Ethical Conflicts in the Tripartite Relationship

Learn the ethical conflicts that can arise between insurance carriers, attorneys, and the insured and how their rights are protected.

Liability insurance coverage provides insureds with defense and indemnity coverage for certain covered claims. In most instances, the insurance company, the insured, and the defense counsel the insurance company retains to defend the insured are all aligned with the same goal of obtaining the best possible resolution of the underlying lawsuit. Everyone is rowing smoothly in the same direction. However, sometimes the underlying lawsuits against the insured allege a mix of covered and uncovered claims. When this occurs, the players in the tripartite relationship -- the insured, defense counsel, and insurer -- can become somewhat of a dysfunctional family.

When an insurance company is defending an insured under a reservation of rights, it can become a problem when the potential exists for the defense lawyer to develop a case toward a result favorable to the insurer on a coverage issue, on the one hand, or to the policyholder on the other hand. For example, if an underlying complaint alleges mutually exclusive theories of recovery, such as negligence (covered) and intentional torts (not covered), both the carrier and the defense lawyer are put into difficult positions with potential ethical pitfalls.

There are at least four main conflicts that may arise when there is a potential coverage dispute: whether the insurer or the policyholder controls the defense; whether the insurer or policyholder controls the flow of information; the reasonableness of the attorney's fees and expenses and attempts by an insurer to manage litigation costs; and whether the insurer or policyholder controls settlement. This presentation addresses the best ways to deal with and avoid the ethical dilemmas that may arise out of the tripartite relationship and will give you an understanding of the roles and duties of all the players before engaging in the relationship.

Faculty

Jamie R. Carsey

Markel