Insurance Counsel Can’t Advise Client on Misrepresentation

The New York County Bar Association’s Ethics Committee published an opinion advising that an insurance defense lawyer cannot advise the insured whether to inform the insurance carrier about false information or a misrepresentation on the insured’s application. Instead, the Ethics Committee suggests that a lawyer advise the client to seek independent counsel as to whether the client needs to disclose the information to the insurance carrier.

This issue arises because insurance carriers often retain firms as “panel counsel” from which they select counsel to defend insured in lawsuits. The opinion deals with the conundrum that may confront a lawyer, who has been retained as “panel counsel,” and then learns that the insured lied on his application. The opinion describes a lawyer who is confronted with the dilemma of whether to report the client’s lie to the insurance company, who may then deny coverage for the client, or to fail to disclose the misrepresentation at the risk of losing a highly coveted panel counsel position.

The Committee concludes that, in this situation, the lawyer’s client is the insured and therefore the duty to the client is paramount. The lawyer owes a duty of confidentiality to his client under the Rules of Professional Conduct Rule 1.6 (Confidentiality), which restrains the lawyer from revealing an insured’s misrepresentation to the insurance carrier.

However, beyond the duty of confidentiality, the committee notes that the lawyer has a conflict under Rule 1.7 (Current-Client Conflicts), because of his personal, financial interest in his business relationship with the insurance carrier. Thus, the lawyer is not likely to be in a position to advise the client even after full disclosure of the conflict to the client.  Ultimately, the opinion concludes that if the client fails to correct the misrepresentation and thereby insists on pursuing a fraudulent course of action, the lawyer may withdraw.

Find the opinion here.

Leave a Reply

Your email address will not be published. Required fields are marked *