ANNOTATED ETHICAL COMPLIANCE QUESTIONNAIRE

USE NOTES:

This Annotated Questionnaire is intended to assist users to assess responses received from dependent counsel to an Ethical Compliance Questionnaire. Each question from the Ethical Compliance Questionnaire is repeated below, followed by a statement of what the editor considers to be the legally correct answer or if dependent counsel has a genuine choice, an answer that should be preferred by the policyholder, a brief explanation of why the question may be important, and references to additional legal research supporting the correct or preferred answer. Dependent counsel who disagree with any of the authorities that support a response may get a head start to refute the editor's conclusions. Italicized authorities in parentheses refer to articles that may be found in the Table of Contents at DutytoDefend.com.

The Ethical Compliance Questionnaire should be used in coordination with a Coverage Questionnaire, the insurer's responses to the Coverage Questionnaire and the Annotated Coverage Questionnaire.

The Questionnaire is structured in two parts. If dependent counsel answers the first four questions "Yes", then he/she should: 1) comply with Rule 3-310 by explaining in writing the full implications of the insurer's reservation of rights; 2) confirm that the insurer must pay for independent counsel if the policyholder chooses; 3) will promptly solicit from the claimant an offer to settle within my policy limit that should either settle the case or "pop" the policy limit; and 4) take personal responsibility to not reveal confidential coverage information to the insurer nor do anything else to adversely affect coverage. Policyholders should seriously consider trusting dependent counsel who so agree.

If dependent counsel does not answer "Yes" to all of the first four questions, then he or she is requested to respond to additional questions which should illuminate the policyholder's rights.

QUESTIONS

Will you explain to me the full implications of my insurer's reservation of rights to deny coverage and your joint representation of us?

A trustworthy response is "yes". "Lawyers [have] ethical restraints on their discretion designed to further (or at least not endanger) the public weal. The minimal ethical standards that distinctively define the lawyer as a professional are, of course, those embodied in the codes of ethics, and, in California, in the Rules of Professional Conduct. These standards are in turn linked by their nature and goals to important values affecting the public interest at large. It is through this chain of ethical duty that lawyers and their work are affected with a public interest. Out of this duality of allegiance - for the interests of the client on the one hand, but within the bounds of ethical norms on the other - a genuine moral dilemma may arise." (General Dynamics Corp. v. Superior Court (Rose) (1994) 7 Cal.4th 1164, 1181-82.)

Has a conflict of interest arisen which creates a duty on the part of my insurer to provide independent counsel to me?

A trustworthy response may be "yes" or "no". However, if the response is "no", dependent counsel should explain why and cite authorities. An untrustworthy response is "I don't know" or "I can't get involved". Dependent counsel should take the initiative to analyze potential conflicts of interest. The policyholder should not have to bear this burden. (Duty to Analyze Conflicts, Duty to Advise of Right to Independent Counsel). ("A [California lawyer] shall not accept or continue representation of a [policyholder/client] without providing written disclosure to the [policyholder/client] of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to the [policyholder/client]. where [t]he [lawyer] has a legal, business, [or] financial relationship with another entity [such as an insurer that] would be affected substantially by resolution of [a plaintiff's lawsuit]. 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. A [lawyer] shall not accept compensation for representing a [policyholder] from [an insurer] unless [t]he [lawyer] obtains the client's informed written consent." (See, Rule 3-310).) "The requirement is obligatory: Cal. Rules of Court, rule 1401(b)(1) ['Shall' is mandatory and 'may' is permissive." (In re Manzy W (1997) 14 Cal.4th 1199, 1204.)

Will you promptly solicit from the claimant an offer to settle within my policy limit?

A trustworthy response is "yes". A "no" response may be a strong indicator that dependent counsel favors the insurer's interests over those of the policyholder. While the insurer has a contractual right to (Control Settlement) and dependent counsel cannot make an offer without the client's authority, dependent counsel can solicit the plaintiff to make an offer, triggering the insurer's (Duty to Settle) An insurer must attempt "in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear." (Ins. Cd. 790.03(h)(5).) "It is reasonably clear that California courts will interpret the California statute as imposing upon an insurance company the duty actively to investigate and attempt to settle a claim by making, and by accepting, reasonable settlement offers once liability has become reasonably clear." (Pray v. Foremost Ins. Co. (9th Cir. 1985) 767 F.2d 1329, 1330.) The law "requires that the insurer at the very least must itself consider and determine whether or not a settlement offer is in the best interest of the insured. If in failing to consider, accept, or make a reasonable settlement offer there has been actual bad faith on the part of the insurer, there is an obvious breach of duty to the insured. . . . There is a clear implicit consensus in the cases on this subject that the duty to consider and weigh all the factors bearing upon the advisability of a settlement in the interests of the insured is upon the insurance carrier. Obviously this legal duty is exercised normally in conjunction with the judgment of counsel defending the cases against the insured." (Garner v. American Mut. Liab. Ins. Co. (1973) 31 Cal.App.3d 843, 848.) "[T]he duty to accept reasonable settlements . . . would indeed be meaningless if it did not entail a duty to negotiate toward a reasonable settlement." (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 906.) "We therefore conclude that a formal settlement offer is not an absolute prerequisite to a bad faith action in the wake of an excess verdict when the claimant makes a request for policy limits and the insurer refuses to contact the policyholder about the request." (Boicourt v. Amex Assur. Co. (2000) 78 Cal.App.4th 1390, 1399.) However, there is a split in authority regarding the insurer's obligation to initiate a settlement offer. "An insured's claim for 'wrongful refusal to settle' cannot be based on his or her insurer's failure to initiate settlement overtures with the injured third party, but instead requires proof the third party made a reasonable offer to settle the claims against the insured for an amount within the policy limits." (Graciano v. Mercury General Corp. (2014) 231 Cal.App.4th 414, 427 (citations and ellipses omitted, emphasis original).) Nonetheless, dependent counsel's (Duty of Undivided Loyalty) to the policyholder should prompt dependent counsel to request that the plaintiff make a reasonable settlement offer.

If you do anything in handling the lawsuit or reveal any confidential information to my insurer that adversely affects by coverage, will you pay for my resulting loss?

