Could insurer-paid defense counsel file a motion that helped the insured now but might let the insurer deny coverage in later cases?

Plain-English summary

An insurer hired counsel to defend a termite company against claims that included negligence and intentional wrongdoing. A proposed motion might eliminate negligence counts, leaving intentional counts outside normal coverage. The insurer agreed not to use that result to deny coverage in the pending cases, but made no similar promise for later cases.

The committee said the termite company was counsel's client, despite payment by the insurer. Under ER 1.4, counsel had to explain that the insurer might use the motion's reasoning to contest coverage in future cases. If the company then chose not to file the motion, counsel had to refrain. ERs 1.8(f) and 5.4(c) barred the payer from interfering with independent judgment for the insured.

Currency note

This opinion was issued in 1994, before the State Bar of Arizona's adoption of the 2003 revisions to the 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 Treat this page as historical context, not current guidance.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.

Common questions

Q: Who was the lawyer's client?

A: The insured termite company, not the insurer paying defense costs.

Q: What future effect needed to be explained?

A: The insurer might later use the motion's legal theory to avoid coverage and leave the company paying its own defense in future matters.

Q: Could counsel file despite the insured's decision against it?

A: No. The opinion said counsel had to refrain after consultation if the insured opposed the proposed motion.

Background and rules framework

The opinion applied Arizona ER 1.4's client communication duty, ERs 1.8(f) and 5.4(c) on third-party payment and independence, and ER 1.7(b) on counsel's own interest in the insurer relationship.

Citations and references

Rules of Professional Conduct:

• AZ ER 1.4(a), (b): client information and decisions
• AZ ER 1.8(f): nonclient payer conditions
• AZ ER 5.4(c): professional judgment independent of payer
• AZ ER 1.7(b): materially limiting personal interest

Cases:

• Barmat v. John and Jane Doe Partners A-D, 155 Ariz. 519, 747 P.2d 1218 (1987): insured as counsel's client
• Parsons v. Continental National American Group, 113 Ariz. 223, 550 P.2d 94 (1976): insurer-paid defense counsel

Other opinions cited:

• Arizona Opinion 79-24: insurer-appointed counsel

See also

• AZ Ethics Op. 94-06: Former Insurer Counsel

Source

• Landing page: https://www.azbar.org/for-legal-professionals/ethics/ethics-opinions/?V=Opinions&OpinionId=666
• Official opinion API: https://api.azbar.org/EthicsRules/Opinion/?Id=666

Original opinion text

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

FACTS

The inquiring attorney ("Inquiring Attorney") has been engaged by an insurance company (the "Insurance Company") to represent a termite control company (the "Termite Company"). Specifically, the Inquiring Attorney has been engaged to defend the Termite Company in a number of cases in which the Termite Company has been sued for alleged wrongdoing in connection with its pretreatment for termites of residences under construction. The complaints in these cases commonly allege negligence, negligence per se, negligent misrepresentation, constructive fraud, actual fraud, and violation of the Consumer Fraud Act. The Inquiring Attorney believes the Termite Company probably will be sued in the future based upon similar circumstances and on the same legal grounds.

The insurance coverage provided by the Insurance Company does not cover intentional acts of the Termite company. However, in the pending cases, even though the complaints allege counts against the Termite Company that are not covered under the insurance policy, the Insurance Company is paying all of the defense costs.

The Inquiring Attorney has determined that a motion for summary judgment could be filed regarding all of the counts. There is, of course, no guarantee that the motion would be granted as to all of the counts. However, the Inquiring Attorney believes that there is a reasonable probability that a motion for summary judgment would eliminate the negligence counts and leave only the intentional counts, which normally would not be covered by the insurance policy.

If the lawsuits are reduced to only counts of intentional conduct, then the Insurance Company typically could withdraw from the cases and no longer pay defense costs. In this instance, however, if the court grants the proposed motion for summary judgment only with respect to the counts alleging non-intentional conduct, leaving only counts that allege intentional conduct, the Insurance Company has agreed, with respect to the pending cases, that it will not attempt to take advantage of any such rulings by seeking to raise any coverage defenses. However, the Insurance Company has not agreed that it will not seek to file a similar motion for summary judgment in any future case so that it may be removed from the case, leaving the insured to defend, at its own expense, the remaining intentional counts. Thus, if the Inquiring Attorney files a motion for summary judgment and is successful as to the counts alleging non-intentional conduct, the Insurance Company may, in future cases involving the Termite Company, file motions for summary judgment with respect to the counts alleging non-intentional conduct so as to remove itself from the cases and thereby leave the Termite Company to defend itself at its own expense.

QUESTION

May the Inquiring Attorney, with ethical propriety, file the proposed motion for summary judgment in the pending cases knowing that the Insurance Company may attempt to use the legal theories argued in the motion to narrow the issues in future cases so as to assert coverage defenses?

ETHICAL RULES INVOLVED

ER 1.4.                   Communication

(a) A lawyer shall keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information.

(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

ER 1.7.                   Conflict of Interest: General Rule

(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:

(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and

(2) each client consents after consultation.

(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:

(1) the lawyer reasonably believes the representation will not be adversely affected; and

(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.

ER 1.8.                   Conflict of Interest: Prohibited Transactions

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(f) A lawyer shall not accept compensation' for representing a client from one other than the client unless:

(1) the client consents after consultation;

(2) there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and

(3) information relating to representation of a client is protected as required by ER 1.6.

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ER 5.4.                   Professional Independence of a Lawyer

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(c) A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services.

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OPINION

When an insurer engages a lawyer to defend an insured, the insured is the lawyer's client, and the lawyer does not represent the insurer. Barmat v. John and Jane Doe Partners A-D, 155 Ariz. 519, 520, 747 P.2d 1218, 1219 (1987); Farmer's Insurance Company of Arizona v. Vagnozzi, 138 Ariz. 443, 448, 675 P.2d 703, 708 ( 1983); Parsons v. Continental National American Group, 113 Ariz. 223, 227, 550 P.2d 94, 98 ( 1976). See also our Opinion No. 79-24, (October 15, 1979 ). Because the insured is the lawyer's client, the lawyer owes him undeviating and single allegiance. Vagnozzi, 138 Ariz. at 448. Thus, the Inquiring Attorney owes the Termite Company undeviating and single allegiance. Under ER 1.8(f) and ER 5.4(c), that allegiance cannot be interfered with or impaired, despite the fact that the Inquiring Attorney is paid by the Insurance Company.[1]

As the attorney for the Termite Company, the Inquiring Attorney has an ethical obligation under ER 1.4 to fully inform the Termite Company as to the consequences of any contemplated course of action. Thus, in accordance with ER 1.4 and before filing a motion for summary judgment, the Inquiring Attorney must fully inform the Termite Company as to the consequences of filing the motion for summary judgment. In particular, the Inquiring Attorney must inform the Termite Company that the Insurance Company may use the legal arguments presented in the motion to resolve coverage issues in future cases and, thereby, leave the Termite Company to defend itself in future cases at its own expense. If, after consultation, the Termite Company decides that it does not wish to file a motion for summary judgment, then the Inquiring Attorney must refrain from filing that motion.

In conclusion, and in answer to the specific question raised, the committee believes that the Inquiring Attorney may file the proposed motion for summary judgment only after consulting with the Termite Company. If the Termite Company should decide that the motion for summary judgment should not be filed, then the Inquiring Attorney must refrain from doing so.

Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings.

©State Bar of Arizona 1994