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.

Florida Firm Loses Again in Dispute Over Referral Fee Agreement

In a decision from the U.S. District Court for the District of Maryland, Florida law firm Michael E. Criden P.A. lost for the second time in its long-running effort to recover a share of $10 million in fees that another firm, Joseph Saveri Law Firm Inc., received in an antitrust litigation in California. Judge Richard D. Bennett’s decision held, among other things, that a fee sharing agreement with a lawyer’s former firm is not enforceable against his new firm.

Criden, who had established a fee-sharing arrangement with Saveri’s former firm, argued that Saveri should be bound by the terms of the agreement with that firm. Criden also claimed that Saveri agreed to abide by the fee-sharing arrangement when he left his former firm and founded his new and current firm.

However, the court held that Criden’s claims failed under basic principles of California corporate law and the legal ethics rules of the state of Maryland; specifically, Maryland Rule of Professional Conduct 19-301.5(e), which governs attorney fee-sharing arrangements.

Among other things, the court held that the 12.5 percent referral fee Criden sought to enforce violated the proportionality mandate in rule 19-1.5(e). This rule requires fee-sharing to be proportionate to each lawyer’s services, unless each assumes joint responsibility for the representation. What’s more, the client did not consent in writing to the purported fee-sharing arrangement as required by the rule. The opinion also noted that the rules of California and Florida would likewise prohibit Criden from enforcing the purported referral fee agreement.

Read the full opinion here.