A trustworthy response is "yes". A "no" response may be a strong indicator that dependent counsel does not understand the (Duty of Confidentiality). This question is designed to put dependent counsel on the defensive. While confidentiality should be prophylactic, if the lawyer improperly reveals confidential coverage information to an insurer that impacts coverage, the lawyer may be exposed to civil liability for breach of fiduciary duty to legal malpractice. "The primary purpose of this prophylactic rule [3-310] is to prevent situations in which an attorney might compromise his or her representation of the client in order to advance the attorney's own financial or personal interests." (Santa Clara County Counsel Attorneys Assn. v. Woodside (1994) 7 Cal.4th 525, 546.) A lawyer who responds "no" may be disqualified. "The case law and the legal literature persuade us that it is relatively unimportant whether the status or misconduct claimed to warrant disqualification is proscribed by a particular ethical norm or disciplinary rule or may be characterized as a failure to avoid the appearance of impropriety. Since the purpose of a disqualification order must be prophylactic, not punitive, the significant question is whether there exists a genuine likelihood that the status or misconduct of the attorney in question will affect the outcome of the proceedings before the court." (Gregori v. Bank of America (1989) 207 Cal. App. 3d 291, 308-309.)

MY COVERAGE

Have you read the complaint, my policy, all reservation(s) of rights, and my insurer's responses to a Coverage Questionnaire?

A trustworthy response is "yes". A "no" response may be a strong indicator that dependent counsel, like an ostrich, desires to ignore rather than resolve conflicts of interest an may not that informed written consent is required to achieve (Limited Scope of Representation). Some dependent counsel misconceive their role in conflict of interest resolution, falsely claiming that it would "create" a conflict of interest for them to become involved in coverage matters. But the correct analysis is very simple: The insurer's reservation of rights "creates" conflicts of interest. ("[W]hen coverage is disputed, the interests of the insured and the insurer are always divergent." (San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 375 (Cumis).) Once the insurer creates potential conflicts of interest, dependent counsel is ethically compelled to fulfill a (Duty to Analyze Conflicts) because (Dependent Counsel Is Not Exempt from Rule 3-310.) Studied ignorance of potential conflicts may help dependent counsel to defend disciplinary proceedings, but it may render the lawyer ill equipped to protect the policyholder.

In order to competently conduct the policyholder's defense, counsel must understand the pleadings, including reading the complaint. In order to avoid prejudicing the policyholder's interests, dependent counsel must be fully apprised of full scope of all coverage issues. "Determination of the duty to defend depends, in the first instance, on a comparison between the allegations of the complaint and the terms of the policy." (Scottsdale Ins. Co. v. MV Transp. (2005) 36 Cal.4th 643, 654.) Dependent counsel must inform the policyholder/client "of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences" of representing both the insurer and the policyholder. (Rule 3-310(A).) Dependent counsel must understand the coverage issues in order to avoid prejudicing the policyholder's coverage with the insurer. Thus, dependent counsel must read and understand the policy, the insurer's reservation of rights letter(s), all coverage correspondence and the insurer's responses to the Coverage Questionnaire in order to avoid wrongful disclosure of confidential coverage information, and other coverage harmful litigation tactics.

Do all grounds upon which my insurer has reserved its rights to deny coverage have nothing to do with the issues being litigated in the liability dispute?

A trustworthy response may be "yes" or "no". "There is no talismanic rule that allows a facile determination of whether a disqualifying conflict of interest exists. Instead, '[t]he potential for conflict requires a careful analysis of the parties' respective interests to determine whether they can be reconciled . . . or whether an actual conflict of interest precludes insurer-appointed defense counsel from presenting a quality defense for the insured.'" (Gulf Ins. Co. v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2000) 79 Cal.App.4th 114, 131 (Berger, Kahn).) An untrustworthy response is "I don't know" or "I can't get involved". In the 33 years since the Cumis case was published, California has developed a rich body of law establishing a standard to determine whether a reservation of rights creates a (Disqualifying Conflict of Interest). "[W]hen the reservation of rights is based on coverage disputes that have nothing to do with the issues being litigated in the underlying action there is no conflict of interest, and no duty to appoint independent counsel." (Long v. Century Indemnity Co. (2008) 163 Cal.App.4th 1460, 1470 (Long) (citation and ellipsis omitted).) Dependent counsel is both better equipped then a lay client and ethically compelled to take the initiative to analyze potential conflicts of interest. Both dependent counsel and a reserving insurer have a (Duty to Advise of the Right to Independent Counsel). See, Disqualifying Conflicts of Interest and Cumis Test. Dependent counsel has a fiduciary (Duty of Undivided Loyalty) to the policyholder, discharge of which requires the lawyer to do this analysis and explain it to the policyholder.

Does my insurer's reservation of rights create for you any potential or actual disqualifying conflict of interest?

A trustworthy response is "Yes". With any reservation of rights, "the interests of the insured and the insurer are always divergent." (Cumis, supra, 162 Cal.App.3d at 375.) But, "not every conflict of interest triggers an obligation on the part of the insurer to provide the insured with independent counsel at the insurer's expense." (James 3 Corp. v. Truck Ins. Exchange (2001) 91 Cal.App.4th 1093, 1101 (James 3).) "A [lawyer] shall not, without the informed written consent of each client: Accept representation of more than one client in a matter in which the interests of the clients potentially or actually conflict." (Rule 3-
310(C)(1)(2) (ellipses omitted). When a policyholder sues an insurer, it often has the burden of proof (Evid. Code § 500) to establish the existence of a breach of contract, including that the insurer's reservation of rights created a disqualifying conflict of interest. In many reported opinions, policyholders have failed to carry this burden. See, Compendium of Cases: Failure of Proof of Disqualifying Conflicts of Interests. As a result, in the (Dynamic Concepts Line of Cases), several courts have held that "[a] mere possibility of an unspecified conflict does not require independent counsel. The conflict must be significant, not merely theoretical, actual, not merely potential." (Dynamic Concepts, Inc. v. Truck Ins. Exchange (1998) 61 Cal.App.4th 999, 1007 (Dynamic Concepts).) However, dependent counsel has the burden of complying with Rule 3-310 before starting work. Rule 3-310 explicitly requires dependent counsel to analyze potential conflicts, make written disclosure and obtain informed written consent. Compare, the (Dynamic Concepts Line of Cases) to the (Cumis Line of Cases).

CONFLICT OF INTEREST

Have you analyzed the relevant circumstances and the actual and reasonably foreseeable adverse consequences to me of my insurer's reservation of rights?

A trustworthy response is "yes". "[T]he 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." (Cumis, supra, 162 Cal.App.3d at 375.) "A [lawyer] shall not accept or continue representation of a [policyholder/client] without providing written disclosure to the [policyholder/client] of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to the [policyholder/client] where [t]he [lawyer] has a legal, business, [or] financial relationship with another entity [such as an insurer that] would be affected substantially by resolution of the matter." (merging language of Rule 3-310(A) & (B).) "If a conflict of interest arises which creates a duty on the part of the insurer to provide independent counsel to the insured, the insurer shall provide independent counsel to represent the insured." (Civ. Code § 2860(a) (ellipsis omitted).) "'Disclosure' means informing the client of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to the client." (Rule 3-310(A)(a) (ellipsis omitted).)

