Can a lawyer who first reviewed coverage for an insurer then defend both the insurer and the insured in the underlying lawsuit under a reservation of rights?

Plain-English summary

An insurer retains a lawyer to review an insurance policy after a third party files a complaint against the insured. The lawyer advises the insurer that it has a duty to defend the insured but may not have a duty to pay any ultimate judgment. After that coverage work is done, the insurer asks the lawyer to represent both the insurer and the insured in defending the underlying litigation, subject to a reservation of rights. The opinion asks whether the lawyer may take on that joint defense.

The opinion starts from the premise that, in the defense of the underlying action, both the insured and the insurer would be the lawyer's clients. Simultaneous representation in insurance-defense cases is generally permissible, because the clients share a common interest in defeating the claim, so an Oregon RPC 1.7 conflict generally will not exist. The opinion notes the limits: if the representation of one client would be directly adverse to the other, even consent could not cure it; and if there is a significant risk that representing one client will be materially limited by responsibilities to the other, the lawyer may proceed only with a reasonable belief of competent representation and informed consent, confirmed in writing.

The opinion then identifies the wrinkle here: the lawyer's recently completed coverage work for the insurer. Because of that work, if there is a significant risk that the lawyer's defense of the insured will be materially limited by the lawyer's responsibilities to the insurer, a conflict exists under RPC 1.7(a). The lawyer therefore cannot represent both in the underlying action without a reasonable belief that the lawyer can competently represent both clients and without informed consent, confirmed in writing, from both, under RPC 1.7(b) and RPC 1.0(b) and (g). The disclosure to the insured must include the fact of the prior coverage representation of the insurer and its potential significance.

The opinion adds that Oregon RPC 1.8(f) (compensation from a third party) and RPC 5.4(c) (no interference with professional judgment by the payer) also apply, but on these facts they impose no requirements beyond those already imposed by RPC 1.7.

In practice

The opinion holds that joint insurer-insured defense is generally permissible because of the shared interest in defeating the claim, but a lawyer's prior coverage work for the insurer can create a material-limitation conflict under RPC 1.7(a)(2) as to the insured's defense. Where that risk is significant, the lawyer proceeds only with a reasonable belief of competent representation and informed consent confirmed in writing from both clients, and the disclosure to the insured must spell out the prior coverage work and its potential significance. The third-party-payment rules (RPC 1.8(f), 5.4(c)) apply but add nothing beyond RPC 1.7 here. Verify the current text of Oregon RPC 1.7 before relying on any specific point.

Common questions

Q: I advised an insurer on coverage. Can I now defend both it and the insured in the lawsuit?

A: Yes, qualified. The opinion concludes you may, but the prior coverage work can create a material-limitation conflict, so you need a reasonable belief you can competently represent both and informed consent confirmed in writing from both clients.

Q: What must I disclose to the insured to get consent?

A: Per the opinion, the disclosure to the insured must include the fact of your prior representation of the insurer on the coverage question and its potential significance.

Q: Is consent ever insufficient?

A: Yes. The opinion notes that if representing one client would be directly adverse to the other, the representation is impermissible even with both clients' consent.

Q: Do the third-party-payment rules add anything?

A: Not on these facts. The opinion concludes RPC 1.8(f) and RPC 5.4(c) apply but create no requirements beyond those imposed by RPC 1.7.

Background and rules framework

The opinion interprets Oregon RPC 1.7 (current-client conflicts), the consent definitions in RPC 1.0(b) and (g), and the third-party-payment limits in RPC 1.8(f) and RPC 5.4(c), corresponding to Model Rules 1.7, 1.0, 1.8, and 5.4. The analysis turns on whether prior coverage work for the insurer creates a significant risk of materially limiting the lawyer's defense of the insured.

Citations and references

Rules of Professional Conduct:

• Oregon RPC 1.7 / Model Rule 1.7 (conflicts of interest, current clients)
• Oregon RPC 1.0(b), (g) / Model Rule 1.0 (confirmed in writing; informed consent)
• Oregon RPC 1.8(f) / Model Rule 1.8 (compensation from a third party)
• Oregon RPC 5.4(c) / Model Rule 5.4 (professional independence)

Cases:

• In re Holmes, 290 Or 173, 619 P2d 1284 (1980)
• In re Barber, 322 Or 194, 904 P2d 620 (1995)
• In re Germundson, 301 Or 656, 724 P2d 793 (1986)

Other opinions cited:

• OSB Formal Ethics Op. No. 2005-30 (simultaneous representation of insurer and insured)
• OSB Formal Ethics Op. No. 2005-121 (insurance defense)

See also

• OSB Ethics Op. 2005-30: Simultaneous Representation of Insurer and Insured
• OSB Ethics Op. 2005-68: Settlement Funds Claimed by Two Clients

Source

• Landing page: https://www.osbar.org/ethics/toc.html
• Original PDF: https://www.osbar.org/_docs/ethics/2005-77.pdf