Insurance Law: Litigation Guidelines

Insurer’s Use of Litigation Guidelineslitigation guidelines

Many insurers issue to defense counsel “litigation guidelines,” which state under what circumstances defense counsel may decide to take certain actions in the defense and under what circumstances prior authorization from the insurer is necessary.  Georgia Rule of Professional Conduct 1.7(a) provides as follows:  “A lawyer shall not represent or continue to represent a client if there is a significant risk that the lawyer’s own interests or the lawyer’s duties to another client, a former client, or a third person will materially and adversely affect the representation of the client, except as permitted [by client consent].”  Where an insurer uses litigation guidelines to control defense costs by limiting defense counsel’s actions in defending the case, Rule 1.7 comes into play.  For example, guidelines may limit the discovery to be propounded on adverse parties.  Such restrictions create potential conflicts of interest if they inhibit an attorney’s ability to adequately defend a case or interfere with the attorney’s independent professional judgment. For instance, the Montana Supreme Court has held that Montana attorneys may not follow an insurer’s billing and practice rules which limit or direct the scope and extent of the attorney’s representation of the insured.

The American Bar Association: Litigation Guidelines

The American Bar Association addressed the issue of litigation guidelines in Formal Opinion 01-421.3  The ABA stated:

Pursuant to the liability insurance contract, the insured delegates to the insurance company the right to defend the case and is required to cooperate in the insured’s defense.  However, the rules of professional conduct – and not the liability insurance contract – govern the lawyer’s ethical obligations to his client, whether the client is the insured, the insurer, or both.

As soon as the matter is assigned, the defense attorney should inform the insured of any limitations on the representation.  ABA Formal Opinion 01-421 states:

If the lawyer is hired to defend an insured pursuant to an insurance policy that authorizes the insurer to control the defense, and in its sole discretion, to settle within policy limits, the lawyer must communicate these limitations on his representation of the insured to the insured, preferably early in the representation.  The lawyer should “make appropriate disclosures sufficient to apprise the insured of the limited nature of his representation as well as the insurer’s right to control the defense in accordance with the terms of the insurance contract … No formal acceptance or written consent is necessary.  The insured manifests consent to the limited representation by accepting the defense offered by the insurer after being advised of the terms of the representation being offered.”

The attorney should provide written notice to the insured at the time of retention that:

  • the attorney has been hired by the insurance company to defend the insured regarding the claim;
  • the insurance company assumes the defense subject to the terms and conditions of the applicable policy (but the attorney should not make any comment on the terms of coverage or provide any coverage advice);
  • the insurer has the right to control the defense in accordance with the terms of the insurance policy;
  • the insurer provides certain guidelines to its defense attorneys regarding the handling of litigation;
  • the attorney intends to proceed with the defense at the direction of the insurer and within the insurer’s guidelines;
  • the attorney is subject to legal and ethical duties under Georgia law (and explain those duties, such as the duty to maintain confidences);
  • the insured has the right to obtain his own counsel at his own expense, and that the defense attorney will work with that counsel at the insured’s direction;
  • if the insured disagrees with the insurer’s conduct of the defense, the insured may refuse the defense offered and proceed with his own counsel at his own expense.

The insured can agree at the outset that his appointed attorney should follow the insurer’s direction and does not have to specifically consent to each act or decision that his attorney makes. If the insured disagrees, however, the attorney must follow the wishes of his insured client, to whom he owes his primary duty.

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