Would my insurer be affected substantially by resolution of the lawsuit?

A trustworthy response is "yes" - as a matter of law. "A [lawyer] shall not accept or continue representation of a client without providing written disclosure to the client where: The [lawyer] has or had a legal, business, financial, professional, or personal relationship with another person or entity [such as a liability insurer] the [lawyer] knows or reasonably should know would be affected substantially by resolution of the matter." (Rule 3-310(B)(3) (ellipsis omitted).) A liability insurance policy is a contract of indemnity. "Upon an indemnity against liability, the [policyholder] is entitled to recover [from the insurer] upon becoming liable [to an injured plaintiff by entry of judgment]." (Civ. Code § 2778(1) (ellipsis omitted).) The (Binding Effect of Liability Suit on Coverage Dispute) is that the insurer will become bound by the findings that the policyholder is liable to the plaintiff and the amount of the plaintiff's damages. Standard policy language is: "We will pay those sums that the Insured becomes legally obligated to pay as damages" by entry of judgment. Thus, a liability insurer will always be "affected substantially be resolution" of the liability dispute. Winning or losing the liability dispute and losing it on covered or non-covered grounds will substantially affect the insurer's interests. Some insurer's argument that the amount of money at stake is not "substantial" is sheer sophistry.

Are you required to disclose to me potential conflicts of interest?

A only trustworthy response is "yes". "A [lawyer] shall not accept or continue representation of a client without providing written disclosure to the client where [t]he [lawyer] has a legal, business, [or] financial relationship with another entity [that] would be affected substantially by resolution of the matter. [Disclosure means] informing the client of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to the client. A [lawyer] shall not, without the informed written consent of each client: Accept representation of more than one client in a matter in which the interests of the clients potentially or actually conflict." (Rule 3-310(A)(B)(C) (ellipses omitted).) ("[W]hen coverage is disputed, the interests of the insured and the insurer are always divergent." (Cumis, supra, 162 Cal.App.3d at 375).) Trying to make "a distinction between "potential" and "actual" conflicts of interest which is invalid and unworkable." (Id. at 371, fn.7.) "The potential for conflict requires a careful analysis of the parties' respective interests." (Dynamic Concepts, supra, 61 Cal.App.4th at 1007).

Only after dependent counsel analyzes and discloses potential conflicts of interest, may a determination be made whether the conflict necessarily disqualifies dependent counsel from representing the policyholder. (Disqualifying Conflicts of Interest; Cumis Test.)

Surprisingly, neither Rule 3-310 nor any reported California opinion addressing the duty to defend seeks to define the distinction between potential and actual conflicts of interest. The best, but still wanting, expression that diligent research has produced is: "A conflict of interest is potential if there is no present actual conflict of interest, but there is a possibility of an actual conflict arising in the future, resulting from developments that have not yet occurred or facts that have not yet become known." (In re Jaeger 213 B.R. 578 (Bkrtcy. C.D. Cal. 1997).)

Do you promise to advise me regarding all settlement negotiations of the lawsuit?

A trustworthy response is "yes". "When an offer is made to settle a claim in excess of policy limits for an amount within policy limits, a genuine and immediate conflict of interest arises between carrier and assured. The normal legal remedy for conflicts in interest is separate representation for the conflicting interests." (Merritt v. Reserve Ins. Co. (1973) 34 Cal.App.3d 858, 870 (Merritt).) "[A] conflict of interest arises between insurer and insured when a third party claim is made in excess of the policy limits. In such a situation, it will always be to the insured's advantage to have settlement effected within policy limits; the insurer, in deciding whether to compromise a claim, must consider the insured's best interests as much as its own." (Barney v. Aetna Casualty & Surety Co. (1986) 185 Cal.App.3d 966, 976 (emphasis added).) "Where the insurer early on decides to offer the policy limits in settlement of its insureds' claims, no conflict of interest arises." (Lehto v. Allstate Ins. Co. (1994) 31 Cal.App.4th 60, 71.)

CONFIDENTIALITY

Will you preserve my secrets and not disclose to my insurer privileged information relevant to coverage disputes?

A only trustworthy response is "yes". "It is the duty of an attorney to do all of the following: (e) (1) To maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client." (Bus. & Prof. Code § 6068(e).) "[C]ounsel provided by the insurer shall cooperate fully in the exchange of information that is consistent with each counsel's ethical and legal obligation to the insured." (Civ. Code § 2860(f) (ellipses omitted).) It would violate the (Duty of Confidentiality) and the (Duty of Undivided Loyalty) for dependent counsel to disclose information to the insurer that adversely affects the policyholder's coverage. "A [lawyer]'s duty to preserve the confidentiality of client information involves public policies of paramount importance. Almost without exception, clients come to lawyers in order to determine their rights in complex of laws and regulations. [A] fundamental principle [is] that, in the absence of the client's informed consent, a [lawyer] must not reveal information relating to the representation." (Rule 3-100, discussion (citations and ellipses omitted).) "Each of these lawyer-client relationships [with the policyholder and the insurer] is endowed with confidentiality. [T]here may be confidences indulged by the insured to the attorney which in turn are not intended for the insurer." (American Mut. Liab. Ins. Co. v. Superior Court (Nork) (1974) 38 Cal.App.3d 579, 592 (ellipses omitted).) "[W]here the carrier questions the availability of coverage and provides a defense in the third party action subject to a reservation of rights, a conflict exists - because the insured's goal is coverage, which flies in the face of the insurer's desire to avoid its duty to indemnify. Since it is unavoidable that, in the course of investigating and preparing the insured's defense in the third party action, the insured's attorney will come upon information relevant to a coverage issue, it is impossible for the carrier's attorney to represent the insured (unless, of course, the insured consents)." (Rockwell Internat. Corp. v. Superior Court (1994) 26 Cal.App.4th 1255, 1263-1264 (Rockwell) (citation omitted).) "The [insurer] is not entitled to learn of any and all legal advice obtained by [an insured] with a 'reasonable expectation of confidentiality.'" (Id. at 1266 (ellipsis omitted).)

"[W]hen an 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." (Lysick v. Walcom (1968) 258 Cal.App.2d 136, 148 (Lysick).) "If the duties prescribed by the [Rules of Professional Conduct] are not followed by retained counsel, various remedies exist to protect the insured. These remedies include: (1) an action against the attorney for professional malpractice; (2) an action against the insurer for bad faith conduct; and (3) estoppel of the insurer to deny indemnification." (Finley v. The Home Insurance Company (1990) 90 Hawai'i 25, 975 P.2d 1145, 1155.)

