Can a law firm an insurer hired to defend its insured also bring a separate declaratory-judgment action, for the insurer, to make other insurers cover that same insured?

Plain-English summary

Insurer B retained a law firm to defend its insured, S Corporation, in a personal injury suit arising from a construction project. S had contracted with X and Z Corporations, who were to name S as an additional insured on their liability policies, but X's and Z's insurers refused to defend S and were contesting coverage. Insurer B asked the firm to bring a declaratory-judgment action against X, Z, and their insurers to provide coverage for S. Insurer B would not contest its own coverage to S. The question was whether the firm could both defend S in the underlying suit and pursue the declaratory action.

The committee applied former Rule 5-105(a), which required declining employment that would likely be adversely affected by the lawyer's independent judgment, except as allowed by Rule 5-105(c), under which a lawyer may represent multiple clients if it is obvious he can adequately represent each and each consents after full disclosure. Because Insurer B did not intend to limit its own liability to S, the committee found the insured's rights were protected regardless of how the declaratory action came out.

On those facts the committee found nothing in the Code that would bar the firm from defending S in the underlying action while seeking, by declaratory judgment, to have the other insurers cover S. So long as the insured is protected in the underlying action and consents to the declaratory action, the firm may handle both, citing Bergmann v. Multi-State Inter-Insurance Exchange.

Currency note

This opinion was issued in January 1987, under the former Illinois Code of Professional Responsibility and before Illinois adopted the 1990 (and later 2010) Rules of Professional Conduct. The ISBA Board of Governors affirmed the opinion in July 2010 as generally consistent with the 2010 Rule (Rule 1.7, with Comments [23] and [29]-[33]), while cautioning that the specific standards referenced may differ from the 2010 Rules. 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 Treat this page as historical context, not current guidance.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 or requirement mentioned here.

Common questions

Q: Can the same firm defend the insured and sue other insurers to cover that insured?

A: The opinion concluded yes, with the insured's consent after full disclosure, where the hiring insurer will not contest its own coverage so the insured is protected either way.

Q: Why was there no disqualifying conflict?

A: Per the opinion, because Insurer B would not limit its own liability to the insured, the insured's rights were protected regardless of the declaratory action's outcome, so the firm could adequately represent each interest under former Rule 5-105(c).

Q: What does the insured have to do?

A: The committee required the insured's consent to the declaratory action after full disclosure of the possible effects on the lawyer's independent judgment.

Background and rules framework

The opinion applied former Illinois Code Rule 5-105(a) and (c) (declining or undertaking conflicting employment, and the consent exception). The Board's 2010 affirmation maps the analysis to current Illinois Rule of Professional Conduct 1.7, with Comments [23] and [29]-[33], corresponding to ABA Model Rule 1.7 on concurrent conflicts.

Citations and references

Rules of Professional Conduct:

• Illinois Code Rule 5-105(a) and (c) (conflicting employment and consent, applied in the opinion)
• Illinois RPC 1.7 with Comments [23], [29]-[33] (2010 equivalent per the Board's affirmation)
• MR 1.7 (concurrent conflicts of interest)

Cases:

• Bergmann v. Multi-State Inter-Insurance Exchange, 39 Ill. App. 2d 468, 189 N.E.2d 49 (Ill. App. Ct. 1963)

See also

• ISBA Ethics Op. 91-26: Suing a Client-Insurer
• ISBA Ethics Op. 89-17: Insurer's Staff Counsel Client
• ISBA Ethics Op. 98-08: Insurance Defense Duties

Source

• Landing page: https://www.isba.org/ethics/opinions/8706