When a defense lawyer represents both the insured and the insurer, can the lawyer advise them on a settlement that helps the insured but exposes the insurer?

Plain-English summary

In an auto-accident suit, Attorney X was retained by the insurer to defend Driver Two, the insured. The plaintiff's lawyer proposed a binding consent order under which Driver Two would admit liability but no judgment could be enforced beyond the insurer's policy limits. The proposal favored the insured, who would be shielded from personal liability, while putting only the insurer's coverage at risk. Attorney X asked how to handle the proposal.

The opinion concluded that, because Attorney X represented both the insured and the insurer in the defense, he had an obligation under Rule 6 to communicate the proposal to both of them. But because of the potential conflict between the insured (who would likely favor the agreement) and the insurer (who could be adversely affected by the admission), Attorney X could not advise either of them on the advisability of accepting the proposal, citing RPC 91 and Rule 5.1. The opinion stated that Attorney X should advise the parties that it would be appropriate to consider employing separate counsel on the limited questions presented. It added that the answer did not depend on Attorney X's assessment of the probability of an adverse verdict, or on how any verdict might compare to the policy limits.

Currency note

This opinion was issued in 1991, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. The conflict-of-interest provision it applies (Rule 5.1) has since been renumbered and revised. 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 Treat this page as historical context, not current guidance.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, deadline, or requirement mentioned here.

Common questions

Q: Must the lawyer pass along a settlement that benefits the insured but exposes the insurer?

A: Yes. The opinion concluded that, representing both, the lawyer was obligated under Rule 6 to communicate the proposal to both the insured and the insurer.

Q: Can the lawyer advise the insured or the insurer on whether to accept it?

A: No. The opinion held that, because of the conflict between the insured's and the insurer's interests, the lawyer could not advise either on the advisability of accepting the proposal and should suggest separate counsel on that limited question, citing RPC 91 and Rule 5.1.

Q: Does the lawyer's prediction of the likely verdict change the answer?

A: No. The opinion stated that neither the lawyer's assessment of the probability of an adverse verdict nor how a verdict might compare to the policy limits made a difference.

Background and rules framework

The opinion applied North Carolina Rule 6 (the duty to keep the client informed and communicate, corresponding to Model Rule 1.4) and Rule 5.1 (conflicts of interest, corresponding to Model Rule 1.7), together with RPC 91 on the conflict between insured and insurer. The analysis turns on the divergence the consent proposal creates between the insured's interest in escaping personal liability and the insurer's interest in resisting an admission that exposes its coverage.

Citations and references

Rules of Professional Conduct:

• North Carolina Rule 6 (communicating with and informing the client)
• North Carolina Rule 5.1 (conflicts of interest)
• MR 1.4 (communication); MR 1.7 (conflict of interest, current clients)

Other opinions cited:

• North Carolina RPC 91 (conflict between insured and insurer)

See also

• NC Ethics Op. RPC 91: conflict between insured and insurer
• NC Ethics Op. RPC 151: representation of insured and insurer
• NC Ethics Op. RPC 118: waiver of affirmative defense

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-112/

Original opinion text

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

Introduction:

Driver One sued Driver Two for personal injury sustained in a motor vehicle accident. Driver One is represented by Attorney A. The automobile liability insurance company (Liability Co.) providing coverage to Driver Two retained Attorney X, who has appeared for and is engaged in the defense of Driver Two.

The complaint filed by Attorney A seeks only compensatory damages. It does not allege conduct by Driver Two that would support a claim for punitive damages and does not ask for punitive damages. There is no known evidence to support an allegation of conduct on the part of Driver Two that would support a claim for punitive damages, and liability for the accident is unclear.

Attorney A has proposed to Attorney X that the parties enter into a binding consent order, stipulation, or other agreement which would provide that Driver Two admits liability for damages arising out of the accident, but would provide further that no judgment shall be enforceable in excess of the auto liability insurance coverage provided by Liability Co.

The proposal appears to be in the best interest of Driver Two, because it would fully protect Driver Two from personal liability and would put at risk only the liability coverage that Liability Co. has agreed it provides to Driver Two.

Inquiry #1:

How should Attorney X handle the proposal communicated by Attorney A?

Opinion #1:

Because Attorney X represents both the insured (Driver Two) and the insurer (Liability Co.) in connection with the defense of the action, Attorney X has an obligation to communicate the proposal to both of them. Rule 6. However, because of the potential conflict between the interests of the insured (who would likely favor the agreement) and the insurer (who may be adversely impacted by the admission), Attorney X may not advise either of them concerning the advisability of accepting the proposal. See RPC 91. Rule 5.1. Attorney X should advise the parties that it would be appropriate to consider employing separate counsel on the limited questions presented.

Inquiry #2:

Does Attorney X's assessment of the probability of an adverse verdict, on issues of liability for compensatory or punitive damages, make a difference?

Opinion #2:

No.

Inquiry #3:

Does it make any difference whether, in the opinion of Attorney X, any verdict against Driver Two for damages, if reached, will probably be much less than, or somewhere close to, or much more than, the liability coverage that Liability Co. has agreed it provided Driver Two?

Opinion #3:

No.