"[I]t was simply wishful thinking by [dependent counsel] when he [denied the existence of any conflicts of interest]. . . . That [dependent counsel] represented conflicting interests in the [liability] action is now plain." (Industrial Indem. Co. v. Great American Ins. Co. (1977) 73 Cal.App.3d 529, 535, 537 (Industrial Indem.) (citation and ellipses omitted).)

Dependent counsel who fails to understand the insurer's coverage position may disclose confidential information to a reserving insurer, prompting it to assert new and different grounds to deny coverage. "[T]he insurer might gain access to confidential or privileged information in the process of the defense which it might later use to its advantage in litigation concerning coverage." (CHI of Alaska, Inc. v. Employers Reinsurance Corp., 844 P.2d 1113, 1116 (Alaska 1993) (CHI of Alaska).)

YOUR RELATIONSHIP WITH MY INSURER

Do you have an attorney-client relationship with my insurer?

A trustworthy response is "yes". While the existence of an (Attorney Client Relationship) is usually a question of fact, "defense guidelines, with the negotiated hourly rate, and subsequent correspondence, along with the subsequent dealings between the [defense counsel] and [an insurer], reflected an agreement between them and an attorney-client relationship as a matter of law." (Berger, Kahn, supra, 79 Cal.App.4th at 127.) If an insurer or dependent counsel disclaim an attorney-client relationship, the policyholder should ask that they disclose the foundational facts do describe their relationship.

Have you been hired in your capacity as a lawyer to discharge my insurer's promise to defend me in the lawsuit?

A trustworthy response is "yes". "By its very nature the duty assumed by [the insurer] to defend its assured against suits must necessarily be classified as a delegable duty, understood by all parties as such, for [the insurer] had no authority to perform that duty itself and, in fact, was prohibited from appearing in the California courts. (Bus. & Prof. Code, § 6126.) Since a carrier is not authorized to practice law, it must rely on independent counsel for the conduct of the litigation." (Merritt, supra, 34 Cal.App.3d at 880-81 (citations omitted).)

Have you been hired to protect my insurer's interests in the lawsuit?

A trustworthy response is "yes".	A liability insurer has a substantial interest in the outcome of a liability action filed against its policyholder and is entitled to take steps to protect its own interests. "[T]he insurer has no duty totally to disregard its own interests." (Employers Ins. of Wausau v. Albert D. Seeno Const. Co. (9th Cir. 1991) 945 F.2d 284, 287.) "[A]n insurer is not required to pay every claim presented to it. [T]he insurer also has a duty to its other policyholders and to the stockholders not to dissipate its reserves through the payment of meritless claims. Such a practice inevitably would prejudice the insurance seeking public because of the necessity to increase rates, and would finally drive the insurer out of business." (Austero v. National Cas. Co. Of Detroit, Mich. (1978) 84 Cal.App.3d 1, 30 (ellipses omitted).)

"Upon an indemnity against liability [the policyholder] is entitled to recover upon becoming liable. An indemnity against liability embraces the costs of defense incurred in good faith and in the exercise of a reasonable discretion. The [insurer] is bound to defend actions brought against the [policyholder in] matters embraced by the indemnity, but the [policyholder] has the right to conduct such defenses. [However, if the insurer] is not allowed to control its defense, judgment against the [policyholder] is only presumptive evidence against the [insurer]. If the [insurer] neglects to defend the [policyholder], a recovery against the [policyholder] suffered in good faith, is conclusive in his favor against the [insurer]." (Synthesizing and paraphrases Civ. Code § 2778; see also, Crawford v Weather Shield Mfg., Inc. (2008) 44 Cal. 4th 541, 554.)

Dependent counsel has a duty of disclosure to the policyholder if he or she "knows or reasonably should know that [the insurer] would be affected substantially by resolution of the [lawsuit]." (Rule 3-310(B) (emphasis added).)

Do you have a legal, business, financial, professional, or personal relationship with my insurer?

A trustworthy response is "yes". The duty of disclosure turns on the existence of a broadly defined relationship between the lawyer and the insurer. Even defense counsel who incorrectly disclaim that they have "attorney-client relationship" with the insurer, should disclose to the policyholder the facts supporting the relationship that defense counsel and the insurer do have. "A [lawyer] shall not accept or continue representation of a client without providing written disclosure to the client where (3) The [lawyer] has or had a legal, business, financial, professional, or personal relationship with another entity." (Rule 3-
310(B) (ellipses omitted).)

Do you have duties to my insurer of undivided loyalty, disclosure, competent representation, and confidentiality?

A trustworthy response is "yes". There are four primary and several secondary duties all lawyers owe to their clients (Compendium of Attorney Duties). Dependent counsel owes to the insurer a (Duty of Competent Representation), (Duty of Disclosure), (Duty of Undivided Loyalty), and (Duty of Confidentiality).

Will you allow my insurer to do anything to interfere with your independence of professional judgment or your anticipated client-lawyer relationship with me?

A trustworthy response is "no". Dependent counsel "shall not accept compensation for representing [the policyholder] from one other than the client [such as an insurer] unless: (1) There is no interference with the [lawyer's] independence of professional judgment or with the attorney client relationship." (Rule 3-310(F)(1).) The policyholder has a legitimate interest in being informed about this compensation arrangement because the policyholder may be ultimately responsible to pay for it . The insurer may sue the policyholder for reimbursement of defense costs (Buss Defense Cost Reimbursement) and sue independent counsel (Hartford Cas. Ins. Co. v. J.R. Marketing (2015) 61 Cal.4th 988, 992 (J.R. Marketing) ["We conclude that under the circumstances of this case, the insurer may seek reimbursement directly from Cumis counsel"). If dependent counsel fails to comply with Rule 3-310(F), arguably the policyholder and Cumis counsel may seek reimbursement of defense costs from dependent counsel who unethically failed to comply with Rule 3-310(F).

Has my insurer disclosed to you any litigation guidelines?

A trustworthy response is "yes". Liability insurers routinely impose on their "panel" of pre-
approved counsel a complex system of controls to manage the costs of defense, commonly called "litigation guidelines". Such management is generally proper so long as no conflict exists between the insurer and policyholder. However, "we question the wisdom and propriety of so-called 'outside counsel guidelines' by which insurers seek to limit or restrict certain types of discovery, legal research, or computerized legal research by outside attorneys they retain to represent their insureds where there is a potential for an uncovered claim. . . . Under no circumstances can such guidelines be permitted to impede the attorney's own professional judgment about how best to competently represent the insureds. If the attorney's representation is to be limited in any way that unreasonably interferes with the defense, it is the insured, not the insurer, who should make that decision." (Dynamic Concepts, supra, 61 Cal.App.4th at 1009, fn.9.) The existence of such guidelines is one of the factors which may establish an attorney-client relationship between dependent counsel and the insurer "as a matter of law." (Berger, Kahn, supra, 79 Cal.App.4th at 127.) An attorney who disclaims the existence of an attorney-client relationship with the insurer but who confesses to existence of litigation guidelines should be distrusted, and perhaps fired. (Client May Fire Attorney).

