Is an insurer that the firm represents through its insureds an 'existing client' for conflict purposes, so the firm cannot sue it for another client?

Plain-English summary

A firm regularly defended insureds of XYZ Insurance Company, though it had no files in which it represented XYZ directly. The firm wanted to defend a regular client, A & B Trucking, in a fraud suit XYZ had filed against A & B (and others) seeking additional worker's compensation premiums. A & B knew of the firm's relationship with XYZ's insureds and wanted the firm to defend it, and the firm believed it had never had access to information bearing on the XYZ suit.

The Disciplinary Commission analyzed the question under Rule 1.7. Rule 1.7(a) bars a lawyer from undertaking representation directly adverse to another existing client, even in a totally unrelated matter. The key question was whether XYZ was an existing client. The opinion explained that the Comment to Rule 1.8 ("Person Paying for Lawyer's Services") makes clear that when a lawyer is retained to defend an insured, the lawyer has two clients in the absence of a coverage dispute, and the insurance company is not a "third party." It quoted Mitchum v. Hudgens, 533 So. 2d 194 (Ala. 1988), in which the Alabama Supreme Court stated that when an insurer retains an attorney to defend an action against an insured, the attorney represents the insured as well as the insurer.

Because the firm currently represented some of XYZ's insureds, the opinion concluded XYZ was an existing client of the firm. Since XYZ sought monetary damages from A & B, the interests were directly adverse. The Commission concluded that the firm could not defend A & B in the suit brought by XYZ if XYZ objected to it.

Currency note

This opinion was issued in 1994, before the 2002 Ethics 2000 revisions to the ABA Model Rules of Professional Conduct and Alabama's subsequent amendments to its Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Is an insurer the firm represents only through insureds still a "client" for conflict purposes?

A: Yes. The opinion concluded that defense counsel retained by an insurer represents both the insured and the insurer, so the insurer is an existing client of the firm.

Q: Can the firm take a directly adverse case against that insurer in an unrelated matter?

A: The opinion concluded that under Rule 1.7(a) the firm cannot, if the insurer objects, because representation directly adverse to an existing client is barred even when the matters are unrelated.

Q: Does it matter that the firm had no confidential information about the new suit?

A: The opinion treated the issue as one of direct adversity to an existing client under Rule 1.7(a), not confidential information, so the lack of access to relevant information did not cure the conflict.

Background and rules framework

The opinion interprets Rule 1.7 of the Alabama Rules of Professional Conduct (Model Rule 1.7), specifically Rule 1.7(a)'s prohibition on directly adverse representation against an existing client, and relies on the Comment to Rule 1.8 (Model Rule 1.8, person paying for a lawyer's services) to establish that insurance defense counsel has both the insured and the insurer as clients absent a coverage dispute. It applies Mitchum v. Hudgens on the dual-client nature of insurance defense.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.7 / Ala. R. Prof. C. 1.7(a) (representation directly adverse to an existing client)
• Model Rule 1.8 / Ala. R. Prof. C. 1.8, Comment (person paying for a lawyer's services; two clients in insurance defense)

Cases:

• Mitchum v. Hudgens, 533 So. 2d 194 (Ala. 1988) (insurance defense counsel represents both insured and insurer)

See also

• AL Ethics Op. 1981-533: In-House Counsel for an Insurance Carrier May Represent the Insured

Source

• Landing page: https://www.alabar.org/office-of-general-counsel/formal-opinions/1994-08/
• Original PDF: https://www.alabar.org/assets/2019/02/RO-94-08.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

ETHICS OPINION

RO-94-08

For Rule 1.7 purposes, lawyer retained by insurance company to defend action against insured represents the insured as well as the insurance company

QUESTION:

"The purpose of this letter is to request an opinion from the Alabama State Bar concerning whether our firm has a conflict of interest in representing a defendant, A & B Trucking Company, in a lawsuit filed against it by the XYZ Insurance Company.

A & B Trucking Company is a regular client of our firm for which we have handled numerous legal matters. Our firm also represents insured's of XYZ in some litigation. Our firm does not have any cases where we represent XYZ directly. All of the current files we have are where we represent an insured of XYZ in some type of litigation and XYZ is providing the defense and indemnity for any judgment.

The suit filed by XYZ against A & B is a claim for fraud arising out of worker's compensation insurance issued by XYZ to a company named Acme Driver Leasing, Inc. A & B's involvement in the case arises out of the fact that it leased truck drivers from Acme Driver Leasing. The allegation by XYZ is that Acme Driver Leasing, A & B, and the insurance broker conspired to defraud XYZ by misrepresenting the nature of the Acme Driver Leasing operation and the relationship of that company to A & B. XYZ alleges that it is entitled to additional worker's compensation insurance premiums for a 3 1/2 year period because of those misrepresentations. A & B, Acme Driver Leasing, and the insurance broker are all defendants in the lawsuit filed by XYZ.

Our firm has never been involved in any litigation similar to the lawsuit filed by XYZ. By virtue of our representation of XYZ's insureds in the past and at present, our firm has never been privy to or had access to any information which would have any bearing on the issues in the XYZ lawsuit. All of these facts have been disclosed to A & B and A & B wishes for our firm to defend them in the XYZ lawsuit."

ANSWER:

Your situation is covered by the application of Rule 1.7. Rule 1.7(a) states that you cannot undertake legal representation that will be directly adverse to another existing client. This is so even if the two matters are totally unrelated.

Is XYZ an existing client? If so, would your defense of A & B be "directly adverse" to XYZ? The Comment to Rule 1.8 "Person Paying for Lawyer's Services" makes it clear that when a lawyer is retained to defend an insured, the lawyer has two clients in the absence of a coverage dispute. The insurance company is not a "third party".

In Mitchum v. Hudgens, 533 So. 2d 194 (Ala. 1988), the Alabama Supreme Court implied the same thing stating: "When an insurance company retains an attorney to defend an action against an insured, the attorney represents the insured as well as the insurance company in furthering the interests of each." Id. at 198.

Since you are currently representing some of XYZ's insureds, XYZ is an existing client of your firm. XYZ is seeking monetary damages from A & B so their interests are directly adverse.

Therefore, you are not able to defend A & B in the suit brought by XYZ if XYZ objects to it.

MLM/vf

7/27/94