A Video Explaining How to Avoid Conflicts of Interest

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It is imperative that the defense attorney and the adjuster both recognize that where the interests of the insurer and the insured conflict in a suit on a liability policy, the attorney’s duty is to the insured. The attorney and the adjuster must be careful that the attorney does not become the insurer’s agent on any issues that relate to coverage. The insurer may, if it ignores this conflict, find itself paying extracontractual damages and counsel may be surprised to be a defendant in the same suit.

Conflicts may be avoided by sending a copy of the reservation of rights letter or nonwaiver agreement to the attorney retained to defend the insured so that he or she is aware of the problem areas. However, the adjuster must not ask the attorney retained to defend the insured to draft a reservation of rights letter for the company or to provide the company any advice regarding coverage. Doing so would create an unnecessary conflict between the attorney and the client/insured and force the defense attorney to withdraw from the case.

The adjuster should not instruct the attorney to collect facts without any relevance to the defense of the insured but that are particularly directed to an issue that would tend to defeat coverage. Nor should the adjuster pose hypothetical cases involving similar facts to the attorney hired to represent the insured. Rather, the adjuster should consult experienced coverage counsel regarding coverage issues, including assistance drafting reservation of rights letters to the insured. Coverage counsel should never be involved in the defense of the insured or the insurer because coverage counsel will usually be a key witness in any future litigation resulting from the advice provided. Coverage counsel’s work should be limited to providing advice to the person or entity who has retained him or her.

The American Bar Association (ABA) established Guiding Principles for Insurance Representation in 1970, which were later incorporated into the ABA’s Code of Professional Responsibility. The ABA Guiding Principles were rescinded at the annual meeting of the ABA House of Delegates in August 1980. 

If a conflict arises between the interests of the insured and the insurer, the insurer and the attorney hired by it must inform the insured of that conflict and invite him to retain his or her own attorney at his or her own expense.