Can a firm sue a former insurance-company client over the same kind of benefit-denial claims it once defended, and does reusable legal research create a conflict?

Plain-English summary

A firm had previously represented an insurance company in four cases involving state-law claims that the insurer wrongfully denied medical benefits. With no active cases left for the insurer, the firm wanted to represent a hospital pressing federal-law claims that the insurer wrongfully denied medical benefits to insureds. The insurer signaled it would move to disqualify the firm, worried in particular that research done in the earlier cases would apply to the new one. The question was whether Rule 1.9 barred the new representation.

The committee located the issue in Rule 1.9, which prohibits a lawyer from representing a person in the same or a substantially related matter materially adverse to a former client. It noted that doubts about an asserted conflict should be resolved in favor of disqualification, while the burden of proving a conflict rests on the party seeking it. The crux, the committee said, is whether the prior representation was "substantially related" to the new matter, and it described two judicial tests: the "patently clear" test (disqualification only where the issues are identical or essentially the same) and the Westinghouse test (focusing on whether confidences could have been disclosed in the first matter that would harm the client in the second). Under either test, a conflict would arise if the benefit denials in both the prior and present matters involved a common course of conduct or company policy, for example a consistently interpreted exclusionary clause. As to research, the committee did not read Rule 1.6 to treat case-law research as protected "information," so reusable research alone did not create a conflict; the inquiry instead focuses on the insurer's actions, policies, and tactics, and on whether recurrent factual patterns connect the two representations.

Currency note

This opinion was issued in 1990, before the South Carolina Bar's adoption of the 2005 revisions to the Rules of Professional Conduct. 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 Treat this page as historical context, not current guidance.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 a firm sue a former client over the same general type of claim it used to defend?

A: The committee said handling a type of problem for a former client does not by itself preclude later adverse work on a distinct problem of that type; a Rule 1.9 conflict arises only where the matters are substantially related, such as where they share a common course of conduct or policy.

Q: Does it matter that the old cases were state-law claims and the new ones are federal?

A: No. The committee said the state-versus-federal difference is not dispositive; the inquiry focuses on the former client's actions, policies, and tactics that are challenged in both.

Q: Does reusing legal research from the prior representation create a conflict?

A: The committee said it does not, on its own; it did not read Rule 1.6 to treat case-law research as confidential "information," so the mere applicability of prior research is not disqualifying.

Background and rules framework

The opinion applies Rule 1.9 (duties to former clients) and Rule 1.6 (confidentiality of information), each corresponding to the like-numbered Model Rule. The committee organized its analysis around the "substantially related" standard in Rule 1.9 and the two competing judicial tests for applying it, while using Rule 1.6 to mark the boundary between protected client information and general legal research.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 1.9 / Model Rule 1.9: a lawyer shall not represent another in the same or a substantially related matter materially adverse to a former client without consent, and shall not use or reveal the former client's information.
• South Carolina RPC 1.6 / Model Rule 1.6: confidentiality of information relating to the representation.

Cases:

• International Business Machines Corp. v. Levin, 579 F.2d 271 (3d Cir. 1978), doubts resolved in favor of disqualification.
• Chugach Electric Association v. United States District Court, 370 F.2d 441 (9th Cir. 1966), cert. denied, 389 U.S. 820 (1967).
• Duncan v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 646 F.2d 1020 (5th Cir. 1981), burden of proving a conflict on the movant.
• Government of India v. Cook Industries, Inc., 569 F.2d 737 (2d Cir. 1978), the "patently clear" test.
• Westinghouse Electric Corp. v. Gulf Oil Corp., 588 F.2d 221 (7th Cir. 1978), the confidences-disclosure test.

See also

• SC Bar Ethics Op. 02-03: Ex-Solicitor's Civil Case
• SC Bar Ethics Op. 00-05: Past Closings, Later Divorce
• SC Bar Ethics Op. 90-42: Former Client's Confidences in a Later Suit

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-90-34/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 90-34

The John Doe Law Firm ("the Firm") previously represented XYZ Insurance Company ("XYZ Company") in four cases involving state law claims that XYZ Company had wrongfully denied medical benefits to its insureds. The Firm no longer handles any active cases for XYZ Company and now seeks to represent ABC Hospital in asserting federal law claims that XYZ Company wrongfully denied medical benefits to the insureds. XYZ Company has indicated it will seek to have the Firm disqualified from handling the case on behalf of ABC Hospital. XYZ Company is particularly concerned that research done by the firm in the prior cases will be applicable to the present case.

Question:
Do the Rules of Professional Conduct prohibit the Firm from representing ABC Hospital in such a situation?

