When an insurer hires a lawyer to defend its insured, whose interests come first if the insurer and the insured disagree on strategy?

Plain-English summary

Opinion 43 (adopted December 13, 1969; addendum issued 1995) addressed a lawyer hired by an insurance company to defend an insured in a personal-injury action who learned that the same claimant had a Workers' Compensation action arising from the same incident. The insurer had no exposure on the compensation claim and had an interest in delaying the injury action and arguing that the compensation proceeding barred recovery under the policy, while the insured wanted an immediate trial and directed the lawyer to proceed; the insurer opposed that course.

The Committee concluded the essential point was that a lawyer must represent the client with undivided loyalty. Canon 6 required undivided fidelity, and Canons 5 and 9 of the Code of Professional Responsibility required independent professional judgment and avoidance of even the appearance of impropriety. The requirement of undivided loyalty rests on the principle that no lawyer can appear both for and against the same party in the same controversy. The Committee held that the client in this situation is the insured defendant, not the insurance company, analogizing to uninsured-motorist and similar situations where the interests of insured and carrier diverge, and citing ABA opinions and court decisions (including Allstate Insurance Co. v. Keller and Fidelity and Casualty Co. v. McConnaughy) recognizing that the insured is the client. Although the insurance contract may give the insurer the right to select the lawyer and control the incidents of litigation, the insured has not contracted away the right to the undivided loyalty of his attorney, and a lawyer who knowingly lets considerations favorable to the carrier influence his conduct to the insured's disadvantage is guilty of unethical conduct.

Currency note

This opinion was issued in 1969 under the former Canons of Professional Ethics, before the Colorado Rules of Professional Conduct took effect on January 1, 1993, and before Colorado's 2008 revisions to those rules. The insurer-insured loyalty question is now governed by Rule 1.7 (conflicts of interest), Rule 1.8(f) (compensation from one other than the client), and Rule 5.4(c) (a third party who pays may not direct the lawyer's professional judgment); the 1995 addendum directs lawyers to Opinion 91, which supplements this opinion. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.

Common questions

Q: In insurance-defense work, who is the lawyer's client, the insurer or the insured?

A: The insured, under this opinion. The Committee concluded the client is the insured defendant, not the insurance company, even though the insurer hires and pays the lawyer.

Q: Can the lawyer follow the insurer's litigation strategy over the insured's wishes?

A: Not where it disadvantages the insured. The opinion concluded the lawyer may not take any position potentially disadvantageous to the insured, even if advantageous to the carrier, and a lawyer who does so acts unethically.

Q: Does the insurer's right to select counsel change the loyalty owed?

A: No, under this opinion. The Committee concluded that although the policy may let the insurer choose the lawyer and control the incidents of litigation, the insured has not contracted away the right to the lawyer's undivided loyalty.

Background and rules framework

The opinion applied Canon 6 of the Canons of Professional Ethics (undivided fidelity) and Canons 5 and 9 of the Code of Professional Responsibility (independent professional judgment; avoiding the appearance of impropriety). The modern analogs are Model Rule 1.7 (conflicts of interest), Model Rule 1.8(f) (third-party payment of fees), and Model Rule 5.4(c) (independence from a paying third party).

Citations and references

Rules of Professional Conduct:

• Colo. RPC 1.7 / Model Rule 1.7 (conflicts of interest)
• Colo. RPC 1.8(f) / Model Rule 1.8 (compensation from one other than the client)
• Colo. RPC 5.4(c) / Model Rule 5.4 (a paying third party may not direct professional judgment)

Cases:

• Allstate Insurance Co. v. Keller, 17 Ill. App. 2d 44, 149 N.E.2d 482 (1958) (the insured is the client)
• Fidelity and Casualty Co. of N.Y. v. McConnaughy, 228 Md. 1, 179 A.2d 177 (1962) (the insured is the client)

Other opinions cited:

• ABA Formal Opinion 282 and ABA Informal Opinions C-728, 853, 949, and 977 (undivided loyalty to the insured)
• CBA Formal Opinion 91 (supplementing this opinion, per the 1995 addendum)

See also

• CBA Formal Op. 23: Insurer-Picked Counsel for a Minor's Guardian
• CBA Formal Op. 48: Representing a Public Body and a Private Client

Source

• Landing page: https://www.cobar.org/ethicsopinions
• Original PDF: https://www.cobar.org/Portals/COBAR/repository/ethicsOpinions/FormalEthicsOpinion_43_2011.pdf