Has my insurer asked you to obtain its approval to incur expenses or do any work in the lawsuit?

A trustworthy response is "yes". The substance of most liability insurers' "litigation guidelines" is to keep tight control over "panel" counsel by directing dependent counsel what to do or not to do and how to spend the insurer's money. Dependent counsel should not be allowed to escape complete, candid, and truthful disclosure (Duty to Advise) by splitting hairs if "litigation guidelines" have another name or are not in writing. Dependent counsel's quandary about following the directions of the insurer or of the policyholder lies at the heart of the lawyer's ethical conflicts of interest. Although most insurers want to control the defense, they may not do so if any disqualifying conflict of interest (Control of the Defense - Basic Principles) exists. Instead, control of the defense must remain with the policyholder. ("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." (Cumis, supra, 162 Cal.App.3d at 375 (citations and ellipses omitted).)

Will you accept compensation from my insurer to represent me?

A trustworthy response is "yes". Lawyers are in business and are entitled to be paid for their services. However, "[a lawyer] shall not accept compensation for representing a client from one other than the client unless: (1) There is no interference with the [lawyer]'s independence of professional judgment or with the client-lawyer relationship; and (2) Information relating to representation of the client is protected as required by Business and Professions Code section 6068, subdivision (e) [confidential information]; and (3) The [lawyer] obtains the client's informed written consent." (Rule 3-310(F)(3).) Again, the insurer may sue the policyholder (Buss Defense Cost Reimbursement) and independent counsel (J.R. Marketing, supra,61 Cal.4th at 992 ["We conclude that under the circumstances of this case, the insurer may seek reimbursement directly from Cumis counsel") for reimbursement of defense costs. If dependent counsel fails to comply with Rule 3-310(F), arguably the policyholder and Cumis counsel may seek reimbursement of defense costs from dependent counsel who unethically failed to comply with Rule 3-310(F).

Do you represent my insurer in any matter separate from the lawsuit?

A trustworthy response may be "yes" of "no". But many "panel" firms both defend policyholder's in liability actions and represent the insurer in separate actions as a party to coverage contests. Dependent counsel "shall not, without the informed written consent of each client . . . Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter." (Rule 3-310(C)(3).) However, the discussion section of the Rule makes clear that this provision "is not intended to apply with respect to the relationship between an insurer and a [lawyer] when, in each matter, the insurer's interest is only as an indemnity provider and not as a direct party to the action." (emphasis added.)

YOUR PROPOSED RELATIONSHIP WITH ME

Have you been hired to protect my interests in the lawsuit?

A trustworthy response is "yes". There are at least two reasons to ask this question: 1) to establish dependent counsel has a dual-client relationship with the insurer and the policyholder; and 2) to confirm that the lawyer is not a traitor. "Coverage counsel" represents only the insurer to undermine the policyholder's coverage. "Monitoring counsel" represents only the insurer to keep track of progress of the plaintiff's liability dispute and to report confidential information. "By its very nature the duty assumed by [the insurer] to defend its assured against suits must necessarily be classified as a delegable duty, understood by all parties as such, for [the insurer] had no authority to perform that duty itself and, in fact, was prohibited from appearing in the California courts. Since a carrier is not authorized to practice law, it must rely on independent counsel for the conduct of the litigation." (Merritt, supra, 34 Cal.App.3d at 880-81.) A "yes" answer constitutes a commitment by dependent counsel to fulfill all duties of an attorney to the policyholder. (Compendium of Attorney Duties).

Do you have duties to me of undivided loyalty, disclosure, competent representation, and confidentiality?

The only trustworthy response is "yes". The question is the counterpart to a similar question above that dependent counsel owes duties to the insurer. Dependent counsel has many duties to the policyholder (Compendium of Attorney Duties), including a Duty of Competent Representation and a Duty of Disclosure. The Duty of Confidentiality deserves special consideration. "[T]he insurer might gain access to confidential or privileged information in the process of the defense which it might later use to its advantage in litigation concerning coverage." (CHI of Alaska, supra, 844 P.2d at 1116.) Dependent counsel's Duty of Undivided Loyalty to the policyholder cannot be "undivided" when the lawyer represents dual clients with conflicting interests. "[T]he 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." (Cumis, supra, 162 Cal.App.3d at 375.)

In addition to the four primary duties of competent representation, disclosure, undivided loyalty, and confidentiality, California has recognized secondary duties owed by dependent counsel. The (Duty to Analyze Conflicts) and the (Duty to Advise of Right to Independent Counsel) includes an obligation to make written disclosure of a conflict of interest analysis.

Dependent counsel has a (Duty to Respond to Inquiry). "It is the duty of an attorney: To respond promptly to reasonable status inquiries of clients and to keep clients reasonably informed of significant developments in matters with regard to which the attorney has agreed to provide legal services." (Bus. & Prof. Code § 6068(m).) "A [lawyer] shall keep a client reasonably informed about significant developments relating to the employment or representation, including promptly complying with reasonable requests for information and copies of significant documents when necessary to keep the client so informed." (Rule 3-
500.)

If I consent to your representation, will you follow my directions regarding the conduct of my defense?

A trustworthy response is "yes". This question goes to the core of the conflict of interest issue: "Who's the boss?" How will dependent counsel handle a situation in which he or she receives conflicting instructions from two clients? As discussed above, dependent counsel cannot ethically favor the interests of the insurer over the interests of the policyholder. Requiring dependent counsel to make this promise creates a basis upon which the policyholder may enforce any breach by imposing civil liability on dependent counsel. "The relation between them is such that the client is justified in seeking to dissolve that relation whenever he ceases to have absolute confidence in either the integrity or the judgment or the capacity of the attorney." (Fracasse v. Brent (1972) 6 Cal.3d 784, 790 (Fracasse); Client May Fire Attorney).

Are you required to have my consent and authority to represent me in the lawsuit?

A trustworthy response is "yes". [T]he attorney-client relationship is created by some form of contract, express or implied, formal or informal." (Nichols v. Keller (1993) 15 Cal.App.4th 1672, 1683-1684 (Nichols).) "We have concluded that a client should have both the power and the right at any time to discharge his attorney with or without cause." (Fracasse, supra, 6 Cal.3d at 790.) "A [lawyer] shall not, without the informed written consent of each client: Accept representation of more than one client in a matter in which the interests of the clients potentially or actually conflict." (Rule 3-310(C)(1)(2).

