Walking a Tightrope: The Tripartite Relationship between Insurer, Insured, and Insurance Defense Counsel

This article examines conflicts of interest arising out of the unique tripartite relationship characterizing insurance defense. That examination necessarily includes a review of the sources of conflicts and a look at judicial and legislative actions and reactions. The avoidance and mitigation of potential conflicts of interest are also discussed. I. Introduction II. An Overview of the Problem III. Conflicts of Interest ... A. Reservation of Rights ... B. Claimed Damages Exceed Coverage ... C. Defense Costs Reduce Available Coverage ... D. Representation of Multiple Parties ... E. Counsel's Defense Activities Generate Information Suggesting a Possible Coverage Defense ... F. Punitive Damages Are Claimed ... G. The Insurer Attempts to Limit Discovery to Reduce Expenses IV. Ethics Rules Governing Insurance Defense Counsel ... A. Model Rule 1.7 ... B. Model Rules 1.8(f) and 5.4(c) ... C. Fraud and Confidentiality: Model Rules 1.2, 1.16, and 1.6 V. Attempted Solutions to the Dual Client Dilemma VI. Proposed Resolution of Conflicts VII. Conclusion