Insurer-Policyholder Conflicts of Interests and Retained Defense Counsel's Professional Duties
Connecticut Insurance Law Journal, 2007-2008
Southwestern Law School Working Paper No. 0709
63 Pages Posted: 1 Nov 2007
Abstract
The relationship between the parties to the liability insurance contract (policyholder and insurer) and the lawyer retained to represent their common interests (defense counsel) is commonly known as the triangular or tripartite relationship. The reference to three-sidedness evidences that all the members of the relationship share a point of contact, but at no point do they all share the same contact. The policyholder and the insurer relationship is defined by the insurance contract; defense counsel's relationship is defined by the retainer agreement and the rules of professional conduct. Because these contact points have separate, and larger objectives than merely defining the triangular relationship, defense counsel may find that he is pulled in different directions by the expectation(s) and obligation(s) each contact point creates.
Courts have responded to this problem by instructing defense counsel to prefer the interests of the policyholder whenever the interests of the parties to the insurance policy diverge. While defense counsel represents common interests, and in many jurisdictions common clients, the normal rule of non-preferential treatment is not followed; in this area, courts treat some clients (policyholders) as more equal than other clients (insurers). This approach is not only Orwellian, it is wrong.
The difficult arises from the fact that courts take a narrow, myopic view of the triangular relationship and the rights established by the insurance policy. Focusing primarily on defense counsel's potential conflicts of interest within the triangular relationship, courts have attempted to resolve the problem by the simple edict prefer or withdraw. That supposed solution, however, ignores the larger context in which the triangular relationship operates.
This paper argues, quite against the current doctrinal approach, that defense counsel's duties within the triangular relationship should be viewed in complement with the instrument that underlies the relationship - the insurance policy. The insurance policy creates a relationship between the policyholder and the insurer that is designed to advance a common objective - defeat the claim asserted against the policyholder for which the insurer, to policy limits, is economically primarily liable. The insurance policy operates to allocate decision making authority between the policyholder and the insurer. Whenever possible, that allocation should be respected by the courts in defining defense counsel's professional duties under the triangular relationship.
Keywords: Tripartite Relationship, Retained Defense Counsel, Conflicts of Interest
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