"Corruptly or wilfully and without authority appearing as attorney for a party to an action or proceeding constitutes a cause for disbarment or suspension." (Bus. & Prof. Code § 1604 (emphasis added).)

Withholding consent should not violate the (Policyholder's Duty to Cooperate) under the policy, as the meaning of that clause will depend on interpretation of its specific language. (Contract Interpretation). While there are many reported California opinions that speculate in dicta that X behavior by a policyholder would "probably violate" the cooperation clause (Compendium of Cases: Cooperation), there are no reported California opinions that litigate and hold that a policyholder violates the cooperation clause by declining to accept conflicted dependent counsel appointed by a reserving insurer. (Cooperation Clause Violation: A Limited Defense). Quite to the contrary, a majority of other jurisdictions adopt a "per se" rule that any reservation of rights permits the policyholder to reject a defense offered by a reserving insurer through dependent counsel. (50 State Survey - Does an Insurer's Reservation of Rights Require It to Pay Independent Counsel?).

If you propose to limit the scope of your representation of me, do you need to obtain my informed written consent?

A trustworthy response is "yes". Some dependent counsel seek to avoid conflicts of interest by claiming that the scope of the retention by the insurer is limited to the defense of the liability dispute, and does not include representation of the insurer or the policyholder in any coverage contest. However, limiting the scope of representation requires the informed written consent of the client. "[T]he extent of an attorney's duty to act necessarily depends on the scope of the attorney-client relationship and the scope of this relationship may be limited by the agreement between the attorney and the client. But, an attorney who undertakes one matter on behalf of a client owes that client the duty to at least consider and advise the client if there are apparent related matters that the client is overlooking and that should be pursued to avoid prejudicing the client's interests." (Janik v. Rudy, Exelrod & Zieff (2004) 119 Cal.App.4th 930, 940 (citations and ellipses omitted).) "[E]ven when a retention is expressly limited, the attorney may still have a duty to alert the client to legal problems which are reasonably apparent, even though they fall outside the scope of the retention. The rationale is that, as between the lay client and the attorney, the latter is more qualified to recognize and analyze the client's legal needs. The attorney need not represent the client on such matters. Nevertheless, the attorney should inform the client of the limitations of the attorney's representation and of the possible need for other counsel." (Nichols, supra, 15 Cal.App.4th at 1684.)

BUSINESS PRACTICES (standards adopted, implemented, or performed)

Business & Professions Code § 17200, known as the Unfair Competition Law, provides that "unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice." "Any person who engages in unfair competition may be enjoined. The court may make such orders as may be necessary to prevent any practice which constitutes unfair competition. Any person may pursue representative claims or relief on behalf of others." (Bus. & Prof. Code § 17203 (ellipses omitted).)

Insurance Code §790.03(h), known as the unfair claims practices act, defines "unfair methods of competition and unfair and deceptive acts or practices in the business of insurance [if] [k]nowingly committ[ed] or perform[ed] with such frequency as to indicate a general business practice." The statute then specifies a series of unfair practices and regulations that flesh out behavioral requirements of a liability insurer. The terms of an insurance policy impose enforceable duties on an insurer. Case law also specifies an array of duties owed by an insurer to its policyholder.

"[A]n unlawful business practice or act is an act or practice, committed pursuant to business activity, that is at the same time forbidden by law. Virtually any law can serve as the predicate for a 17200 action; it may be civil, statutory, regulatory, or court-made. It is not necessary that the predicate law provide for private civil enforcement. [S]ection 17200 'borrows' violations of other laws and treats them as unlawful practices independently actionable. [D]etermination of whether a business practice or act is 'unfair' entails examination of the impact of the practice or act on its victim, balanced against the reasons, justifications and motives of the alleged wrongdoer. [A]n 'unfair' business practice occurs when it offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers. (Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1425 (Gafcon) (citations and ellipses omitted).)

Does dependent counsel have a business practice to:

•	Perform legal services with competence?

The response should be "yes". "(A) A member shall not . . . fail to perform legal services with competence. (B) . . .'competence' in any legal service shall mean to apply the 1) diligence, 2) learning and skill, and 3) mental, emotional, and physical ability reasonably necessary for the performance of such service." (RPC, Rule 3-110; Duty of Competent Representation.)

•	Maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client?

The response should be "yes". "It is the duty of an attorney to maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client." (Bus. & Prof. Code. § 6068(e)(1) (ellipsis omitted); Duty of Confidentiality.)

"One of the principal obligations which bind an attorney is that of fidelity. This obligation is a very high and stringent one. It is also an attorney's duty to protect his client in every possible way, and it is a violation of that duty for him to assume a position adverse or antagonistic to his client." (Anderson v. Eaton (1930) 211 Cal. 113, 116 (Anderson) (citations, ellipses omitted).) "[W]here the carrier provides a defense subject to a reservation of rights, a conflict exists - because the insured's goal is coverage, which flies in the face of the insurer's desire to avoid its duty to indemnify. Since it is unavoidable that the insured's attorney will come upon information relevant to a coverage issue, it is impossible for the carrier's attorney to represent the insured (unless, of course, the insured consents)." (Rockwell, supra, 26 Cal.App.4th at 1263-1264 (citation ellipses omitted).)

•	Render a full and fair disclosure to the client of all facts which materially affect his or her rights and interests?

The response should be "yes". "The duty of a fiduciary embraces the obligation to render a full and fair disclosure to the beneficiary of all facts which materially affect his rights and interests." (Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 188-89 (Neel); Duty of Disclosure.) "[A] lawyer who, while purporting to continue to represent an insured and who devotes himself to the interests of the insurer without notification or disclosure to the insured, breaches his obligations to the insured and is guilty of negligence." (Betts v. Allstate Ins. Co. (1984) 154 Cal.App.3d 688, 716 (Betts).) Dependent counsel has an obligation to: adequately communication with clients (Calvert v. State Bar (1991) 54 Cal.3d 765, 782); respond to inquiry (Rule 3-500); return telephone calls (In re O.S. (2002) 102 Cal.App.4th 1402, 1410-1411); disclose one's own malpractice (Rest.3d Law Governing Lawyers § 20, Comment c.); disclose "interest in the subject matter of the representation." (Rule 3-310(B)(4)); and "volunteer opinions when necessary to further the client's objectives. . . even though they fall outside the scope of the retention [because the lawyer] is more qualified to recognize and analyze the client's legal needs." (Nichols, supra, 15 Cal.App.4th at 1684-1685.

•	Protect a client in every possible way, devote one's entire energies to a client's interests and not assume any position adverse or antagonistic to a client, nor be required to choose between conflicting duties without the client's informed written consent?

