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Explaining How to Avoid Conflicts of Interest   

https://zalma.com/blog

It is imperative that the defense attorney and the adjuster both  recognize that where the interests of the insurer and the insured  conflict in a suit on a liability policy, the attorney\\u2019s duty is to the  insured. The attorney and the adjuster must be careful that the attorney  does not become the insurer\\u2019s agent on any issues that relate to  coverage. The insurer may, if it ignores this conflict, find itself  paying extracontractual damages and counsel may be surprised to be a  defendant in the same suit.  Conflicts may be avoided by sending a copy of the reservation of rights  letter or nonwaiver agreement to the attorney retained to defend the  insured so that he or she is aware of the problem areas. However, the  adjuster must not ask the attorney retained to defend the insured to  draft a reservation of rights letter for the company or to provide the  company any advice regarding coverage. Doing so would create an  unnecessary conflict between the attorney and the client/insured and  force the defense attorney to withdraw from the case.  The adjuster should not instruct the attorney to collect facts without  any relevance to the defense of the insured but that are particularly  directed to an issue that would tend to defeat coverage. Nor should the  adjuster pose hypothetical cases involving similar facts to the attorney  hired to represent the insured. Rather, the adjuster should consult  experienced coverage counsel regarding coverage issues, including  assistance drafting reservation of rights letters to the insured.  Coverage counsel should never be involved in the defense of the insured  or the insurer because coverage counsel will usually be a key witness in  any future litigation resulting from the advice provided. Coverage  counsel\\u2019s work should be limited to providing advice to the person or  entity who has retained him or her.  The American Bar Association (ABA) established Guiding Principles for  Insurance Representation in 1970, which were later incorporated into the  ABA\\u2019s Code of Professional Responsibility.  The ABA Guiding Principles  were rescinded at the annual meeting of the ABA House of Delegates in  August 1980. The delegates decided the Guiding Principles no longer  needed a separate statement, as the principles had been incorporated  into the ABA\\u2019s Code of Professional Responsibility. They include the  following suggestions:  If a conflict arises between the interests of the insured and the  insurer, the insurer and the attorney hired by it must inform the  insured of that conflict and invite him to retain his or her own  attorney at his or her own expense.  \\xa9 2021 \\u2013 Barry Zalma  Barry Zalma, Esq., CFE, now limits his practice to service as an  insurance consultant specializing in insurance coverage, insurance  claims handling, insurance bad faith and insurance fraud almost equally  for insurers and policyholders. He also serves as an arbitrator or  mediator for insurance related disputes. He practiced law in California  for more than 44 years as an insurance coverage and claims handling  lawyer and more than 52 years in the insurance business. He is available  at http://www.zalma.com and zalma@zalma.com.