Can a lawyer paid by an insurer keep representing the insured when a coverage dispute arises between them?

Plain-English summary

A lawyer was retained by an insurance carrier to defend its owner and driver. A permissive-use conflict split owner and driver, separate counsel was retained for the driver, and the driver's deposition testimony then created a conflict between the owner and the carrier, which obtained its own counsel. The carrier was paying all counsel. The lawyer had learned information from his client, the owner, that was detrimental to the owner's coverage, and he believed it would breach his duty to the fee-paying carrier to try to prove coverage when the carrier had denied it; the owner therefore retained separate counsel to pursue the coverage investigation. The lawyer cited Spadaro v. Palmisano, which held that counsel who believes there is collusion (who does not believe the insured) may not continue to represent both carrier and insured, and that successful impeachment of the insured would be reversible error.

The committee explained that the carrier's and insured's interests usually coincide; a conflict arises when the carrier denies coverage based on the insured's conduct, at which point the carrier may withdraw and defend under a reservation of rights, but the attorney representing the owner, although provided by the carrier, owes the carrier no duty on coverage. Reviewing EC 5-23 and DR 5-107(B), which bars a payer from directing the lawyer's judgment, the committee saw no ethical impediment to the lawyer continuing to represent the owner on liability or coverage, since the carrier had its own counsel, unless his judgment was swayed as contemplated by DR 5-105. If, however, the lawyer believed he was violating a duty to the carrier because it paid his fee, he should withdraw from representing any party, because that conception of his duties would prevent independent judgment for the owner (DR 5-105(B)). The committee added that these duties cannot be varied by policy provisions: if the carrier insists on controlling the defense or influencing the attorney's conduct, it is manifestly unethical for the attorney to represent the owner on the carrier's behalf, and on these facts the attorney owed no duty to the carrier, was not subject to its control, and need not disclose the owner's confidences to it.

Currency note

This opinion was issued in 1971, before The Florida Bar's adoption of the 2006 revisions to the Rules of Professional Conduct. It applied the former Code of Professional Responsibility (EC 5-23; DR 5-105, 5-105(B), 5-107(B)), the subject matter of which is now addressed by Rule 4-1.7 (conflicts), Rule 4-1.8(f) (compensation from a third party), and Rule 4-5.4(c) (professional independence). 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: Can a lawyer paid by an insurer represent the insured against the insurer's interest?

A: Under this opinion, the lawyer may continue to represent the insured on liability and coverage and owes the carrier no duty on coverage, provided his judgment is not swayed by the carrier's payment of his fee.

Q: When must the lawyer withdraw?

A: The opinion says he should withdraw from representing any party if he believes the carrier's payment of his fee would prevent him from exercising independent professional judgment for the insured, citing DR 5-105(B).

Q: Can the insurance policy's terms change this?

A: No. The opinion states these ethical duties cannot be varied by the policy, and that it is manifestly unethical for the attorney to represent the owner on the carrier's behalf if the carrier insists on controlling or influencing the defense.

Background and rules framework

The opinion applied EC 5-23 and DR 5-105, 5-105(B), and 5-107(B) of the former Code of Professional Responsibility, addressing conflicts and a third-party payer's attempt to direct the lawyer's judgment. That subject matter is now addressed by Rule 4-1.7 (conflicts of interest), Rule 4-1.8(f) (compensation from one other than the client), and Rule 4-5.4(c) (professional independence). The Model Rule analogues are Rules 1.7, 1.8(f), and 5.4(c).

Citations and references

Rules of Professional Conduct:

• EC 5-23; DR 5-105, 5-105(B), 5-107(B) [Code of Professional Responsibility; subject matter now in Rules 4-1.7, 4-1.8(f), and 4-5.4(c)]

Cases:

• Spadaro v. Palmisano, 109 So. 2d 418 (Fla. 3d DCA 1959), on counsel's conflict when he disbelieves the insured.

