Can an insurance defense lawyer who represents both the insured and the insurer give the insurer a full settlement-value evaluation, and recommend whether to settle?

Plain-English summary

A lawyer is retained by an insurer to defend a physician in a malpractice suit. The physician's policy limit is $1,000,000, the plaintiff seeks $5,000,000, and the lawyer assesses a 60% chance of defense success but a $1,250,000 to $1,500,000 verdict if the physician loses, exposing the physician personally. The physician demands a settlement at or below the policy limit; the lawyer thinks the case could settle for $500,000 to $750,000. The opinion addresses two questions about what the lawyer may tell the insurer.

On the first, the opinion concludes the lawyer may provide the insurer a letter evaluating the likelihood of an adverse liability verdict, the likely verdict range, and the probable settlement amount. Prior opinions establish that a lawyer defending an insured at the insurer's request represents both as clients, with the primary duty of loyalty to the insured (RPC 56, 92, 118). Because both are clients, each is entitled to the lawyer's full, candid evaluation under Rule 1.4(b), Rule 1.7 comment [31], and RPC 91 and 92, and that work product is shared so both clients are fully informed.

On the second, the opinion concludes the lawyer may not recommend that the insurer decline to settle if the plaintiff will not accept a settlement in the estimated range. Because of the potential conflict between the insurer (which might prefer a lower settlement) and the physician (who wants settlement up to the policy limit to avoid personal exposure), the lawyer cannot recommend an upper limit short of trial. The lawyer should advise the insurer of the physician's wishes (RPC 91) and advise both clients to consider separate counsel on whether to settle within policy limits (RPC 91, 92, 111). The opinion notes this does not preclude the lawyer from suggesting settlement strategies or negotiating a settlement that benefits both clients.

In practice

Under this opinion, as the North Carolina rule stood at the time, the dual-client insurance defense lawyer owes both the insurer and the insured the same candid case evaluation, and sharing that evaluation with the insurer is permitted. The line the opinion draws is at the settlement recommendation itself: when the insured wants to settle within limits to avoid personal exposure and the insurer may prefer to hold out, the lawyer may not recommend that the insurer refuse a within-limits settlement, and should point both clients to separate counsel on that specific decision while remaining free to suggest strategies and negotiate.

Common questions

Q: Can the insurance defense lawyer send the insurer a full evaluation of liability, verdict range, and settlement value?

A: Yes. Opinion #1 concludes that because the lawyer represents both the insured and the insurer, each is entitled to a full, candid evaluation, and the work product is shared so both clients are informed, citing Rule 1.4(b), Rule 1.7 comment [31], and RPC 91 and 92.

Q: Who is the insurance defense lawyer's primary duty of loyalty to?

A: The insured. The opinion states that while the lawyer represents both the insured and the insurer, the primary duty of loyalty runs to the insured, citing RPC 56, 92, and 118.

Q: Can the lawyer advise the insurer not to settle within policy limits?

A: No. Opinion #2 concludes that given the conflict between the insurer's and the insured's settlement interests, the lawyer may not recommend that the insurer decline to settle, and should advise both clients to consider separate counsel on the settlement decision.

Background and rules framework

The opinion interprets Rule 1.7 of the North Carolina Rules of Professional Conduct (conflicts of interest, the state counterpart to Model Rule 1.7) and its comments, and Rule 1.4(b) (communication, the counterpart to Model Rule 1.4), together with prior opinions RPC 56, 91, 92, 111, and 118 on the tripartite insurer-insured-lawyer relationship. It applies those rules where the insured's and insurer's settlement interests diverge within the policy limit.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.7 (conflict of interest: current clients)
• Model Rule 1.4 (communication)
• N.C. Rule 1.7 and comments [29]-[33]; N.C. Rule 1.4(b)

Other opinions cited:

• RPC 56, RPC 92, RPC 118: lawyer defending an insured represents both insured and insurer, with primary loyalty to the insured
• RPC 91: advising the insurer of the insured's settlement wishes; separate counsel on settlement
• RPC 111: separate counsel on settlement within policy limits

See also

• ABA Formal Op. 96-403: Insured Objecting to Settlement
• NC State Bar 2010 FEO 1: Defending a Missing Insured
• ABA Formal Op. 01-421: Lawyer Under Insurer Guidelines

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2003-formal-ethics-opinion-12/

Original opinion text

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

Inquiry #1:

Attorney is retained by Insurance Company to represent Physician in medical malpractice lawsuit involving significant injuries to the plaintiff. Physician has a professional liability policy with a limit of $1,000,000 per claim. Plaintiff is seeking $5,000,000 in damages. After discovery, Attorney is of the opinion that Physician has a 60% chance of prevailing on the merits. However, if Physician loses the case, Attorney believes that the jury verdict will be between $1,250,000.00 and $1,500,000.00, resulting in personal exposure for the Physician. Physician has advised Attorney that she wants to avoid personal exposure and has made a demand on the insurance company that the case be settled for an amount at or less than the policy limit.

Insurance Company requests Attorney's advice on (1) his evaluation of the likelihood of an adverse verdict on liability; (2) his evaluation of the likely verdict range if the jury returns a liability verdict against Physician; and (3) the amount it should pay in settlement. Attorney believes that the case could be settled for an amount between $500,000 and $750,000. If Attorney recommends settlement in this range, he recognizes that the Insurance Company may refuse to offer up to the policy limit to settle the claim, as demanded by Physician.

May Attorney provide Insurance Company with a letter stating his evaluation of the likelihood of a verdict adverse to Physician on liability, the likely amount of the verdict if the jury reaches the damages issue, and the amount he believes the plaintiff's counsel would accept to settle the case?

Opinion #1:

Yes.

Prior ethics opinions have firmly established that a lawyer defending an insured at the request of an insurer represents both clients. Rule 1.7, cmt. [29] to [33]; see also RPC 56, 92, 118. The lawyer's primary duty of loyalty, however, is to the insured. RPC 56, 92, 118.

Because both the Physician and Insurance Company are Attorney's clients, they are each entitled to Attorney's full, candid evaluation of all aspects of the claim, including but not limited to (1) the probability of an adverse liability verdict, (2) the range of potential verdicts, and (3) probable settlement amounts. See Rule 1.4(b), Rule 1.7, cmt. [31], and RPC 91. Prior opinions established that "the attorney should keep the insured informed of his or her evaluation of the case as well as the assessment of the insurance company." RPC 92. RPC 92 envisioned that this work product would be shared with the insurance company so that both clients are fully informed of their lawyer's opinion on this central issue of the representation. Id.

Inquiry # 2:

If the plaintiff does not accept a settlement within the estimated range, may Attorney recommend to Insurance Company that it decline to settle the case?

Opinion # 2:

No.

Because of the potential conflict between Insurance Company, which might prefer to press for a lower settlement, and Physician, who has clearly expressed her desire to avoid personal exposure and for a settlement up to Insurance Company's policy limits, Attorney cannot recommend an upper limit as the amount Insurance Company should offer short of proceeding to trial. In this situation, Attorney should advise Insurance Company of Physician's wishes regarding settlement. RPC 91. Then, after advising both clients of Attorney's evaluation of liability, damages, and likely settlement prospects, Attorney should advise Physician and Insurance Company to consider employing separate counsel to represent them on issues concerning whether the case should be settled within Insurance Company's policy limits. See RPC 91, RPC 92, RPC 111. This opinion is not intended to preclude Attorney from suggesting settlement strategies or negotiating a settlement that benefits both clients.