What duties does a Colorado lawyer selected and paid by an insurer owe to the insured when the insurer's interests or instructions diverge from the insured's?

Plain-English summary

Opinion 91 supplemented CBA Opinion 43 and addressed the insurer, insured, and defense-counsel relationship. For purposes of the opinion, retention and payment by the insurer did not make the carrier a client. The insured was the client, and counsel owed the insured undivided loyalty even when the insurer controlled defense expenditures or had contractual authority over defense or disposition of the claim.

The lawyer's independent judgment could require disagreement with insurer restrictions on discovery, experts, or other defense work. If counsel believed work was reasonably necessary, counsel had to seek authorization, inform the insured if authorization was denied, and address alternative payment, independent counsel, or withdrawal as the circumstances required. Flat-fee arrangements were not prohibited, but they could not induce counsel to curtail services contrary to the insured's interests.

Confidentiality belonged to the insured. Information learned within the attorney-client relationship could not be disclosed to the carrier without the insured's express or implied consent, including information that could eliminate coverage. The 2013 addendum explained that current Rule 1.6 could permit, but not require, disclosure in specified fraud circumstances involving use of the lawyer's services, and that Rule 3.3 could require remedial disclosure to a tribunal concerning false evidence.

The opinion also required communication about settlement offers, uninsured exposure, possible counterclaims, reservations of rights, covered and uncovered claims, and potential conflicts. Defense counsel could not use the representation to build the insurer's noncoverage case or take action favoring noncoverage at the insured's expense. In-house insurer counsel and firms working exclusively for one carrier were subject to the same duties of loyalty, confidentiality, and independent judgment.

Currency note

This opinion was issued in 1993, before Colorado's 2008 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 Treat this page as historical context, not current guidance.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 mentioned here. The 2013 addendum addressed the reenacted rules' informed-consent requirements and fraud-disclosure provisions.

Common questions

Q: Who was the client when the insurer selected and paid defense counsel?

A: The insured. For purposes of the opinion, the carrier did not become a client merely by retaining the lawyer, and undivided loyalty was owed to the insured.

Q: Could the insurer limit discovery, experts, or other defense costs?

A: The insurer could control expenditures under the policy, but counsel could not let those restrictions override the insured's interests. If counsel believed an action was reasonably necessary, the opinion required counsel to seek authority and inform the insured if the insurer refused.

Q: Could counsel disclose information that threatened the insured's coverage?

A: Not without the insured's consent under the original analysis. The 2013 addendum noted that current Rule 1.6 permits disclosure in specified fraud circumstances when the client uses the lawyer's services, and Rule 3.3 may require remedial disclosure to a tribunal.

Q: What if covered and uncovered claims or a reservation of rights created divergent interests?

A: Counsel had to protect the insured's interests, explain the potential conflict and its consequences, and could not take steps favoring noncoverage. Direct adversity or material limitation could require separate counsel or withdrawal.

Q: Could in-house insurer counsel defend the insured?

A: Yes, within the limits described in the opinion. In-house counsel remained bound by the same duties as outside counsel, and the corporate structure could not restrict independent judgment.

Background and rules framework

The opinion applied Colorado RPC 1.2, 1.4, 1.5, 1.6, 1.7, 1.8(f), 1.16, 3.3, 4.1, and 5.4(c). Its 2013 addendum emphasized informed consent under Rule 1.0(e), including written confirmation for a concurrent conflict under Rule 1.7(b)(4), and updated the original discussion of fraud under Rules 1.6(b)(3), 1.6(b)(4), and 3.3(a)(3).

Citations and references

Rules of Professional Conduct:

• Colo. RPC 1.7, 1.8(f), and 5.4(c) (conflicts, third-party payment, and independent judgment)
• Colo. RPC 1.6 and 3.3 (confidentiality and candor to a tribunal)
• Colo. RPC 1.2, 1.4, 1.5, 1.16, and 4.1 (scope, communication, fees, withdrawal, and truthfulness)

Cases:

• Farmers Group, Inc. v. Trimble, 691 P.2d 1138 (Colo. 1984), insurer's contractual control of the defense
• Tank v. State Farm, 715 P.2d 1133 (Wash. 1986), defense counsel's duties when insurer and insured interests diverge
• Parsons v. Continental National American Group, 550 P.2d 94 (Ariz. 1976), use of insured information to justify noncoverage

Other opinions cited:

• CBA Formal Opinion 43: duty of insurer-selected counsel to the insured
• CBA Formal Opinion 123: candor and remedial measures in civil proceedings
• ABA Informal Opinion 1476 and ABA Formal Opinion 282: identity and priority of the client in insurance defense

See also

• CBA Formal Op. 43: Duty to Insured
• CBA Formal Op. 129: Third-Party Payment of Fees
• ABA Formal Op. 96-403: Insured Objecting to Settlement

Source

• Landing page: https://www.cobar.org/ethicsopinions
• Original PDF: Colorado Formal Ethics Opinion 91