Can an insurance company's salaried staff lawyer defend an insured the company is denying coverage to?

Plain-English summary

The committee considered a fact pattern in which a carrier disclaimed coverage of a driver under the car owner's policy, while conceding the driver had separate, smaller coverage under his own policy, and then assigned one of its salaried staff lawyers to defend the driver in the underlying suit and in a declaratory-judgment action over the disputed coverage. The question was whether the staff lawyer could take that assignment.

The committee started from the settled point that an insurer's staff lawyer may ethically defend an insured in the ordinary case, where the interests of carrier and insured largely coincide (citing N.Y. State 109 and ABA 282, and EC 5-17). It said that even where the carrier has some basis to disclaim, staff counsel may still defend the third-party claims if the carrier abandons its right to disclaim. But where the carrier persists in disclaiming, the committee concluded that neither the underlying defense nor the declaratory-judgment proceeding should be handled by staff counsel, citing EC 5-14, EC 5-15, and DR 5-105(A). Defense counsel's primary allegiance runs to the assured, and if the carrier disclaims, counsel would be expected to contend directly against the carrier's interest, a posture the committee had described in N.Y. State 73 (1968).

The committee held that, while in theory a staff lawyer might be isolated enough from the employer to contend against the carrier, in practice the difficulty of preserving client confidences and exercising independent judgment would be insurmountable, so a per se rule of disqualification is warranted. It drew support from Louisiana and Oregon opinions reaching the same result. Even with full disclosure and the insured's consent under DR 5-105(C), the committee found the situation too fraught to permit, reasoning that the assured cannot by consent nullify the lawyer's ethical obligations (citing Matter of Kelley). The question was answered in the negative, leaving retention of outside counsel as the path.

Currency note

This opinion was issued in 1980, before New York replaced the Code of Professional Responsibility with the Rules of Professional Conduct in 2009 (the conflict standards discussed here now appear principally at Rule 1.7, with limits on a third party paying for the representation at Rule 1.8(f)). 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 an insurer's staff lawyer defend an insured the company is denying coverage to?

A: Not once the carrier persists in the disclaimer. The committee held staff counsel may not handle either the defense or the coverage declaratory-judgment action, because counsel's allegiance to the insured would require contending against his employer.

Q: Can the insured consent to the staff lawyer continuing?

A: No. The committee found the conflict so severe that a per se disqualification applies, and the assured cannot by consent nullify the lawyer's ethical obligations under DR 5-105(C).

Q: When can staff counsel still defend an insured the carrier might disclaim against?

A: When the carrier abandons its right to disclaim. The committee said that if the carrier gives up the disclaimer, staff counsel may proceed with the defense of the third-party claims.

Background and rules framework

The opinion applied DR 5-105(A) and (C) and EC 5-14, 5-15, and 5-17 of the Code of Professional Responsibility to an insurer staff lawyer asked to defend an insured against whom the carrier was disclaiming coverage. The closest current Model Rule analogues are Rule 1.7 (concurrent conflicts of interest) and Rule 1.8(f) (compensation from a third party, here the carrier).

Citations and references

Rules of Professional Conduct:

• MR 1.7 (concurrent conflicts)
• MR 1.8(f) (third-party compensation)
• NY EC 5-14, EC 5-15, EC 5-17, DR 5-105(A), DR 5-105(C)

Cases:

• Matter of Kelley, 23 N.Y.2d 368 (1968), consent cannot nullify ethical obligations

Other opinions cited:

• N.Y. State 73 (1968): defense counsel's allegiance runs to the assured
• N.Y. State 109 (1969) and ABA 282 (1950): staff counsel may defend in the ordinary case
• La. Op. 338 (1974) and Ore. Op. 254 (1973): same per se result in other states

See also

• NY State Bar Op. 516: Insurance company lawyer preparing a will and estate plan
• NY State Bar Op. 517: Conflicting representation in two matrimonial matters

Source

• Landing page: https://nysba.org/opinion-519/