legal counseling, defense counsel should promptly advise him to go and seek it. Any doubt on this question should be resolved in favor of recommending independent advice. See: Comment, Rule 1.7, MRPC. The prudent attorney, recognizing that the unsophisticated insured has a more acute need for independent counsel than the carrier, will want him to have it. All this being said, however, as to the insurance counsel's duty, it must also be noted that an independent counsel's role is extremely limited, and may be superfluous in this unique conflict of interest situation. Here is why. When an offer to settle within the policy limits is made, the carrier has three options: accept, reject, or reject with a counter-offer. What options does the insured have? None. He can ask the company to settle, or ask it not to settle. He can do no more. Because his choice is limited to what he is going to request of the insurance carrier regarding this settlement offer, the usefulness of an independent counsel is likewise limited. On behalf of the insured, the lawyer can demand settlement. He may also be of some benefit persuading an insured who, for one reason or another does not want to settle, footnote 12, supra, that it is in his best interest to demand settlement by the carrier. In any event it can be seen that the insured may not have suffered any loss by failing to consult independent counsel, if the only service such lawyer could give would be to demand the company to settle. As to the carrier, the attorney should make it clear that the company is presented with a conflict of interest, and has a legal duty to carefully protect the interest of the insured to the same extent as its own. Beyond this, he may very well have an ethical obligation to refrain from any recommendation, especially if his recommendation places his insured client in peril. In sum, the ethical dilemma thus imposed upon the carrier-employed defense attorney would tax Socrates, and no decision or authority we have studied furnishes a completely satisfactory answer. We would first observe that it is of the utmost importance that the lawyer promptly recognize the difficult problem which faces him, and which requires the most carefully measured words. The best this Court can offer is that the attorney, after informing his clients of the settlement terms, and giving them the advice as above noted, should not be prohibited from honestly and carefully answering questions pertaining to the law and facts of the case, his impressions of the witnesses, the jury, and the trial judge, such as he would normally be asked as attorney, and expected to be able to answer. At the same time he must scrupulously guard against violating his absolute, nondelegable responsibility not to urge, recommend or suggest any course of action to the carrier which violates his conflict of interest obligation. This is a tortuous, perilous path.