An insurer wants one lawyer to defend two insured co-defendants, one of whom can claim indemnification from the other and the claim exceeds the policy limits. Can the lawyer represent both?

Plain-English summary

A building owner hired a general contractor who agreed to procure a liability policy naming both as insureds and to defend and indemnify the owner for construction-related claims. A subcontractor's employee was injured and sued both the contractor and the owner for an amount exceeding the policy limits. The insurer wanted one lawyer to defend both. The committee was asked whether that joint representation is permissible.

The committee applies DR 5-105(A) and (B), which require a lawyer to decline multiple representation if independent professional judgment for one client will likely be adversely affected, or if it would likely involve representing differing interests. DR 5-105(C) permits the representation only if a disinterested lawyer would believe the lawyer can competently represent each client's interest and each consents after full disclosure of the implications, advantages, and risks. Here, the differing interests arise from the owner's contractual right to indemnification from the contractor for the portion of the claim exceeding the policy limits.

The committee walks through the analysis. A disinterested lawyer might conclude that joint representation is not possible, for example if the owner should assert the indemnification right as a cross-claim, or if an independent negligence claim against the owner means the trial must apportion liability between the two defendants. If joint representation is permissible, the lawyer may proceed only with each client's informed consent. That disclosure must explain the advantage of a unified defense and the offsetting disadvantage to the owner of being unable to assert indemnification as a cross-claim, along with the risks of deferring that claim (unavailable witnesses, enforcement of a judgment before the indemnification claim is resolved, and the contractor becoming judgment-proof), the lawyer's duty to share each client's confidences with the other absent agreement otherwise (N.Y. State 761), the possibility of mandatory withdrawal (N.Y. State 674), and trial consequences such as peremptory challenges. Because the claim exceeds the policy limits, both defendants should be advised of their right to separate counsel on the excess claim. If the owner consents and agrees not to assert the cross-claim, the lawyer may represent both, but could not later represent either in an action to enforce the indemnification rights without the other's separate consent (DR 5-108(A)). The opinion overrules N.Y. State 555 in part, to the extent that opinion suggested full disclosure to both clients is not required where disclosure would obviously be detrimental to the communicating client.

In practice

Under the New York Code as it stood at the time, the opinion holds that an insurer cannot simply assign one lawyer to two co-insureds whenever their interests diverge. Where one insured holds an indemnification claim against the other and the demand exceeds the policy limits, the joint representation is permissible only after the two-step DR 5-105(C) gate: a disinterested-lawyer competence judgment, then informed consent from both. The committee makes the disclosure concrete (unified-defense advantage versus loss of the cross-claim, the specific risks of deferral, confidentiality sharing, and the right to separate counsel on the excess) and requires the owner to forgo asserting the indemnification claim as a cross-claim. It also confirms that the insured, not the carrier, is the client, and that consenting to the joint defense does not waive a later separate-consent requirement for an enforcement action under DR 5-108(A).

Common questions

Q: What creates the conflict between the two insured defendants?

A: The owner's contractual right to indemnification from the contractor for the part of the claim that exceeds the policy limits. That right gives the two co-defendants differing interests under DR 5-105.

Q: Can the insurer's lawyer ever represent both?

A: Yes, but only if a disinterested lawyer would believe both can be competently represented, both consent after full disclosure, and the owner agrees not to assert the indemnification claim as a cross-claim in the action.

Q: Does the owner have to give up the indemnification claim entirely?

A: No. The committee says the owner need not waive the cause of action, only agree not to assert it as a cross-claim in the present suit; the claim can be deferred, though deferral carries risks the lawyer must disclose.

Q: Who is the client when an insurer hires the lawyer?

A: The insured. The committee reiterates (citing N.Y. State 73) that the insured is the client and the lawyer owes undivided fidelity, regardless of who pays the fees.

Background and rules framework

The opinion applies New York's former Code of Professional Responsibility. DR 5-105(A), (B), and (C) govern concurrent representation of differing interests and the disinterested-lawyer-plus-consent mechanism for proceeding (a facet of Model Rule 1.7). DR 5-108(A) governs duties to a former client and the separate consent needed before acting adversely in a substantially related matter (analogous to Model Rule 1.9). The duty to share confidences among joint clients absent agreement otherwise reflects the confidentiality framework (Model Rule 1.6 and its joint-client gloss). EC 5-15 through 5-17 supply the cautionary guidance on multiple representation, including that doubts be resolved against it.

Citations and references

Rules of Professional Conduct:

• MR 1.7 (concurrent conflicts; differing interests); NY DR 5-105(A), (B), (C)
• MR 1.9 (duties to former clients); NY DR 5-108(A)
• MR 1.6 (confidentiality among joint clients); NY DR 4-101

Cases:

• Schwartz v. Public Adm'r of County of Bronx, 24 N.Y.2d 65 (1969), apportionment and collateral estoppel in successive actions
• Public Service Mut. Ins. Co. v. Goldfarb, 53 N.Y.2d 392 (1981), insured's right to independent counsel where the insurer's interest conflicts
• Goldberg v. American Home Assurance Co., 80 A.D.2d 409 (1981), no entitlement to separate counsel absent a conflict

Other opinions cited:

• N.Y. State 555 (1984): overruled in part on the full-disclosure point
• N.Y. State 560 (1984): no joint representation where a passive tortfeasor co-defendant does not consent
• N.Y. State 761 (2003): duty to share joint clients' confidences absent agreement otherwise
• N.Y. State 674 (1995): circumstances requiring withdrawal from joint representation
• N.Y. State 73 (1967): the insured, not the carrier, is the lawyer's client

See also

• NY State Bar Op. 826: Representing and opposing the same insurance carrier
• NY State Bar Op. 1154: Insurer-assigned counsel's duty to communicate
• NY State Bar Op. 1185: Conflict defending two clients in related prosecutions
• NY State Bar Op. 852: Settlement agreements requiring the attorney to indemnify

Source

• Landing page: https://nysba.org/ethics-opinion-778/