Opinion ID: 1778754
Heading Depth: 1
Heading Rank: 1

Heading: Duties of Insurers and Attorneys Employed to Represent Insureds

Text: Under the policy in question (comprehensive liability) the insurance company's obligation to defend the insurer provides that the attorney to represent the insured is to be selected, employed and paid by the insurance company. Nevertheless, such attorney becomes the attorney of record and the legal representative of the insured, and as such he owes the insured the same type of unqualified loyalty as if he had been originally employed by the insured. If a conflict arises between the interests of the insurer and the insured, the attorney owes a duty to the insured to immediately advise him of the conflict. These principles were enunciated in Automobile Underwriters' Insurance Co. v. Long, 63 S.W.2d 356 (Tex.Comm.App. 1933), a case in which the company assumed the defense but later withdrew under a claim of a policy violation (non-co-operation), and retraction by insured of a non-waiver agreement obtained without sufficient explanation of the coverage conflict. The court clearly affirmed the attorney's duty as follows: When counsel were employed by the company they became Long's [the insured] unqualified attorneys of record, and as such they owed him the duty to conscientiously represent him, and if the point was reached where his interests and those of the company conflicted, he should have been so informed and given the opportunity to protect himself. Canon 5 of the Code of Professional Responsibility promulgated by this Court on December 20, 1971, deals specifically with conduct of a lawyer representing multiple clients with conflicting or potentially conflicting interests. [1] Representation of an insurer and his insured is mentioned among typically recurring situations involving potentially differing interests. Ethical Considerations 5-16 under Canon 5 provides: EC 5-16. In those instances in which a lawyer is justified in representing two or more clients having differing interests, it is nevertheless essential that each client be given the opportunity to evaluate his need for representation free of any potential conflict and to obtain other counsel if he so desires. Thus before a lawyer may represent multiple clients, he should explain fully to each client the implications of the common representation and should accept or continue employment only if the clients consent. If there are present other circumstances that might cause any of the multiple clients to question the undivided loyalty of the lawyer, he should also advise all of the clients of those circumstances. The American Bar Association National Conference of Lawyers and Liability Insurers made a careful study of this recurring problem and issued a list of Guiding Principles for the guidance of liability insurers furnishing legal counsel for their insureds. [2] Two of the principles which are relevant here read in part as follows: IV. CONFLICTS OF INTEREST GENERALLYDUTIES OF ATTORNEY. In any claim or in any suit where the attorney selected by the company to defend the claim or action becomes aware of facts or information which indicate to him a question of coverage in the matter being defended or any other conflict of interest between the company and the insured with respect to the defense of the matter, the attorney should promptly inform both the company and the insured, preferably in writing, of the nature and extent of the conflicting interest.... V. CONTINUATION BY ATTORNEY EVEN THOUGH THERE IS A CONFLICT OF INTERESTS. Where there is a question of coverage or other conflict of interest, the company and the attorney selected by the company to defend the claim or suit should not thereafter continue to defend the insured in the matter in question unless, after a full explanation of the coverage question, the insured acquiesces in the continuation of such defense .... We approve the above quoted guiding principles as conforming to the public policy of this State heretofore enunciated by this Court in our Canons of Ethics. They follow the same general principles earlier recognized by Texas courts. See Automobile Underwriters' Insurance Co. v. Long, supra ; Travelers Ins. Co. v. Chicago Bridge & Iron Co., 442 S.W.2d 888 (Tex.Civ.App.1969, writ ref. n.r.e.); and Barreda Corp. v. Ballenger, 116 S.W. 2d 442 (Tex.Civ.App.1938, writ dism'd). Conduct in violation of the above principles by the insurer through the attorney selected by it to represent the insured has been condemned by the highest courts of several other jurisdictions. In Perkoski v. Wilson, 371 Pa. 553, 92 A.2d 189 (1952); Tiedtke v. Fidelity & Casualty Company of New York, 222 So.2d 206 (Fla.1969); Bogle v. Conway, 199 Kan. 707, 433 P.2d 407 (1967); Crum v. Anchor Casualty Company, 264 Minn.378, 119 N.W.2d 703 (1963); Merchants Indemnity Corp. v. Eggleston, 37 N.J. 114, 179 A.2d 505 (1962); and Van Dyke v. White, 55 Wash.2d 601, 349 P.2d 430 (1960), analogous conduct in violation of such principles was held to preclude or estop the insurer from denying coverage or liability. See also general criticisms and consequences of such conduct discussed in Meirthew v. Last, 376 Mich. 33, 135 N.W. 2d 353 (1965); and Newcomb v. Meiss, 263 Minn. 315, 116 N.W.2d 593 (1962).