Must an insurance defense lawyer tell the insurer that the insured client committed fraud in obtaining the policy?

Plain-English summary

A lawyer was hired by an insurance company to defend its insured in a personal-injury suit. After significant discovery, the insured told the lawyer that he was only the nominal title owner of the vehicle so his brother (who could not get insurance because of a poor driving record) could be covered, facts that, if known, likely would have let the insurer exclude the brother or deny coverage. The lawyer asked whether he had to disclose this to the insurer, whether it created a conflict requiring withdrawal, and whether he could still accept the insurer's compensation.

On confidentiality, the Committee treated the information as confidential under SCR 156 (Nevada's version of Model Rule 1.6). None of the rule's exceptions applied: disclosure was not impliedly authorized to carry out the defense, there was no threatened act likely to cause death or bodily harm, the lawyer's services had not been used to commit the fraud (the fraud preceded the representation and was discovered incidentally), and self-defense was not in play. The Committee emphasized that an insurer-retained lawyer owes the insured the same allegiance as if personally retained, citing cases such as Glacier General Assurance Co. v. Superior Court and Parsons v. Continental National American Group.

On conflicts, the Committee concluded that the disclosure did not by itself trigger SCR 157 (conflicts) or require consideration of withdrawal under SCR 166, on the assumption that the lawyer was retained solely to defend the insured and not to advise the insurer on coverage. It observed that mere withdrawal could itself signal a problem to the insurer and harm the client, so continued representation better served the insured's paramount interest. On compensation, the Committee found SCR 158 (third-party payment) satisfied as long as the client consents after consultation, the lawyer's independent judgment is not compromised, and confidential information stays protected under SCR 156.

Currency note

This opinion was originally issued in 1988 and its conclusion was amended in 2007; it predates Nevada's 2006 adoption of the current Nevada Rules of Professional Conduct (the renumbered Rules 1.0 et seq. that replaced the former Supreme Court Rules). The confidentiality rule is now Rule 1.6, conflicts Rule 1.7, third-party compensation Rule 1.8(f), and withdrawal Rule 1.16. The opinion carries a note that the Nevada Supreme Court later held in Nevada Yellow Cab Corp. v. Eighth Judicial District Court, 123 Nev. Adv. Op. No. 6 (2007), that an insurer-retained lawyer represents both the insured and the insurer (with the insured as the "primary" client), superseding contrary statements in this opinion while leaving its conclusions otherwise intact. Treat this page as historical context, not current guidance. Verify against current rules and case law before relying on any specific rule mentioned here.

Common questions

Q: Could the defense lawyer tell the insurer that the insured lied to get the policy?

A: No. The opinion concluded that the information was confidential under SCR 156 and could not be revealed to the insurer without the client's consent, because none of the rule's exceptions (implied authorization, prevention of death or bodily harm, lawyer's services used in the fraud, or self-defense) applied.

Q: Did learning of the fraud force the lawyer to withdraw?

A: No. The opinion concluded that the disclosure did not by itself create a conflict under SCR 157 or require withdrawal under SCR 166, provided the lawyer had been retained only to defend the insured and not to advise the insurer on coverage. The Committee added that abruptly withdrawing could itself tip off the insurer and harm the client.

Q: Could the lawyer keep being paid by the insurer?

A: Yes, under SCR 158, so long as the client consents after consultation, the payment does not interfere with the lawyer's independent professional judgment or the lawyer-client relationship, and confidential information stays protected under SCR 156.

Background and rules framework

The opinion interprets the former Nevada Supreme Court Rules governing confidentiality (SCR 156, now Rule 1.6), conflicts of interest (SCR 157, now Rule 1.7), compensation from a third party (SCR 158, now Rule 1.8(f)), and declining or terminating representation (SCR 166, now Rule 1.16). It situates the confidentiality analysis in the tripartite insurer-insured-counsel relationship, where the insured is the client.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.6 / former Nev. SCR 156 (confidentiality of information)
• Model Rule 1.7 / former Nev. SCR 157 (conflicts of interest)
• Model Rule 1.8(f) / former Nev. SCR 158 (compensation from one other than the client)
• Model Rule 1.16 / former Nev. SCR 166 (declining or terminating representation)

Statutes:

• Nev. Rev. Stat. secs. 49.035-49.115 (attorney-client privilege)

Cases:

• Parsons v. Continental National American Group, 113 Ariz. 223, 550 P.2d 94 (1976) (disclosure of insured's confidence created conflict)
• Glacier General Assurance Co. v. Superior Court, 95 Cal. App. 3d 836 (1979) (insurer-retained counsel's primary duty is to the insured)
• Nevada Yellow Cab Corp. v. Eighth Judicial District Court, 123 Nev. Adv. Op. No. 6 (2007) (lawyer represents both insured and insurer; cited in the opinion's superseding note)

See also

• NV Ethics Op. 10: lawyer holding the fruits of a client's crime

Source

• Landing page: https://nvbar.org/for-lawyers/ethics-discipline/ethics-opinions/
• Original PDF: https://nvbar.org/wp-content/uploads/opinion_09.pdf