Communicating Over Conflict

December 30, 2018Article
DRI Professional Liability Committee, Riding the E&O Line, Volume 10, Issue 4

The value of communication in cases in which stakeholders have differing interests cannot be overstated. Even in the absence of an actual conflict, a lawyer should think carefully and act thoughtfully when the interests of the parties in a case are not completely aligned. And the lawyer should communicate—clearly and often—with all stakeholders to whom duties are owed.

In the insurance defense context, the insurance company’s obligation is to act in good faith and consider the insured’s interests on a level commensurate with its own. Harvey v. GEICO Gen. Ins. Co., 2018 Fla. LEXIS 1705 (S. Ct. Fl. 2018); Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 510 P.2d 1032, (1973). But cf., Taylor v. Allstate Ins. Co., 356 S.W.3d 92 (Tx. Ct. App. 2011)(claims by insured for mishandling of lawsuits by insurance company limited to breach of contract claims). An insurer cannot take unreasonable risks with respect to the insured. United States Fidelity & Guaranty Co. v. Evans, 116 Ga. App. 93, 156 S.E.2d 809 (1967). However, the insurance company does not have an obligation to protect the insured’s interests outside the policy. Rogers v. Chicago Ins. Co., 964 So. 2d 280 (2007). And it does not have to disregard its own interests. Taylor, supra.

The defense lawyer has an even greater duty to the insured, his client. Taylor, supra; Glacier Gen. Assurance Co. v. Superior Court, 95 Cal. App. 3d 836, 157 Cal. Rptr. 435 (1979). Moreover, the lawyer is bound by ethical rules to both exercise his professional judgment to protect his client and to avoid a conflict of interest in his representation of a client. NY CLS Rules Prof Conduct R 1.7; Rules of the State Bar of California, R. 1.7; Texas Disciplinary Rules of Professional Conduct R. 1.06 and 5.04; Florida Rules of Professional Rules of Responsibility 1.7, 5.4. The lawyer should think deeply and act discreetly to navigate situations in which the interests of all stakeholders in litigation are not identical, as the lawyer often owes duties to more than one.

Consider, for example, a case where the insurer, insured, and defense counsel have agreed on a mediation strategy and value for the case. Then, at mediation, the insured decides she does not want to settle because of the damage to her reputation, causing the insurance company to invoke the hammer clause. Clearly, the lawyer cannot advise either the insurance company or the insured, but needs to develop creative ways to reach resolution. Furthermore, the lawyer needs to communicate clearly and unequivocally to the client and the insurance company exactly what the lawyer can and cannot do in these circumstances, and then suggest whatever solutions she can.

Another example is if an additional insured employee commits the complained of act during employment, leaves the firm, then gets sued. The firm and the employee are insureds, but the firm does not want the insurance company to provide a defense to the employee. And the employee, for his part, refuses to consent to a settlement which the firm wants to accept. Again, the attorney must carefully consider what he can and can’t do and discuss that with his clients. Within the confines of his ethical and legal obligations, the attorney should then do what he can to explore resolution of the case.

Another situation rife with sticky wickets for the lawyer is when the insured has represented a close family member. In a failure to disclose case, the closer the familial relationship, the harder it is to argue that insured was without knowledge. Moreover, the insured and/or the family member may be challenged in testifying truthfully if the truth is not favorable to the other family member. Once more, communicating the problems and issues among the stakeholder insurance carrier and client(s) is essential to a successful defense.

One final example to illustrate the fine lines attorneys must walk when stakeholders’ interests are not entirely aligned. When the plaintiff makes covered and non-covered claims, or claims that are covered for one insured but not for another. A declaratory judgment by the insurer could make the relationships even more complex. The only way to navigate this, and provide a good defense, is to communicate, communicate, communicate. Reiterate that the lawyer represents all of the stakeholders (assuming that is the case) and reiterate the limitations on the lawyer—orally and in writing. Then move forward to find a way to resolve the conflict and protect the interests of the clients.

Situations in which no actual conflict, but serious potential conflict exists, abound. With diligence, diplomacy, and good communication, the attorneys’ roles and responsibilities the various stakeholders interests can all be considered and protected.