Rules of Professional Conduct, Rule 3-310 imposes on California lawyers ethical obligations to analyze potential conflicts of interest, make written disclosure to dual clients, and obtain their informed written consent, a violation of which rule may have disciplinary, malpractice, and financial consequences.
Attorney’s Duty to Analyze Potential Conflict of Interest
“[W]hen coverage is disputed, the interests of the insured and the insurer are always divergent. [L]awyers hired by the insurer [have] an obligation to explain to the insured the full implications of joint representation in situations where the insurer has reserved its rights to deny coverage.” “There is no talismanic rule that allows a facile determination of whether a disqualifying conflict of interest exists”, but the lawyer should analyze the claims asserted, the insurer’s coverage defenses, disputed factual issues, and available evidence. “[T]raditional obligations of an attorney are in no way abridged by the fact that an insurer employs him to represent an insured. [T]he attorney owes the ‘highest duty’ to enable the parties to make a fully informed decision regarding the subject matter of litigation, including the areas of potential conflict and the possibility and desirability of seeking independent legal advice.”
Attorney’s Duty of Written Disclosure
A lawyer “shall not accept or continue representation of a client without providing written disclosure to the client where [the lawyer] has a legal, business, [or] financial relationship with another entity [that] would be affected substantially by resolution of the matter.”
Lawyers’ duty of full disclosure includes “the obligation to render a full and fair disclosure to the [client] of all facts which materially affect his rights and interests.” “Adequate communication with clients is an integral part of competent professional performance as an attorney.” The duty may require the lawyer to disclose one’s own malpractice. “[N]on-disclosure itself is a ‘fraud.”’
Attorney’s Duty to Obtain Client’s Informed Written Consent
A lawyer “shall not, without the informed written consent of each client: (1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict; or actually conflict.” Unlike subsection (B) requiring written disclosure, subsection (C) requires consent of entities that qualify as a “client” of the lawyer. While the existence of an attorney client relationship is normally a question of fact, “signed defense guidelines, with the negotiated hourly rate, and subsequent correspondence, along with the subsequent dealings between the [dependent counsel and an insurer], reflected an agreement between them and an attorney-client relationship as a matter of law.” “[T]he attorney has two clients.”
Attorney’s Duty of Confidentiality
No lawyer may disclose to the insurer confidential information impacting coverage. “A [lawyer] shall not, without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment.” “The duty of confidentiality of client information involves public policies of paramount importance. The preservation of confidentiality contributes to the trust that is the hallmark of the client-lawyer relationship. [A lawyer] may not reveal or use confidential information, gained through his prior representation of [a client] . . . because it would be contrary to public policy and would undermine the very nature of the attorney client relationship.”
Financial Consequences of Breach
A lawyer “shall not accept compensation for representing a [policyholder] from [an insurer] unless [the lawyer] obtains the client’s informed written consent.”
While dependent counsel is normally paid by the insurer, not the policyholder, the policyholder may become liable to reimburse the insurer for the fees and costs paid by the insurer to dependent counsel if the insurer reserves its rights to obtain reimbursement. Thus, dependent counsel who fail to comply with Rule 3-310(F), may be required to disgorge to the policyholder those expenses that the policyholder must reimburse the insurer.
 Rule 3-310(A).
 Gulf Ins. Co. v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2000) 79 Cal.App.4th 114, 131, quoting Dynamic Concepts, Inc. v. Truck Ins. Exchange (1998) 61 Cal.App.4th 999, 1007-1008.
 Questions that should be asked are: “(1) what is the exact nature of the claims asserted in the underlying action, (2) what defenses to coverage are asserted by the insurers, and to what extent, if at all, are they logically related to the liability issues raised in the underlying action, (3) what factual questions have to be resolved in order to sustain or defeat such defenses, (4) what is the likely nature of the available evidence.” (Haskel, Inc. v. Superior Court (1995) 33 Cal.App.4th 963, 980.)
 Betts v. Allstate Ins. Co. (1984) 154 Cal.App.3d 688, 716 (ellipses omitted).
 Rule 3-310(B) (ellipses omitted).
 Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 188-189 (Neel).
 Calvert v. State Bar (1991) 54 Cal.3d 765, 782.
 See, Rest.3d Law Governing Lawyers § 20, Comment c.
 Neel, supra, 6 Cal.3d at 189.
 Rule 3-310(C) (ellipses omitted).
 Gulf Ins. Co. v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2000) 79 Cal.App.4th 114, 127.
 American Mut. Liab. Ins. Co. v. Superior Court (Nork) (1974) 38 Cal.App.3d 579, 592.
 Rule 3-310(E).
 Styles v. Mumbert (2008) 164 Cal.App.4th 1163, 1168 (citations omitted).
 Rule 3-310(F) (ellipses omitted).