DIFFERENCE BETWEEN DEPENDENT COUNSEL

AND INDEPENDENT COUNSEL

INTRODUCTION

The succinct phrase "dependent counsel" describes the counterpart to "independent counsel." The difference between dependent counsel and independent counsel is simple and can be succinctly stated. Dependent counsel represents the interests of the insurer, while independent counsel does not.1 Dependent counsel "has two clients."2 Dependent counsel must comply with Rules of Professional Conduct, Rule 3-310 (joint representation)3 while independent counsel does not. Thus, dependent counsel has ethical considerations that independent counsel does not.

DEPENDENT COUNSEL DESCRIBED

The "dependent counsel" moniker acknowledges that "[a]s a practical matter . . . in reality, the insurer's attorneys may have closer ties with the insurer and a more compelling interest in protecting the insurer's position, whether or not it coincides with what is best for the insured"4, "[i]nsurance companies hire relatively few lawyers and concentrate their business. A lawyer who does not look out for the Carrier's best interest might soon find himself out of work."5, and "defense counsel and the insurer frequently have a longstanding, if not collegial, relationship"6. "In California, an attorney may usually, under minimum standards of professional ethics, represent dual interests as long as full consent and full disclosure occur."7

ETHICAL PITFALLS FOR DEPENDENT COUNSEL

The leading California reported opinion imposing a duty upon dependent counsel to behave ethically is San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 364 (Cumis). It describes many ethical pitfalls for dependent counsel.

1.	Policyholder's Right to Control the Defense

If a disqualifying conflict of interest exists and "the insurer must pay for the cost of defense and, when a conflict exists, the insured may have control of the defense if he wishes, it follows the insurer must pay for such defense conducted by independent counsel."8

2.	Duty of Disclosure

"Counsel representing the insurer and the insured owes both a high duty of care and unswerving allegiance. When two clients have diverging interests, counsel must disclose all facts and circumstances to both clients to enable them to make intelligent decisions regarding continuing representation. The [rules of ethics] reinforce these constrictions, [one] stating in part: "[B]efore a lawyer may represent multiple clients he should explain fully to each client the implications of the common representation and should accept or continue employment only if the clients consent."9

3.	Confidentiality

"[Dependent counsel] was bound to investigate all conceivable bases on which liability might attach. These investigations and client communications may provide information relating directly to the coverage issue. Furthermore, counsel may form an opinion about the insureds' credibility. As between counsel's two clients, there is no confidentiality regarding communications intended to promote common goals. But confidentiality is essential where communication can affect coverage. Thus, the lawyer is forced to walk an ethical tightrope, and not communicate relevant information which is beneficial to one or the other of his clients."10

4.	Temptation to Shape the Defense Out of Coverage

"[I]n cases involving multiple claims against the insured, some of which fall within the policy coverage and some of which do not, the insurer may be subject to substantial temptation to shape its defense so as to place the risk of loss entirely upon the insured."11

5.	Trial Tactics

"[Dependent counsel] will have to make certain decisions at the trial of the [liability] action which may either benefit or harm the insureds. For example, it will have to seek or oppose special verdicts, the answers to which may benefit the insureds by finding nonexcluded conduct and harm either [the insurer]' position on coverage or the insureds by finding excluded conduct. These decisions are numerous and varied. Each time one of them must be made, the lawyer is placed in the dilemma of helping one of his clients concerning insurance coverage and harming the other."12

6.	Settlement

"On the advisability of settlement, [dependent counsel] represented clients with conflicting interests. No matter how honest the intentions, counsel cannot discharge inconsistent duties."13

7.	Informed Written Consent

"We conclude the Canons of Ethics impose upon lawyers hired by the insurer an obligation to explain to the insured and the insurer the full implications of joint representation in situations where the insurer has reserved its rights to deny coverage. If the insured does not give an informed consent to continued representation, counsel must cease to represent both. Moreover, in the absence of such consent, where there are divergent interests of the insured and the insurer brought about by the insurer's reservation of rights based on possible noncoverage under the insurance policy, the insurer must pay the reasonable cost for hiring independent counsel by the insured. The insurer may not compel the insured to surrender control of the litigation. Disregarding the common interests of both insured and insurer in finding total nonliability in the third party action, the remaining interests of the two diverge to such an extent as to create an actual, ethical conflict of interest warranting payment for the insureds' independent counsel."14

INDEPENDENCE OF CUMIS COUNSEL

1.	Reason for the Cumis Rule

"We begin by briefly reviewing the reason for Cumis counsel. . . . An insurer usually provides a defense to its insured by hiring competent defense counsel, who represents the interests of both the insurer and the insured. In some cases, such as this one, there is a conflict of interest or a potential conflict of interest between the insurer and the insured. Usually, these conflicts involve the insured trying to obtain coverage and the insurer trying to avoid it. When this happens, defense counsel may not be permitted to represent both the insurer and the insured. The insurer may be required to provide the insured, at the insurer's expense, with independent counsel (i.e., Cumis counsel), who then controls the litigation."15

2.	Need for Independence

"The Cumis rule requires complete independence of counsel when an insurance company interposes a reservation of rights, the basis of which creates a conflict of interest. . . . Cumis counsel represents solely the insured. ¶ The basic premise for this view is well established. Since it is almost unavoidable that, in the course of investigating and preparing the insured's defense to the third party's action, the insured's attorney will come across information relevant to a coverage or similar issue, it is quite difficult for an attorney beholden to the insurer to represent the insured where the insurer is reserving its rights regarding coverage (unless, of course, the insured consents). ... [T]he Cumis doctrine 'intended to eliminate the ethical dilemmas and temptations that arise along with conflict in joint representations ... through mandating the insured's right to Cumis counsel that represent[s] only the insured.' ¶ An important corollary of the Cumis doctrine is that if the insured is entitled to Cumis counsel, the insured is entitled to control the defense of the case."16

3.	No Attorney-Client Relationship

"[T]here is no attorney-client relationship between Cumis counsel and the insurer."17

4.	Limited Duties to Insurer

"Remaining true to the aforementioned statutory language and judicial reasoning, we find that the compelling need for Cumis counsel to remain free from the oftentimes subtle ethical dilemmas and temptations that arise along with conflict in joint representations prohibits Haven from having any duty to [the insurer] to investigate, prepare, assert, establish, or perform similar functions regarding a defense or position in [the insurer]'s favor."18

"But this is not to say that Cumis counsel owes no duties to a liability insurer. Civil Code section 2860 specifies just such duties."19 "[T]he duties that Cumis counsel owes the insurer are limited to the duties to disclose, inform, consult and cooperate regarding nonprivileged information. ¶ To allow an insurer to sue a Cumis counsel for negligence for failing to pursue or establish a complete defense would undermine the very foundation of the Cumis doctrine, which contemplates a counsel independent of the insurer."20