Attorneys Retained by Auto Insurers: Duty to the Insured

When a lawsuit is filed against an automobile insurance company's insured for damages allegedly suffered by a claimant in an automobile accident with the insured, the insurance company has a duty to defend the insured. A part of the insurance company's duty can be the right to retain an attorney for the insured's defense and to pay that attorney's fee. Because the insurance company selects and pays the defense counsel, questions arise regarding who is the attorney's client and whether the attorney owes a duty to only the insured or to both the insured and the insurance company.

Whether an attorney represents the insured or the insurance company, there is a one-client relationship. If the attorney represents the insured, than he or she owes no duties to the insurance company. The attorney owes the insured a duty of loyalty, a duty to use his or her independent professional judgment, and a duty use every ethical means to lessen the insured's exposure to liability. When an attorney represents the insured and the insurance company, there is a two-client relationship, also called a tripartite relationship. The attorney still owes both clients the same duties. If a conflict of interest exists between the clients, the attorney must disclose the conflict to both clients and obtain their consent to continue the two-client representation.

The insurance company's right to choose the attorney, who will defend its insured, can be found in the insurance policy. The duty to defend clause, the cooperation clause, the supplementary payments clause, and the voluntary payments condition are generally considered as the sources of the right. The same clauses also govern the extent of the insurance company's rights and duties to defend. For instance, an insurance company cannot tell a retained attorney to stop representing the insured because the insurance company is concerned over the cost of the defense. Likewise, until the insurance company had discharged its duty to defend, it cannot stop the attorney's representation because the insurance company has paid out the policy limit on the claim.

If an insurance company agrees to defend an insured in a lawsuit, but the insurance company reserves its right to challenge the coverage of the claim, some courts require the insurance company to retain and pay an attorney of the insured's choosing. That attorney may be referred to as independent counsel. If the insurance company files an action in court regarding the coverage of the claim issue, it must continue to pay the retained attorney or the insured's independent counsel until the coverage claim is decided in its favor.

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