Can a lawyer who represents an insurer on a subrogation claim also represent the insured on related claims like personal injury?

Plain-English summary

The opinion analyzes the ethical issues when a lawyer represents an insurance company on a subrogation claim and also, or potentially, represents the insured. It answers three questions arising from a hypothetical in which the insurer has paid the insured and taken an assignment of subrogation rights.

First, the opinion concludes that under Rule 1.2(a) a lawyer may not file suit without the client's authority, so an ordinary policy right of subrogation does not by itself let the lawyer sue in the insured's name. The lawyer must obtain appropriate authorization, often through the subrogation, trust, or loan-receipt agreement executed at payment, and must keep the insured advised of developments.

Second, the opinion explains that the insurance policy alone does not create an attorney-client relationship between the lawyer and the insured. If the lawyer does undertake to represent the insured, the lawyer owes the insured duties under Rule 1.7(b), including advising the insured about other potential causes of action such as diminution of value and personal injury.

Third, on conflicts, the opinion distinguishes two situations. Representing the insured on matters like the deductible or diminution of value usually presents no problem, because the insurer typically retains the right to compromise the claim with a pro-rata allocation; even so, the lawyer must avoid action that would preclude the insured's recovery. A much harder problem arises if the lawyer tries to represent both the insurer's property-damage subrogation interest and the insured's personal injury claim. Any aggregate settlement would have to be allocated between the liquidated property loss and the unliquidated personal injury claim, and Rule 1.8(g) requires each client's consent after consultation, which cannot be satisfied by blanket advance consent. The opinion states that only the most sophisticated insureds could intelligently waive such a conflict, so in almost all cases the lawyer would be precluded from representing both.

In practice

The opinion holds that, under the Georgia rules as they stood at the time of the opinion, a lawyer for an insurer's subrogation claim should not simultaneously represent the insured on related claims unless adequate representation of both is reasonably likely and both clients give informed consent after consultation, written disclosure of the material risks, and an opportunity to consult independent counsel. The opinion treats representation of the insured limited to matters like the deductible or diminution of value as generally permissible, while representing both the insurer's property subrogation and the insured's personal injury claim is precluded in almost all cases because an aggregate settlement requires specific, non-blanket consent under Rule 1.8(g).

The opinion notes that Rule 1.7 was amended on November 3, 2011, to require informed consent confirmed in writing and a separate writing advising of reasonably available alternatives, but states the amendment does not change its conclusion.

Common questions

Q: Can the lawyer file the subrogation suit in the insured's name without asking the insured?

A: Not based on the policy alone. The opinion concludes that under Rule 1.2(a) the lawyer needs the client's authority to sue, and an ordinary subrogation provision does not by itself authorize suit in the insured's name; appropriate authorization should be obtained and the insured kept advised.

Q: Does representing the insurer make the insured the lawyer's client too?

A: No. The opinion states the insurance policy does not create an attorney-client relationship with the insured. But if the lawyer does undertake to represent the insured, the lawyer must advise the insured about other potential claims, such as diminution of value and personal injury.

Q: Can the same lawyer handle the insurer's property subrogation and the insured's personal injury claim?

A: Almost never. The opinion explains that an aggregate settlement would require allocation between the property loss and the personal injury claim, and Rule 1.8(g) requires each client's consent after consultation, not blanket advance consent; only the most sophisticated insured could intelligently waive the conflict.

Q: Is representing the insured on the deductible or diminution of value a conflict?

A: Usually not. The opinion concludes that in most instances representing the insured as to the deductible or diminution of value presents no problem, but the lawyer must avoid any action that would preclude the insured from a recovery to which the insured is entitled.

Background and rules framework

The opinion interprets Georgia Rule of Professional Conduct 1.7 (conflict of interest: general rule, including Comments 10 and 12; Model Rule 1.7), Rule 1.8(g) (aggregate settlements, including Comment 6; Model Rule 1.8(g)), and Rule 1.2(a) (scope of representation and authority to act; Model Rule 1.2). It applies these rules to the insurer-insured-lawyer relationship in subrogation matters. This opinion replaced the earlier FAO 93-2 and notes the 2011 amendment to Rule 1.7.