The response should be "yes". "It is an attorney's duty to protect his client in every possible way, and it is a violation of that duty for him to assume a position adverse or antagonistic to his client without the latter's free and intelligent consent given after full knowledge of all the facts and circumstances. The rule is designed not alone to prevent the dishonest practitioner from fraudulent conduct, but as well to preclude the honest practitioner from putting himself in a position where he may be required to choose between conflicting duties, or be led to an attempt to reconcile conflicting interests, rather than to enforce to their full extent the rights of the interest which he should alone represent." (Anderson, supra, 211 Cal. at 116 (ellipses omitted); Duty of Undivided Loyalty.) "The mandatory rule of disqualification in cases of dual representations involving unrelated matters - analogous to the biblical injunction against 'serving two masters' (Matthew 6:24) - is such a self-evident one that there are few published appellate decisions elaborating on it." (Flatt v. Superior Court (1994) 9 Cal.4th 275, 286).

When the insurer's reservation of rights may create a duty to provide independent counsel to me, does dependent counsel have a business practice to:

•	Analyze whether an insurer's reservation of rights creates a duty for the insurer to provide independent counsel to the policyholder?

The response should be "yes". Neither the Cumis decision nor Civil Code § 2860 specifies how to determine whether a reservation of rights creates a disqualifying conflict of interest (Disqualifying Conflict of Interest). "There is no talismanic rule that allows a facile determination of whether a disqualifying conflict of interest exists. Instead, '[t]he potential for conflict requires a careful analysis of the parties' respective interests to determine whether they can be reconciled.'" (Berger, Kahn, supra, 79 Cal.App.4th at 131.) However, in the 33 years since the Cumis case was published, California courts have clearly identified the proper legal standard. (Cumis Test, Disqualifying Conflict of Interest). "[W]hen the reservation of rights is based on coverage disputes that have nothing to do with the issues being litigated in the underlying action there is no conflict of interest, and no duty to appoint independent counsel." (Long, supra, 163 Cal.App.4th at 1470 (citation and ellipsis omitted).)

•	Disclose to a policyholder and insurer all facts and circumstances to enable them to make intelligent decisions regarding continued representation?

The response should be "yes". "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." (Cumis, supra, 162 Cal.App.3d at 374; Rule 3-310; Duty to Analyze Conflicts of Interest). "[W]hen coverage is disputed, the interests of the insured and the insurer are always divergent." (Cumis, supra, 162 Cal.App.3d at 375); "[T]raditional obligations of an attorney are in no way abridged by the fact that an insurer employs him to represent an insured." (Betts, supra, 154 Cal.App.3d at 716 (ellipses omitted)); "There is no talismanic rule that allows a facile determination of whether a disqualifying conflict of interest exists. Instead, '[t]he potential for conflict requires a careful analysis of the parties' respective interests to determine whether they can be reconciled.'" (Berger, Kahn, supra, 79 Cal.App.4th at 131.) A proper analysis should ask: "(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.)

•	Claim that the scope of representation of the policyholder is limited to the defense of a liability claim without informed written consent?

The response should be "no". "The lawyer's duty to his client arises from his contractual obligation as well as ethical demands." (Commercial Standard Title Co. v. Superior Court (1979) 92 Cal.App.3d 934, 941.) Ethically, a "lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent." (ABA Model Rule 1.2(c).) "If the attorney's representation is to be limited in any way that unreasonably interferes with the defense, it is the insured, not the insurer, who should make that decision." (Dynamic Concepts, supra, 61 Cal.App.4th at 1009, fn.9.)

•	Advise a policyholder that it would create a conflict of interest to become involved in a coverage contest between a liability insurer and its policyholder?

The response should be "no". "[W]hen coverage is disputed, the interests of the insured and the insurer are always divergent." (Cumis, supra, 162 Cal.App.3d at 375); When dual clients have potentially conflicting interests, dependent counsel must take the initiative to analyze the clients' potential conflicts of interest, make written disclosure to, and obtain informed written consent from both before starting work. (Rule 3-310). "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." (Cumis, supra, 162 Cal.App.3d at 375); Thus, dependent counsel does not "create" a conflict of interest, the reservation of rights does - and dependent counsel may not ethically accept or continue employment without complying with Rule 3-310.

•	Advise a policyholder to retain private counsel or consult the insurer's claims agent to analyze any coverage contest with a liability insurer?

The response should be "no". While it is appropriate for dependent counsel to advise a policyholder to seek the advise of independent counsel to confirm or reject advise given, dependent counsel may not delegate to some other lawyer, the duty to comply with Rule 3-
310. The duty to comply with Rule 3-310 is non-delegable. A client cannot give "informed written consent" without the lawyer first making written disclosure of the lawyer's analysis of potential conflicts of interest. Arguably a policyholder who does seek independent coverage advise at the urging of ethically conflicted dependent counsel may claim the fees and costs of such advise as damages from dependent counsel.

•	Advise a policyholder that an insurer's reservation of rights does not necessarily create a conflict of interest for dependent counsel to represent the policyholder, without making written disclosure of the lawyer's analysis?

The response should be "no". Like in high school algebra class, it is not sufficient to have the right answer, one must show one's work to get credit. "[N]ot every conflict of interest triggers an obligation on the part of the insurer to provide the insured with independent counsel at the insurer's expense." (James 3, supra, 91 Cal.App.4th at 1101.) But 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." (Cumis, supra, 162 Cal.App.3d at 375.)

•	Advise a policyholder that dependent counsel does not have an attorney-client relationship with the insurer?

The response should be "no". "The signed defense guidelines, with the negotiated hourly rate, and subsequent correspondence, along with the subsequent dealings between the Berger Kahn defendants and Gulf, reflected an agreement between them and an attorney-client relationship as a matter of law." (Berger, Kahn, supra, 79 Cal.App.4th at 127. Some dependent counsel seek to avoid compliance with Rule 3-310 by claiming that they do not have an attorney-client relationship with the insurer. Rule 3-310(C) requires informed written consent to represent two "clients". However, California is a two-client jurisdiction. (50 State Survey: Is an Insurer That Reserves Its Rights to Later Deny Coverage Required to Pay Independent Counsel?) "We conclude that the attorney has a dual attorney-client relationship with both insurer and insured." (Berger, Kahn, supra, 79 Cal.App.4th at 129 (ellipsis omitted).)

•	Advise a policyholder that the tripartite relationship among insurer, counsel, and policyholder permits dual representation regardless of potential conflicts of interest?

