When an insurer that controls the defense tells the retained lawyer to make an offer of judgment, must the lawyer get the insured's consent first?

Plain-English summary

The Committee was asked about the ethical obligations of an attorney retained by an insurance company to represent its insured when the insurance company directs the attorney to make an offer of judgment. On the agreed facts, the attorney made an offer of judgment at the insurer's direction in a slip-and-fall case without first obtaining the insured's consent; the insurance contract gave the company control of the defense.

The opinion concluded that the attorney initially meets his ethical obligations by keeping the insured apprised of activity in the case, with enough notice that the insured has a reasonable opportunity to object. If the insured makes no objection, the attorney can assume tacit consent. Drawing on ABA Formal Opinion 282 (1950), the opinion recognized that the insured may, by the insurance contract, consent to the company's control of the defense and to its retaining and compensating the lawyer, but stressed that the lawyer must represent the insured as his client with undivided fidelity. The insured is the client, and the attorney's fiduciary obligations lie with the insured.

The opinion held that if the insured instructs the attorney not to make the offer of judgment, the attorney is ethically obligated to follow the insured's wishes, citing DR 5-107. In that event the attorney is also obligated to inform the insured of the possible ramifications of that position, including the impact on coverage under the policy, and to tell the insurance company that the attorney cannot proceed on a course contrary to the desires of his client, the insured.

Currency note

This opinion was issued in 1990, before the Alaska Bar Association's adoption of the 2009 revisions to the Alaska Rules of Professional Conduct (and before Alaska adopted the Rules of Professional Conduct at all; it applies the former Code of Professional Responsibility). 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 Treat this page as historical context, not current guidance.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: In insurance defense, who is the lawyer's client, the insurer or the insured?

A: The opinion concluded the insured is the lawyer's client, and the lawyer owes the insured undivided fidelity, even though the insurer retains and pays the lawyer and controls the defense by contract.

Q: Can the lawyer make an offer of judgment at the insurer's direction without asking the insured?

A: The opinion concluded the lawyer must keep the insured apprised with enough notice to object; if the insured does not object, the lawyer may assume tacit consent to the offer.

Q: What if the insured objects to the offer of judgment?

A: The opinion concluded that if the insured instructs the lawyer not to make the offer, the lawyer is obligated to honor that instruction under DR 5-107, to advise the insured of the consequences (including coverage impact), and to tell the insurer the lawyer cannot act contrary to the insured's wishes.

Background and rules framework

The opinion interpreted the insured-insurer-lawyer relationship under the former Alaska Code of Professional Responsibility, applying DR 5-107, which addresses a lawyer's professional independence from one who pays for or directs the lawyer's services (the analog of Model Rule 5.4(c) and the client-decision and communication duties now reflected in Model Rules 1.2 and 1.4). It relied on ABA Formal Opinion 282 (1950) for the principle that the lawyer's loyalty runs to the insured as the client.

Citations and references

Rules of Professional Conduct (former Code; cf. Model Rules):

• DR 5-107 (avoiding influence by those who pay for or direct services) (cf. Model Rule 5.4(c); see also Model Rules 1.2, 1.4)

Other opinions cited:

• ABA Formal Opinion 282 (1950), lawyer retained by an insurer represents the insured with undivided fidelity

See also

• AK Bar Ethics Op. 99-3: Insurer Staff Counsel
• AK Bar Ethics Op. 2008-2: Subrogated Insurer as Client?
• AK Bar Ethics Op. 98-1: Contacting a Defendant's Insurer

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/90-2.pdf

Original opinion text

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

ALASKA BAR ASSOCIATION
ETHICS OPINION 90-2
Ethical Obligations of the Attorney Hired by an
Insurance Company to Defend its Insured to the Insured
When Company Directs an Offer of Judgment
QUESTION PRESENTED
What are the ethical obligations of an attorney retained by an insurance
company to represent its insured when the insurance company directs him to
make an offer of judgment?
CONCLUSION
When an attorney is hired by an insurance company to represent the
insured, the attorney initially meets his ethical obligations by keeping the
insured apprised with regard to his activity in the case. Such apprisal should
give sufficient notice to the insured so that the insured has reasonable
opportunity to inform the attorney of any objection. If the insured makes no
objection the attorney can assume tacit consent. However, if the insured
instructs the attorney to not make an offer of judgment, the attorney is
ethically obligated to honor those instructions.
AGREED STATEMENT OF FACTS
Attorney was hired by insurance company to represent its insured in a
slip and fall case. The contract of insurance provided that the insurance
company would control the insured's defense. At the direction of the insurance
company, attorney made an offer of judgment. Attorney did not obtain the
consent of the insured before making the offer.
DISCUSSION
A.B.A. Formal Opinion No. 282, decided in May of 1950 discussed the
relationship among the insurance company the insured and the attorney hired
by the insurance company to represent the insured. The opinion stated in
pertinent part:

-1-

Whenever the insured is served with the court process
as a defendant, the contract of insurance expressly
requires him to forward such process to the company so
that the company may provide the means of defense. It
is elemental that this includes retaining and
compensating a lawyer at the company's expense.
Under certain circumstances a person may, by contract,
clothe another with power to retain a lawyer to conduct
a defense. Especially may this be done when, as here,
the power is coupled with an interest resulting from
covenants of insurance. The essential point of ethics is
that the lawyers so employed shall represent the
insured as his client with undivided fidelity....
There is express consent by the insured in the insurance contract to allow
the insurance company to control his defense. Therefore, the attorney may
reasonably assume when he is retained by the insurance company to represent
its insured that the insured consents to the insurance company's handling of
the litigation. Nonetheless, the insured is the attorney's client, and as such the
attorney's fiduciary obligations lie with the insured. The attorney has a
continuing obligation to keep his client, the insured, informed of activities in
the case and the implications to the insured. The attorney may properly
assume that the insured has given tacit consent to all indicated courses of
action of which the insured has been given reasonable notice and to which the
insured does not object. It is implicit that the attorney must inform the
insured of his intended course of action sufficiently prior to his carrying out of
the plan of action so that the insured has a reasonable time to inform the
attorney of any objection.
In the question presented here the insurance company directed the
attorney to make an offer of judgment. The attorney was then ethically
obligated to inform the insured of his intent to make an offer of judgment. The
insured thereby would have been on notice that if he did not wish an offer of
judgment to be made that he should make his dissatisfaction immediately
known.
If the insured informs the attorney that he does not wish the attorney to
make the offer of judgment the attorney is ethically obligated to follow the
insured's wishes. DR 5-107. The attorney is also obligated to inform the
insured of the possible ramifications of this position, including the impact on
coverage under the insurance policy. The attorney must inform the insurance
company of the insured's desires and indicate to the company that the attorney
cannot proceed on a course contrary to the desires of his client, the insured.

Approved by the Alaska Bar Association Ethics Committee on January 11,
1990.
Adopted by the Board of Governors on January 19, 1990.

-2-

97WP1MANUL

G:\DS\EC&OPS\OPINIONS\90-2.DOC

-3-