Dependent Counsel Is Not Exempt From Rule 3-310

Introduction

Rules of Professional Conduct, Rule 3-310 governs the duty of all California attorneys to avoid the representation of adverse interests. Some dependent counsel may assert that the Rule does not apply to them.[1] However, neither the text of Rule 3-310 nor any reported California opinion exempts dependent counsel from ethical obligations to the policyholder simply because they are hired by an insurer nor because independent counsel also represents the mutual client. Some dependent counsel may be evasive in response to a client’s inquiry about ethical obligations.[2]

Rule 3-310

All California attorneys must avoid the representation of potentially conflicting interests by complying with Rule 3-310.[3] Dependent counsel always represents the insurer as a client whose interests may be substantially affected by resolution of the plaintiff’s lawsuit against the policyholder.[4] Because of economic ties, dependent counsel is beholden to the insurer.[5]

Exemption When No Conflict Exists

Rule 3-310(F) “is not intended to abrogate existing relationships between insurers and insureds whereby the insurer has the contractual right to unilaterally select counsel for the insured, where there is no conflict of interest. (See San Diego Navy Federal Credit Union v. Cumis Insurance Society (1984) 162 Cal.App.3d 358.)”[6] A perfunctory denial of the existence of a conflict by dependent counsel without a careful analysis has been disregarded as “simply wishful thinking”[7]

Tripartite Relationship

The so-called tripartite relationship describes a harmonious defense team consisting of the policyholder (as witness), the insurer (as financier), and the insurer’s attorney (as advocate) whose only goal is to defeat or minimize a plaintiff’s claim.[8] However, case law is clear that the harmony of the tripartite relationship exists only “absent a conflict of interest [and] [s]o long as the interests of the insurer and the insured coincide.”[9] The attorney has “an independent ethical obligation to disclose the conflict to [the clients] and either obtain written waivers of the conflict or withdraw.”[10]

Civil Code § 2860 Embraces Rule 3-310

Civil Code § 2860(f) contemplates that a liability insurer may pay for independent counsel and appoint dependent counsel to “participate in all aspects of the litigation. Counsel shall cooperate fully in the exchange of information that is consistent with each counsel’s ethical and legal obligation to the insured.” The statute clearly contemplates that dependent counsel’s ethical obligations to the policyholder are not diminished by the Civil Code.

Civil Liability for Violation of Rule 3-310

In one case, Novak, the court stated “if the attorney ‘attempts dual relationship without making the full disclosure required of him, he is civilly liable to the client who suffers loss caused by lack of disclosure.’”[11] In rejecting the lawyers’ assertion that they represented only the insurer, the court said: “This is an amazing proposition.”[12] But in passing dicta, the court observed that if “the insured is protected by independent counsel every step of the way” certain disclosures by dependent counsel “would be unnecessary.”[13]

Cumis Counsel Does Not Excuse Dependent Counsel’s Ethical Obligations

No reported California opinion exonerates dependent counsel from compliance with Rule 3-310 simply because the insurer is also represented by Cumis counsel. Emphasizing dependent counsel’s ethical obligations to the policyholder, the Novak court held as follows: “What duty, if any, does counsel provided by an insurer owe to the insured in negotiating a partial settlement of claims when independent counsel for the insured has been provided pursuant to Civil Code section 2860? By statute such counsel has a duty not to exclude independent counsel from participating in settlement negotiations, and must cooperate fully in the exchange of information consistent with his or her obligation to the insured.”[14]

[1] Non-delegable Duty to Comply with Rule 3-310.

[2] Pitches and Fallacies of Dependent Counsel and Ethical Compliance Questionnaire.

[3] Rule 3-310 – Summary.

[4] Dependent Counsel Always Represents the Insurer.

[5] Dependent Counsel Is Beholden to the Insurer.

[6] Rule 3-310, Discussion (emphasis added); “[W]e have concluded there was no disqualifying conflict of interest here and consequently nothing to disclose.” (James 3 Corp. v. Truck Ins. Exchange (2001) 91 Cal.App.4th 1093, 1111.)

[7] Industrial Indem. Co. v. Great American Ins. Co. (1977) 73 Cal. App. 3d 529, 535.

[8] Tripartite Relationship: – Harmony or Dissonance.

[9] Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1406-1407 (citations, quotation marks, and ellipses omitted.)

[10] Gulf Ins. Co. v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2000) 79 Cal.App.4th 114, 132; See, San Diego Navy Federal Credit Union v. Cumis Insurance Society (1984) 162 Cal.App.3d 358, 375.

[11] Novak v. Low, Ball & Lynch (1999) 77 Cal.App.4th 278, 284.

[12] Ibid.

[13] Ibid.

[14] Id. at 1263-1264 (citations omitted).

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