Citations and references

Rules of Professional Conduct:

• Georgia RPC 1.7 (conflict of interest: general rule) / Model Rule 1.7
• Georgia RPC 1.8(g) (aggregate settlements) / Model Rule 1.8(g)
• Georgia RPC 1.2(a) (authority to institute proceedings) / Model Rule 1.2

See also

• ABA Formal Op. 01-421: Lawyer Acting Under Insurance Company Guidelines
• ABA Formal Op. 96-403: Insured Objecting to Settlement
• ABA Formal Op. 05-435: Lawyer Adverse to the Insured of a Client-Insurer

Source

• Landing page: https://www.gabar.org/handbook?rule=rule459

Original opinion text

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

STATE BAR OF GEORGIA
FORMAL ADVISORY OPINION NO. 05-7
Approved And Issued On November 26, 2007 Pursuant To Bar Rule 4-403
By Order Of The Supreme Court Of Georgia Thereby Replacing FAO No. 93-2
Supreme Court Docket No. S08U0023

Rule 1.7 is recited in this opinion; however, Rule 1.7 was amended on November 3, 2011, and now indicates that consent to representation of two clients with potentially conflicting interests must be “informed” and “confirmed in writing,” and be preceded by a separate writing that also advises the clients of “reasonably available alternatives” to the representation. The amendment does not impact the analysis or conclusion reached in this opinion.

QUESTION PRESENTED:

Ethical considerations of an attorney representing an insurance company on a subrogation claim and simultaneously representing the insured.

SUMMARY ANSWER:

A lawyer representing an insurance company on a subrogation claim should not undertake the simultaneous representation of the insured on related claims, unless it is reasonably likely that the lawyer will be able to provide adequate representation to both clients, and only if both the insurance company and the insured have consented to the representation after consultation with the lawyer, have received in writing reasonable and adequate information about the material risks of the representation, and have been given the opportunity to consult with the independent counsel. Rule 1.7, Conflict of Interest: General Rule.

OPINION:

This inquiry addresses several questions as to ethical propriety and possible conflicts between the representation of the client, the insurance company, and its insured.

Hypothetical Fact Situation

The insurance company makes a payment to its insured under a provision of an insurance policy which provides that such payment is contingent upon the transfer and assignment of subrogation of the insured's rights to a third party for recovery with respect to such payment.

Question 1: May the attorney institute suit against the tortfeasor in the insured's name without getting the insured's permission?

Pursuant to the provisions of Rule 1.2(a), a lawyer may not institute a legal proceeding without obtaining proper authorization from his client. The ordinary provision in an insurance policy giving the insurance company the right of subrogation does not give the lawyer the right to institute a lawsuit in the name of the insured without specific authority from the insured. The normal subrogation agreements, trust agreements or loan receipts which are executed at the time of the payment by the insurer usually give the insurance company the right to pursue the claim in the insured's name and depending upon the language may grant proper authorization from the insured to proceed in such fashion. Appropriate authorization to bring the suit in the insured's name should be obtained and the insured should be kept advised with respect to developments in the case.

Question 2: Does the attorney represent both the insured and the insurance company, and, if so, would he then have a duty to inform the insured of his potential causes of action such as for diminution of value and personal injury?

The insurance policy does not create an attorney/client relationship between the lawyer and the insured. If the lawyer undertakes to represent the insured, the lawyer has duties to the insured, which must be respected with respect to advising the insured as to other potential causes of action such as diminution of value and personal injury. Rule 1.7(b); see also, Comment 10 (assuring independence of counsel) and Comment 12 (common representations permissible even with some differences in interests).

Question 3: Is there a conflict of interest in representing the insured as to other potential causes of action?

In most instances no problem would be presented with representing the insured as to his deductible, diminution of value, etc. Generally an insurance company retains the right to compromise the claim, which would reasonably result in a pro-rata payment to the insurance carrier and the insured. The attorney representing the insured must be cautious to avoid taking any action, which would preclude the insured from any recovery to which the insured might otherwise be entitled. Rule 1.7, Conflict of Interest: General Rule, (b); see also, Comment 10 (assuring independence of counsel) and Comment 12 (common representations permissible even with some differences in interest.) to Rule 1.7.

A much more difficult problem is presented in the event an attorney attempts to represent both an insurance company's subrogation interest in property damage and an insured's personal injury claim. In most cases the possibility of settlement must be considered. Any aggregate settlement would necessarily have to be allocated between the liquidated damages of the subrogated property loss and the unliquidated damages of the personal injury claim. Any aggregate settlement would require each client's consent after consultation, and this requirement cannot be met by blanket consent prior to settlement negotiations. Rule 1.8(g); see also Comment 6 to Rule 1.8. Only the most sophisticated of insureds could intelligently waive such a conflict, and therefore in almost all cases an attorney would be precluded from representing both the insurer and the insured in such cases.

In conclusion, a lawyer representing an insurance company on a subrogation claim should not undertake the simultaneous representation of the insured on related claims, unless it is reasonably likely that the lawyer will be able to provide adequate representation to both clients, and only if both the insurance company and the insured have consented to the representation after consultation with the lawyer, have received in writing reasonable and adequate information about the material risks of the representation, and have been given the opportunity to consult with independent counsel. Rule 1.7(a) and (b).