See also

• FL Bar Ethics Op. 72-7: Joint Consultation, Driver-Passenger Conflict
• FL Bar Ethics Op. 70-57: Withdrawing to Represent One Client Against Another
• FL Bar Ethics Op. 72-17: Former Partner of a Hospital President

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-70-58/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-70-58-1.pdf

Original opinion text

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

FLORIDA BAR ETHICS OPINION
OPINION 70-58
March 1, 1971
Advisory ethics opinions are not binding.
An attorney may represent the insured in litigation against the insurer despite the fact that the insurer is paying the fee. If the arrangement would prevent the attorney from exercising independent judgment for his client, he should withdraw.
CPR: EC 5-23, DR 5-105, 5-105(B), 5-107(B)
Case: Spadaro v. Palmisano, 109 So.2d 418 (Fla. 3d DCA 1959)
Chairman Massey stated the opinion of the committee:
The inquiring attorney was employed by an insurance carrier to represent its owner and driver as defendants in a litigated case. A conflict appeared between owner and driver over permissive use of the vehicle with the result that the inquirer continued to represent the owner of the vehicle and, of course, the insurance carrier while other counsel was retained for the driver. Later, the driver on deposition testified so as to bring about a conflict between the owner and the insurance carrier, with the inquirer then representing the owner and the carrier obtaining counsel of its own. Apparently the insurance carrier is paying all of the counsel. The inquirer, however, has found out from his "client," the owner, information detrimental to the owner's interests and perhaps to the coverage to be afforded by the insurance carrier. Additional investigation is necessary to evaluate the applicability of such information. At the inquirer's request, the owner obtained separate counsel to actively pursue the investigation, it being the inquirer's belief he would be violating his duty to the insurance carrier paying his fee to try to prove coverage exists for the owner when the insurance carrier has denied the same. He asks what steps should be taken.
Of concern to the inquirer is the case of Spadaro v. Palmisano, 109 So.2d 418 (Fla. 3d DCA 1959), in which it was held that when counsel employed by a carrier to represent its insured has reason to believe there is collusion (i.e., he does not believe the insured), it is not proper for counsel to continue to represent the carrier and the insured. The case further held counsel's successful impeachment of the insured to be reversible error.
In most cases, the insurance carrier's and owner's (insured) interests coincide and there is no conflict. In the event the carrier determines to deny coverage by reason of the insured's conduct or facts ascertained while engaged in the defense of a claim, the conflict arises between the carrier and the owner. At that point, the carrier may deny coverage and withdraw all representation of the owner, defending the claim under a reservation of rights. Assuming this latter course, however, it seems clear the attorney representing the owner, although provided by the carrier, does not and must not owe the carrier any duty as respects the issue of coverage.
EC 5-23 should be reviewed, as well as DR 5-107(B), which provides:
A lawyer shall not permit a person who recommends, employs or pays him to render legal services for another to direct or regulate his professional judgment in rendering such legal services.
Since in the instant inquiry the inquirer has been retained to represent the owner, albeit by the carrier, and the carrier does have other counsel to protect its interests on coverage, the Committee conceives of no impediment ethically for the inquirer to continue representing the owner as to the liability action itself or any matter affecting coverage unless the inquirer is swayed in his professional judgment as contemplated in DR 5-105.
However, assuming the attorney believes himself to be violating his duty to the insurance carrier because it is paying his fee, he should withdraw from representing any party to the litigation, as his conception of his ethical duties would prevent his exercising independent professional judgment for his client, the owner. DR 5-105(B) is directly applicable.
Ethical considerations here stated cannot be varied by contractual provisions of the insurance policy. Assuming a coverage question to exist, if the insurance carrier employing the attorney who is representing the insured under a reservation of rights insists on controlling the attorney in his defense of the owner, or otherwise influences the attorney's conduct in defense of the owner, then it is manifestly unethical for that attorney to represent the owner on behalf of the carrier. In this inquiry, the attorney does not owe any duty to the carrier which would prevent his continued representation of the owner. He is not subject to the carrier's control and is not required to disclose confidences or information from the owner or others involved in the matter to the carrier.