After an insurer tenders its liability limits in an auto case, can the same defense lawyer stay in the suit to protect the insurer's underinsured-motorist interest, with the insured defendant's consent?

Plain-English summary

An insurer retained a lawyer to defend its insured, Defendant M, in an auto-negligence suit under M's liability policy, and the lawyer actively defended M. The same insurer also provided underinsured-motorist coverage to the plaintiff. The insurer tendered its liability limits to the plaintiff under G.S. §20-279.21(b)(4) and waived all subrogation rights against M, and the plaintiff agreed to a covenant not to enforce any judgment against M; the suit continued so the plaintiff could recover UIM proceeds from the insurer. The inquiry asked whether the lawyer could remain in the case representing the insurer's UIM interest, with M's consent, since M had no personal exposure, and whether a motion was needed to substitute the lawyer as counsel for the insurer.

The opinion concluded the lawyer may remain. It explained that RPC 154 had held a lawyer could not represent both the defendant under a liability policy and the same insurer under its UIM policy with the plaintiff, because the UIM insurer's subrogation or assignment rights under G.S. §20-279.21(b)(4) made the interests of the defendant and the insurer materially different and adverse, citing also RPC 110. Here, by contrast, the insurer had waived subrogation against M and the plaintiff had covenanted not to enforce a judgment, so M had no personal liability; the interests of M and the insurer were not adverse, and the lawyer's ability to represent both would not likely be materially impaired under Rule 5.1(b). On the second inquiry, the opinion gave no opinion on what changes to the lawyer's nominal appearance or what procedural steps under the statute were required, but noted that if the insurer elects under G.S. §20-279.21 to appear in its own name as the UIM insurer and be released from the defense, the lawyer must comply with the statute by apprising M of the nature of the proceeding and his right to select counsel of his own choice, explaining enough to let M make an informed decision about retaining separate counsel or not being represented, citing RPC 156.

Currency note

This opinion was issued in 1994, 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: Can the insured's defense lawyer switch to protecting the insurer's UIM interest in the same suit?

A: Yes, on these facts. The opinion concluded that once the insurer waived subrogation and the plaintiff covenanted not to enforce a judgment, the defendant had no exposure, so the interests were not adverse and the lawyer could continue with the defendant's consent under Rule 5.1(b).

Q: Why is this different from representing both the insured and the UIM insurer outright?

A: The adversity was removed. The opinion distinguished RPC 154, where the UIM insurer's subrogation rights made the interests adverse; here those rights were waived and a covenant not to enforce judgment eliminated the defendant's exposure.

Q: Must the lawyer do anything for the insured before appearing for the insurer?

A: Yes, if the insurer elects to appear in its own name. The opinion held the lawyer must comply with G.S. §20-279.21 by apprising the defendant of the nature of the proceeding and his right to choose his own counsel, citing RPC 156.

Background and rules framework

The opinion applied North Carolina's then-current Rule 5.1(b), the conflict provision corresponding to Model Rule 1.7, which disqualifies a lawyer where representation may be materially limited by competing interests. It read the underinsured-motorist statute, G.S. §20-279.21(b)(4) and §20-279.21, as the source of the subrogation rights that ordinarily create adversity, and relied on its earlier opinions RPC 154, RPC 110, and RPC 156.

Citations and references

Rules of Professional Conduct:

• MR 1.7 (conflict of interest; current clients)
• North Carolina Rule 5.1(b)

Statutes:

• N.C. Gen. Stat. §20-279.21(b)(4); §20-279.21 (underinsured-motorist coverage; insurer election and notice to the insured)

Other opinions cited:

• North Carolina RPC 154 (dual representation of insured and UIM insurer; disqualifying conflict)
• North Carolina RPC 110 (insurer and insured conflicts)
• North Carolina RPC 156 (notice to the insured of the right to separate counsel)

See also

• NC Ethics Op. RPC 193: communicating with an uninsured or underinsured defendant
• NC Ethics Op. RPC 188: personal-interest conflicts in a real estate closing

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-177/

Original opinion text

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

Inquiry #1:

Attorney A is retained by Insurance Company to represent Defendant M in an automobile negligence lawsuit under its policy with Defendant M which provides him with liability coverage. Attorney A makes an appearance in the lawsuit on behalf of Defendant M, files responsive pleadings and discovery, and otherwise actively defends Defendant M.

Insurance Company also provides underinsured motorist coverage for Plaintiff. Insurance Company tenders its liability coverage limits to Plaintiff pursuant to G.S. §20-279.21(b)(4) and waives all subrogation rights against Defendant M. In addition, Plaintiff agrees to execute a covenant not to enforce judgment against Defendant M. The lawsuit initiated by Plaintiff against Defendant M will continue so that Plaintiff can recover UIM proceeds from Insurance Company.

After tender of Insurance Company's liability limits, can Attorney A remain in the case as attorney for Insurance Company and protect Insurance Company's interests under its UIM coverage in the lawsuit, with Defendant M's consent, since Defendant M has no personal exposure?

Opinion #1:

Yes. Rule 5.1(b). RPC 154, also involving an automobile negligence case, addressed the question of whether a lawyer may represent both the defendant, under an insurance company's liability policy with the defendant, and the same insurance company under its UIM policy with the plaintiff. The opinion noted that the provisions of G.S. §20-279.21(b)(4) give certain subrogation or assignment rights to an UIM insurer against the owner, operator or maintainer of an underinsured vehicle. Therefore, RPC 154 held that an attorney representing both parties would have a disqualifying conflict of interest because the subrogation or assignment rights of the insurance company would cause the interests of the defendant and the insurance company under its UIM policy to be materially different and adverse. See also, RPC 110.

In the instant inquiry, Defendant M has no personal liability because Insurance Company has waived its right of subrogation against Defendant M, and Plaintiff has executed a covenant not to enforce judgment against Defendant M. The interests of Defendant M and Insurance Company are not, therefore, adverse, and Attorney A would not be likely to have his ability to represent both parties materially impaired in violation of Rule 5.1(b).

Inquiry #2:

If the answer to Inquiry #1 is affirmative, must a motion be filed and an order entered relieving Attorney A of his duty to defend Defendant M and substituting him as attorney of record for Insurance Company?

Opinion #2:

No opinion is given with regard to whether any changes in the nominal appearance of Attorney A in the lawsuit need to be made, or with regard to the procedural requirements under G.S. §20-279.21(b)(4) for making an appearance in the lawsuit on behalf of Insurance Company as the UIM insurer. However, if Insurance Company elects, pursuant to the provisions of G.S. §20-279.21, to appear in the action in its own name as the UIM insurer and to be released from further liability or obligation to participate in the defense of Defendant M, Attorney A must comply with the requirements of the statute with regard to apprising Defendant M "of the nature of the proceeding and [giving him] the right to select counsel of his own choice to appear in the action on his separate behalf." Attorney M must explain the nature of the proceedings to the extent reasonably necessary to permit Defendant M to make an informed decision with regard to individually retaining another lawyer to represent him or electing not to be represented in the lawsuit. RPC 156.