Summary:
Based on the information provided, there is a potential conflict of interest under Rule of Professional Conduct 1.9. This conflict arises to the extent that any specific conduct, company policy or tactic adopted by XYZ Company and at issue in the Firm's prior representation of ABC Hospital.

Opinion:
The question involves the existence of a conflict of interest between present (ABC Hospital) and former (XYZ Company) clients of the firm. Such conflicts are governed by Rule of Professional Conduct 1.9.

(a) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after consultation. . . .

(c) A lawyer who has formerly represented a client in a matter or whose present or former firm has formerly represented a client in a matter shall not thereafter:

(1) Use information relating to the representation to the disadvantage of the former client except as Rule 1.6 or Rule 3.3 would permit or require with respect to a client, or when the information has become generally known; or (2) Reveal information relating to the representation except as Rule 1.6 or Rule 3.3 would permit or require with respect to a client. The comments to Rule 1.9 further state as follows:

"(A) lawyer who recurrently handled a type of problem for a former client is not precluded from later representing another client in a wholly distinct problem of that type even though the subsequent representation involves a position adverse to the prior client....Information acquired by the lawyer in the course of representing a client may not subsequently be used or revealed by the lawyer to the disadvantage of the client." In addressing this matter, it should be noted that doubts as to the existence of an asserted conflict of interest should be resolved in favor of disqualification. See, International Business Machines Corporation v. Levin, 579 F. 2d 271 (3rd Cir. 1978) and Chugach Electric Association v. United States District Court, 370 F. 2d 441 (9th Cir. 1966), cert. denied, 389 U.S. 820,88 S. Ct. 40 (1967). However, the burden or proving a conflict of interest is on the party seeking the disqualification. Duncan V. Merrill Lynch, Pierce, Fenner & Smith, Inc., 646 F. 2d 1020 (5th Cir. 1981).

The crux of the issue is whether the Firm's past representation of XYZ Company concerned matters which are "substantially related" to the matters the Firm now seeks to undertake on behalf of ABC Hospital.

There appear to be two tests for determining whether matters are "substantially related" for purposes of Rule 1.9. The first, commonly referred to as the "patently clear" test, was espoused by the court in Government of India v. Cook Industries, Inc., 569 F. 2d 737 (2d Cir. 1978) and requires disqualification only upon a showing that the relationship between issues in the prior and present cases is "patently clear", or whether the issues involved are identical or essentially the same.

The second test, espoused by the court in Westinghouse Electric Corporation v. Gulf Oil Corporation, 588 F 2d 221 (7th Cir. 1978) involves appraisal of the possibility that confidences have been disclosed in one matter which will be harmful to the client in the other. The focus is on whether during the former representation an attorney could have acquired information related to the subject matter of the subsequent representation.

Under either test is the potential for a conflict in the present situation. Although the information provided to the Committee is sparse, a conflict would arise if the denial of benefits in both prior and present representations involves a common course of conduct or company policy adopted by XYZ Company.

If such a pattern of conduct or policy were involved there would be an identity of issues between the prior and present representations sufficient to satisfy the "patently clear" test. Moreover, the Firm's knowledge of particular patterns of conduct or policies, if gained in the prior representation and relevant to the present representation, would under the second test create a conflict in the present representation for which a waiver would be needed.

Rule 1.6 governs confidentially of information in general. The Committee does not read Rule 1.6 to encompass "information" such as case law research. The mere fact that research from the prior representation might apply to the present representation therefore does not itself create a conflict. However, it is fundamental that similar laws apply to similar factual situations and the Firm should be careful to address the possibility that there are recurrent factual patterns in the prior present representations. Such recurrent factual patterns might create a Rule 1.9 conflict.

For example, if XYZ Company's insurance policies all contain a particular exclusionary clause which it has consistently interpreted in a way that gives rise to both state and federal-- based claims for improper benefit denial, then all cases involving its interpretation of the exclusionary clause would be "substantially related," and the Firm could not properly represent XYZ Company in support of that interpretation and subsequently represent ABC Hospital in challenging that interpretation. Moreover, to the extent that the Firm became aware of the particular interpretation, its underlying rationale that information could not be revealed or used to XYZ Company's detriment in the present representation.

In summary, given the facts provided, the Committee finds that the potential for a conflict of interest under Rule 1.9 exists. The applicability to the present representation of research undertaken during the prior representation is not dispositive. Nor is the fact that the prior representation involved state law claims while the present representation involves federal law claims. Rather, the inquiry should focus upon the actions, policies, and tactics of XYZ Company which have been and are being challenged on both state and federal grounds. If any conduct attributable to XYZ Company is recurrent in the prior and present representations a Rule 1.9 conflict arises. Moreover, depending upon the specific circumstances, a Rule 1.6 conflict might also arise.