Can a law firm sue an insurance carrier on behalf of insureds while also defending that same carrier against other insureds in unrelated coverage cases?

Plain-English summary

A firm regularly represented property owners and construction managers, as plaintiffs, in declaratory judgment actions against insurance carriers that had disclaimed coverage, arguing the clients were "additional insureds." One of those defendant carriers asked the firm to defend it in other, unrelated declaratory judgment actions brought by different insureds. The firm asked whether it could take those engagements.

The committee starts from DR 5-105: a lawyer may not undertake concurrent representations involving "differing interests" unless each affected client gives informed consent after full disclosure and a disinterested lawyer would believe the lawyer can competently represent each. It finds a clear conflict, because the firm would be adverse to its insured clients by representing the carrier, so the firm may proceed only if the conflict is consentable and all clients consent. It then identifies several factors that complicate consent. First, positional or issue conflicts: because insurance policies are standardized, the firm may have to argue the opposite side of an issue (timeliness of notice, specificity of a disclaimer, scope of a clause) it is litigating for a plaintiff in another case. Citing EC 5-15 and ABA 93-377, the committee says such positional conflicts are not an automatic bar and are generally consentable, but where the lawyer's own advocacy could be used against the lawyer, or the lawyer would feel constrained from arguing vigorously, the disinterested-lawyer test of DR 5-105(C) generally cannot be met.

The committee adds two more factors: the possible need to cross-examine an employee of the carrier client (depending on the employee's seniority and the testimony's importance, this may defeat the disinterested-lawyer test), and the bar in DR 4-101(B)(2) against using a client's confidential information to its disadvantage, which may be unavoidable where a carrier's practices on an issue are at stake. Finally, the committee addresses advance waivers: a firm may generally request and rely on an advance waiver of future multiple-representation conflicts if the conflicts are otherwise consentable, the disclosure is sufficient, and the client can understand the waiver, with the scope depending on the client's sophistication; the lawyer must re-check the waiver's validity both when given and when triggered.

In practice

The opinion holds, under the former Code as it stood at the time, that there is no per se disqualification, but that the burden of satisfying the disinterested-lawyer test in this setting "will often be a high one." The committee frames the analysis as fact-specific in each case: the nature of the legal issues and the effect of positions taken for one client on others, the identity and seniority of likely witnesses, and whether the lawyer holds confidential information from the carrier representation that could be useful against it. It treats sophisticated insurance-company clients as more able to give effective consent and advance waivers, while noting unsophisticated clients' advance waivers are more likely enforceable when narrowly limited to the same general kind of suit.

Common questions

Q: Can a firm sue an insurer for some clients and defend it for others at the same time?

A: The opinion concludes there is no per se rule against it, but the firm may proceed only if the conflict is consentable and all affected clients give informed consent after full disclosure.

Q: What is a positional conflict here, and does it bar the representation?

A: The opinion describes a positional conflict as having to argue opposite sides of a recurring coverage issue in different cases. Citing EC 5-15, it concludes such conflicts are not an automatic bar and are generally consentable, but can defeat the disinterested-lawyer test where the lawyer's advocacy would be used against the lawyer.

Q: Can the firm get an advance waiver of these conflicts?

A: The opinion concludes a firm generally may request and rely on an advance waiver of future multiple-representation conflicts if they are otherwise consentable, the disclosure is sufficient, and the client can understand the waiver, and that the lawyer must review the waiver's validity when given and when triggered.

Background and rules framework

The opinion interprets former Code DR 5-105(A) and (C) (concurrent conflicts and the disinterested-lawyer test, the analogue of ABA Model Rule 1.7), DR 5-101(A) (the lawyer's own interests), DR 4-101(B)(2) (using a client's confidence or secret to its disadvantage), and EC 5-15 (positional conflicts). It draws on ABA Formal Op. 93-377, Model Rule 1.7 cmt. 24, and the Restatement (Third) of the Law Governing Lawyers section 128.

Citations and references

Rules of Professional Conduct:

• MR 1.7 (concurrent conflicts of interest), and Model Rule 1.7 cmt. 24
• Former Code DR 5-105(A), (C); DR 5-101(A); DR 4-101(B)(2); EC 5-15

Other authority:

• Restatement (Third) of the Law Governing Lawyers section 128 (2000), inconsistent positions and conflicts

Other opinions cited:

• ABA Formal Op. 93-377: positional conflicts where adverse precedent is likely
• N.Y. City 2005-2: unavoidable use of information from a prior representation
• N.Y. City 2006-1: advance waivers of future conflicts

See also

• NY State Bar Op. 829: Conflict consents and the confirmed-in-writing requirement
• NY State Bar Op. 847: Conflicts and a lawyer's responsibilities to third parties
• NY State Bar Op. 1063: Conflict when fees are paid by a third-party relative

Source

• Landing page: https://nysba.org/ethics-opinion-826/