The response should be "no". The so called tripartite relationship may be harmonious only absent any conflict of interest. "The three parties may be viewed as a loose partnership, coalition or alliance directed toward a common goal, sharing a common purpose which lasts during the pendency of the claim or litigation against the insured." However, 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." (Gafcon, supra, 98 Cal.App.4th at 1406.

•	Advise a policyholder that rules of comparative fault may reduce cross-claims of damage without advising the policyholder that there is not setoff when cross-claims of damage are insured?

The response should be "no". When two parties have claims against each other and both parties have liability insurance, the loss of each victim is not reduced by comparative fault principles. (Setoff) "[A] setoff produces results detrimental to the interests of both parties and accords the insurance companies of the parties a fortuitous windfall simply because each insured happens to have an independent claim against the person he has injured. Under these circumstances, we conclude that general principles of equity and common sense dictate that California courts not blind themselves to the realistic status of the parties vis-a-
vis insurance. In a comparative fault setting, the appropriate application of setoff principles cannot be determined in the absence of a consideration of the parties' insurance status. [T]he propriety of the application of traditional setoff principles in such cases depends upon the availability of insurance coverage. [V]irtually all of the commentators concur that [t]he only sensible solution from the point of view of compensation and loss spreading is to proscribe set-off under 'pure' comparative negligence law whenever the participants are insured." (Jess v. Herrmann (1979) 26 Cal.3d 131, 134-39 (ellipses omitted).)

•	Refuse to read the policy or the insurer's reservation of rights letter?

The response should be "no". Dependent counsel cannot analyze potential conflicts of interest nor know what confidential information to withhold from a reserving insurer without fully understanding the scope of the coverage contest. "[T]raditional obligations of an attorney are in no way abridged by the fact that an insurer employs him to represent an insured. [W]hether in the insurer-insured context or otherwise, the attorney who undertakes to represent parties with divergent interests owes the 'highest duty' to each to make a full disclosure of all facts and circumstances which are necessary 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." (Betts, supra, 154 Cal.App.3d at 716 (ellipses omitted).)

•	Advise a policyholder that no conflict of interest exists that warrants that the insurer to provide independent counsel worth worrying about, without disclosing dependent counsel analysis?

The response should be "no". While a reservation of rights may or may not create a (Disqualifying Conflict of Interest) under the (Cumis Test), dependent counsel must analyze potential conflicts of interest and make full and fair disclosure to the policyholder. "The duty of a fiduciary embraces the obligation to render a full and fair disclosure to the beneficiary of all facts which materially affect his rights and interests." (Neel, supra, 6 Cal.3d at 188-89; Duty of Disclosure.)

•	Disclose to a policyholder that the insurer's duty to provide independent counsel to the policyholder depends on whether the insurer's reservation of rights creates a disqualifying conflict of interest?

The response should be "yes". Civil Code § 2860 provides that "[i]f . . . a conflict of interest arises which creates a duty on the part of the insurer to provide independent counsel to the insured, the insurer shall provide independent counsel to represent the insured." Both dependent counsel and a reserving insurer have a (Duty to Advise of the Policyholder's Right to Independent Counsel). The legal test in California to determine whether a reservation of rights creates a (Disqualifying Conflict of Interest) is well established. "[W]hen the reservation of rights is based on coverage disputes that have nothing to do with the issues being litigated in the underlying action there is no conflict of interest, and no duty to appoint independent counsel." (Long, supra, 163 Cal.App.4th at 1470 (citation and ellipsis omitted); Cumis Test).

•	Disclose to a policyholder that the Cumis case states that "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"?

The response should be "yes". "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, [dependent] counsel must cease to represent both. Moreover, divergent interests brought about by the insurer's reservation of rights [require that] 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." (Cumis, supra, 162 Cal.App.3d at 375 (citations and ellipses omitted).) Dependent counsel has a Duty to Advise and a Duty to Advise of the Policyholder's Right to Independent Counsel.

•	Accept compensation from an insurer for representing a policyholder and allowing the insurer to interfere with the lawyer's independence of professional judgment?

The response should be "no". "A [lawyer] shall not accept compensation for representing a client from one other than the client [such as a liability insurer] unless: (1) There is no interference with the [lawyer]'s independence of professional judgment." (Rule 3-310(F).)

•	Accept compensation from an insurer for representing a policyholder and allowing the insurer to interfere with the with the client-lawyer relationship between dependent counsel and the policyholder?

The response should be "no". "A [lawyer] shall not accept compensation for representing a client from one other than the client [such as a liability insurer] unless: (1) There is no interference with . . . the client-lawyer relationship." (Rule 3-310(F).)

INFORMATION REQUEST

All of your correspondence with my insurer regarding the lawsuit?

The client owns the lawyer's file. "A [lawyer] whose employment has terminated shall promptly release to the client, at the request of the client, all the client papers and property [which] includes correspondence, pleadings, deposition transcripts, exhibits, physical evidence, expert's reports, and other items reasonably necessary to the client's representation, whether the client has paid for them or not." (Rule 3-700 (ellipses omitted).)

All writings describing the terms of your engagement by my insurer?

Dependent counsel who deny that they have an attorney client relationship with the insurer do have some kind of relationship with the insurer. The terms of engagement will define that relationship. Also, the terms of engagement may help define how much and how often the insurer is obligated to pay independent counsel. "The insurer's obligation to pay fees to the independent counsel selected by the insured is limited to the rates which are actually paid by the insurer to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended." (Civ. Code § 2860(c).)

My insurer's litigation guidelines?

"The signed defense guidelines, with the negotiated hourly rate, and subsequent correspondence, along with the subsequent dealings between the [dependent counsel and the insurer], reflected an agreement between them and an attorney-client relationship as a matter of law." (Berger, Kahn, supra, 79 Cal.App.4th at 127.) The existence of such guidelines is one of the factors which may establish an attorney-client relationship between dependent counsel and the insurer "as a matter of law." (Ibid.)

The names of all cases and the total dollar amount paid by my insurer to you or your firm for each of the last three years?

The number of cases assigned and the revenue generated for dependent counsel should expose the close financial relationship that often exists between a liability insurer and dependent counsel. "As 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" (Purdy v. Pacific Automobile Ins. Co.(1984) 157 Cal.App.3d 59, 76), "[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." (Cumis, supra, 162 Cal.App.3d at 364), and "defense counsel and the insurer frequently have a longstanding, if not collegial, relationship" (Berger, Kahn, supra, 79 Cal.App.4th at 131). "In California, an attorney may usually, under minimum standards of professional ethics, represent dual interests as long as full consent and full disclosure occur." (Lysick, supra, 258 Cal.App.2d at 147; See, also Ishmael v. Millington (1966) 241 Cal.App.2d 520, 528; Industrial Indem., supra, 73 Cal.App. 3d at 537.)