When an insurer has paid its full limits and is released from the duty to defend, what must the lawyer it retained tell the insureds about whether they are still represented?

Plain-English summary

An insurer retained a lawyer to represent its named insureds on an auto-liability policy. After the insurer paid its full policy limits applicable to the claimant and obtained a covenant not to enforce judgment against the insureds, its limits were exhausted, and under G.S. §20-279.21 it was released from further liability or obligation to participate in the defense. The claimant, unable to settle with her own underinsured-motorist carrier, was preparing to sue. So far the lawyer had only written the insureds that suit might be filed and that he had been retained to represent them; no suit had been filed and no answer filed. The insurer wanted the lawyer to file a motion, once suit was filed, to be released from further obligation to defend.

The opinion declined to opine on the ethics of filing a motion in a suit not yet filed. It explained that because the insurer had paid its full limits, it was released from further liability or obligation to participate in the defense by G.S. §20-279.21. Under those circumstances, Rule 6(b) required the lawyer to keep the client reasonably informed and to explain the matter to the extent reasonably necessary for informed decisions. Because the lawyer had written the insureds that he had been retained to represent them, he should promptly inform them, in writing, that he will not be representing them, and explain the full provisions of the statute and the situation enough for them to decide about employing him, employing other counsel, or electing not to be represented in any future lawsuit on the facts given.

Currency note

This opinion was issued in 1993, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. 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 Treat this page as historical context, not current guidance.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: After the insurer pays its limits and is released from defending, what must the retained lawyer do?

A: The opinion held that Rule 6(b) required the lawyer to keep the insureds reasonably informed and explain the matter enough for informed decisions, given that the insurer was statutorily released from the duty to defend.

Q: Because the lawyer had told the insureds he was retained to represent them, what follows?

A: The opinion held the lawyer should promptly inform them in writing that he will not be representing them and explain the statute and situation so they can decide about counsel.

Q: Did the opinion address filing the insurer's release motion?

A: No. The opinion expressly gave no opinion on the ethics of filing a motion in a suit that had not yet been filed.

Background and rules framework

The opinion applied North Carolina Rule 6(b), the communication provision corresponding to Model Rule 1.4, which required keeping the client reasonably informed and explaining matters enough for informed decisions. The duty was triggered by the insurer's statutory release from the obligation to defend under G.S. §20-279.21 once its limits were paid, which left the named insureds needing to know they would not be represented.

Citations and references

Rules of Professional Conduct:

• MR 1.4 (communication)
• North Carolina Rule 6(b)

Statutes:

• N.C. Gen. Stat. §20-279.21 (insurer released from duty to defend once limits paid; UIM notice provisions)

See also

• NC Ethics Op. RPC 154: representation of insured, insurer, and UIM carrier
• NC Ethics Op. RPC 172: representation of an insured on a compulsory counterclaim
• NC Ethics Op. RPC 177: representing the insured, insurer, and UIM carrier

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-156/

Original opinion text

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

Editor's Note: This opinion was originally published as RPC 156 (Revised).

Inquiry:

Attorney A was retained by Insurance Company Y to represent Defendants L and M who are the named insureds on a policy of auto liability insurance issued by Insurance Company Y. A suit was brought by the adverse driver. Attorney A settled the suit for the policy limit applicable to driver's claim and obtained a Release and Dismissal with Prejudice as to driver's claim against L and M. Now Insurance Company Y has paid Plaintiff X the entire policy limits applicable to Plaintiff X's claim and has secured from Plaintiff X a Covenant Not to Enforce Judgment against L and M. With this payment to Plaintiff X, Insurance Company Y's policy limits have been exhausted. The Plaintiff's underinsured motorist carrier was put on notice of the proposed settlement prior to settlement pursuant to G.S. §20-279.21(b)(4), and the underinsured motorist carrier failed to advance payment to its insured Plaintiff X to preserve its subrogation rights. Plaintiff X has been unable to negotiate a settlement of her UIM claim with her UIM carrier and therefore is in the process of filing suit so that she can recover damages from her underinsured motorist carrier. In the case of Plaintiff X, the only action Attorney A has taken is to write a letter to L and M advising them that suit may be filed and that Attorney A has been retained to represent them. Suit has not been filed yet and therefore Attorney A has not filed an answer on behalf of L and M. Insurance Company Y would like for Attorney A to file a motion with the court when the lawsuit is filed pursuant to G.S. §20-279.21(b)(4) to be released from further liability or obligation to participate in the defense of the proceeding.

Can Attorney A represent Insurance Company Y and file this motion to be released?

Opinion:

No opinion is given as to the ethics of filing a motion in a suit that has not yet been filed. Attorney A has written L and M advising them that a suit may be filed, and Attorney A has been retained by Insurance Company Y to represent them. However, since Insurance Company Y has paid its full limits, it is "released from further liability or obligation to participate in the defense" of such proceeding by G.S. §20-279.21. Under such circumstances, Attorney A is required by Rule 6(b) to keep the client reasonably informed and to fully explain the matter to the extent reasonably necessary to permit the client to make informed decisions regarding this matter.

As Attorney A has written to L and M advising L and M that Attorney A has been retained to represent them, Attorney A should promptly inform L and M, in writing, that Attorney A will not be representing them and explain the full provisions of the statute and the situation to the extent reasonably necessary to permit the clients to make informed decisions regarding employing Attorney A, any other attorney, or electing not to be represented in any future lawsuits under the facts as given.