When a plaintiff offers to release the insured for an assignment of the insured's bad-faith claim, what must insurer-retained defense counsel do?

Plain-English summary

A plaintiff recovered a personal-injury judgment exceeding the defendant's insurance coverage. Defense counsel had been retained and paid by the defendant's insurer. The plaintiff's attorney proposed to release the defendant from personal liability in exchange for an assignment of whatever rights the defendant had against the insurer, on the theory that the insurer could have settled within policy limits and failed in bad faith to do so. The plaintiff's attorney sent that proposal to defense counsel with a copy to the defendant, suggesting the defendant obtain independent counsel. The inquiry asked whether the plaintiff's attorney violated professional ethics by copying the defendant directly.

A majority of the committee held that the question concerned a third person's conduct, the plaintiff's attorney, so under Board of Governors policy the committee could not advise on it. The committee did recognize that a lawyer who represents an insured at the insurer's request and on its employment faces potential conflicts that are difficult and delicate and demand a high degree of tact and good faith, with constant attention to Canon 6. A majority concluded that, even if the plaintiff's attorney had not copied the defendant, defense counsel would have been obligated to advise the defendant of the proposal and of the possible claim against the insurer, and to advise the defendant to obtain independent counsel on that question, because the lawyer would be unable to take an adversary position on either side. The committee expressly declined to address the legal questions affecting the proposed assignment.

Currency note

This opinion was issued in 1965, before The Florida Bar's adoption of the 2006 revisions to the Rules of Professional Conduct. It applied the former Canons 6, 9, and 28. The divided-loyalty problem of insurer-retained defense counsel is now addressed by Rule 4-1.7 of the Rules Regulating The Florida Bar (Model Rule 1.7). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific requirement mentioned here.

Common questions

Q: Did the committee decide whether the plaintiff's attorney acted improperly by copying the defendant?

A: No. A majority held that the question concerned a third person's conduct, so under Board of Governors policy the committee could not give its advice; the inquiry had to go to the Board.

Q: What did the committee say defense counsel had to do?

A: A majority said that, even without the plaintiff's letter, defense counsel would have been obligated to advise the insured of the proposal and the possible claim against the insurer, and to advise the insured to obtain independent counsel, because counsel could not take an adversary position on either side.

Q: Why is this situation a conflict for defense counsel?

A: The committee observed that a lawyer who represents an insured at the insurer's request and on its employment faces potential conflicts that are difficult and delicate, especially when the defendant's exposure exceeds the coverage.

Background and rules framework

The opinion identified Canon 9 (negotiations with the opposite party) and Canon 28 (stirring up litigation) as the canons bearing on the plaintiff's attorney's conduct, but rested its guidance on Canon 6, addressing adverse and conflicting interests, for the defense lawyer caught between the insured and the insurer. That divided-loyalty problem is now addressed by Rule 4-1.7 of the Rules Regulating The Florida Bar (Model Rule 1.7). The committee cited Henry S. Drinker's treatise Legal Ethics as discussing the problem.

Citations and references

Rules of Professional Conduct:

• Canon 6 [Canons of Professional Ethics; see current Rule 4-1.7]
• Canon 9 [negotiations with the opposite party]
• Canon 28 [stirring up litigation]

See also

• FL Bar Ethics Op. 70-58: Insurer-Paid Counsel and a Coverage Conflict
• FL Bar Ethics Op. 66-7: Insurer's Counsel for an Assignee Plaintiff on Appeal

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-65-70/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-65-70.pdf

Original opinion text

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

FLORIDA BAR ETHICS OPINION
OPINION 65-70
December 6, 1965
Advisory ethics opinions are not binding.
A lawyer employed by an insurance carrier to represent an insured defendant is subject to potential conflict-of-interest situations that are sometimes difficult and delicate, and which call for a high degree of tact and good faith. This is especially true when the defendant's exposure exceeds the insurance coverage. The lawyer would be obligated to inform the defendant of the plaintiff's offer to release the defendant from personal liability for an excess judgment in return for an assignment of the defendant's bad faith claim against his insurer.
Canons: 6, 9, 28
Chairman Kittleson stated the opinion of the committee:
A member of The Florida Bar has requested the Committee's advice on the situation discussed below. A plaintiff in a personal injury action has recovered a judgment in excess of the defendant's insurance coverage. At the request of and upon employment by the defendant's insurer, the lawyer represented the defendant in the litigation. The plaintiff's attorney, seeking means to obtain more in satisfaction of the judgment than the insurance policy limits, has proposed that the plaintiff will release the defendant from all personal liability under the judgment if the defendant will assign to the plaintiff whatever rights the defendant may have against his insurer. The plaintiff's attorney then proposes to assert that the insurer could have settled the plaintiff's claim before judgment for an amount within the insurance policy limits, that the insurer failed to do so, that the failure was not in good faith, and that, accordingly, the insured defendant has a cause of action against his insurer. The plaintiff's attorney has sent a letter to the defendant's attorney, with a copy to the defendant, proposing the release and assignment. The letter expresses the writer's belief that the defendant has a valid claim against the insurer, and points out that, in such cases, the defendant's counsel will necessarily be faced with a conflict of interests between the defendant, whom he represented, and the insurer, who actually employed him and is responsible for his compensation. The letter suggests that the defendant should obtain independent counsel. The Committee's advice is sought whether or not the plaintiff's attorney violated professional ethics by sending the defendant a copy of this letter. We assume, of course, that the defendant's lawyer did not consent that the plaintiff's attorney could send the defendant a copy of the letter.
The pertinent Canons of Professional Ethics are Canon 9, "Negotiations With Opposite Party," and Canon 28, "Stirring Up Litigation, Directly or Through Agents."
Under existing policies of the Board of Governors, the Committee is allowed to give opinions only where the advice pertains to the conduct of the inquiring attorney himself. In other words, the Committee is not authorized to advise the inquiring attorney on the propriety of a third person's conduct. Any person seeking advice that does not fall within this policy can direct his request to the Board of Governors; if the Board considers the subject of general interest, it

may refer the question either to the standing committee on professional ethics or to a special committee.
A majority of the Committee believes that the question presented here relates to a third person's conduct and, accordingly, that the Committee may not give its advice.
The Committee does recognize that any attorney who represents an insured defendant at the request of and upon employment by the defendant's insurance carrier is subject to potential conflict-of-interest situations which are sometimes difficult and delicate, and which call for a high degree of tact and good faith on the part of all attorneys involved. The attorney must be always alert and sensitive to Canon 6, "Adverse Influences and Conflicting Interests." Henry S. Drinker, in his book, Legal Ethics (at pages 114 et. seq.), discusses the problem. A majority of the Committee believes that, in the situation at hand, even if the plaintiff's attorney had not sent the defendant a copy of the letter, the defendant's attorney would have been obligated to advise the defendant of the plaintiff's proposal and of the assertion that the defendant may have a claim against his insurer, and to advise the defendant that he should obtain independent counsel on the question. The lawyer would be unable to take an adversary position on either side.
The Committee in no way purports to advise upon any questions of law that affect the assignment proposed by the plaintiff's attorney.