USE NOTES: The insurer previously sent a reservation of rights letter and declined to withdraw or limit it. Dependent counsel seeks to comply with Rule 1.7. Following is suggested text for Dependent Counsel to adapt. Before sending the text below, delete this Use Note.
&Date&
&Client&
&InsCo& Attn:
Re: Disclosure and Consent to Joint Representation
Dear Messrs.__ and __:
&InsCo& has asked our firm to represent the &Client& in the litigation brought against it by &Plaintiff&. &InsCo& has agreed to pay our fees and to reimburse the costs we incur in connection with this representation. When a lawyer is appointed by an insurance carrier to defend the interests of an insured, the lawyer has a lawyer-client relationship with both the carrier and the insured and represents them jointly. Thus, both &Client& and &InsCo& will be our clients with respect to the action filed by Plaintiff, Inc. if we accept this appointment and if both of you agree to be represented by us with respect to this lawsuit.
We understand that &InsCo& has agreed to provide a defense to &Client& under the reservation of rights letter dated __. We have reviewed that letter and, for reasons I will explain in this letter, we have concluded that the reservations of rights letter creates a potential conflict of interest for me and for the other lawyers in my law firm. As a result, Rule 1.7 of the California Rules of Professional Conduct prohibits us from accepting this appointment without first making certain disclosures to you and obtaining your written consent to this joint representation.
While it is impossible to predict all of the potential conflicts that could arise from any joint representation, there are particular possibilities that we want to emphasize. I will begin with the particular conflict of interest that would arise in representing both of you jointly in the defense of the current lawsuit, and I then will explain the potential conflicts of interest that normally arise in any joint representation.
• Under the reservation of rights letter, &InsCo& reserves the right to assert that it has no obligation to defend or indemnify &Client& with respect to some or all of the claims brought by Plaintiff. This creates a potential conflict of interest because the reservation is based on issues that will arise in the defense of the current lawsuit. As a consequence, the way in which we defend the lawsuit could affect the outcome of any coverage dispute that you might later have. This means that our conduct in the defense of the current lawsuit might cause a result that favors one of you and injures the other. This is the essential conflict of interest problem for us. We cannot fully explain to you the meaning and potential consequences of the reservation of rights letter. We cannot give this advice to either of you because our obligation to remain neutral between you prohibits us from providing to either of you any advice about your duties to one another. However, I can provide one example of the conflict for us that is created by the reservation of rights letter. That letter says that certain of the claimed damages are not covered by the insurance policy. This could mean, for example, that Plaintiff, Inc. might send a discovery request asking &Client& to admit that Plaintiff, Inc. suffered a form of damages that, according to the reservation of rights letter, might not be covered by the applicable insurance policy. It might be in the interests of &InsCo& to admit this, but it might be in the interest of &Client& to not admit this. This kind of tension between our duties to &Client& and &InsCo& could arise in countless other ways in the course of defending the current lawsuit, including selecting the questions to ask and the issues to emphasize during discovery and during trial, in determining what expert witnesses to call, in preparing requested forms of jury instructions, and in any number of other aspects of the defense of the claims of Plaintiff, Inc.
I now will turn to the conflicts that could arise in the usual joint representation.
• In the usual joint representation, there is a natural tendency for the lawyer to balance the interests of the clients instead of vigorously asserting any one client’s interest on an issue. This could lead to results less favorable than might be obtained if the clients were represented separately. Here, however, we are obligated by principles of California law applicable in the context of insurance defense to favor the interests of the insured over those of the carrier. We recognize this obligation and commit to fully perform it.
• Our duty to favor the interests of the insured implicates other rules that govern our joint representation. A lawyer’s fees sometimes are paid by someone other than the client. In that instance, the lawyer must exercise independent judgment without being influenced by the interests of the person paying the fees and without being influenced by the lawyer’s potential desire to maintain a relationship with the payor. Because we would represent both of you, but only &InsCo& would pay our fees, we must exercise independent judgment from the source of our fees. However, we can and will take instruction from &InsCo& and &Client&, which could result in conflicts of interest, as more fully set forth below. In addition, lawyers have the duty to competently represent their clients. We will endeavor to competently represent both of your interests, but we will favor the interests of the insured whenever your interests are not the same.
• The lawyer-client privilege bars our disclosure to others of our confidential communications with either of you. In the usual joint representation, there is no lawyer-client privilege as between the jointly represented clients with regard to the subject of the joint representation. This means that a lawyer who has a joint representation normally is required to disclose to each client all information the lawyer obtains as a result of the joint representation that is material to the interests of either client. Here, however, because we are obligated by principles of California law applicable in the context of insurance defense to favor the interests of the insured over those of the insurer, we would not disclose to &InsCo& any information extrinsic to our defense of the current lawsuit that bears on the enforceability of the contract of insurance. However, if we were to obtain such information, we would be obligated to withdraw from this representation. We recognize these obligations and commit to fully perform them. If each of you were separately represented, your lawyers would not be required to disclose your communications with them to the other. Each of you should consider whether you will be as comfortable as you would be with a lawyer representing your interests alone.
• There normally is a second important aspect to the lawyer-client privilege in the context of a joint representation. Once the lawyer has disclosed information to a client as explained in the preceding paragraph, or if one of you discloses information to the other client directly, the second client is free to use and disclose that information without any limitation based on the lawyer-client privilege. While a client controls his or her lawyer’s disclosure of information protected by the privilege, in the usual joint representation the client does not control the use or disclosure of that information by the other jointly represented client. There may be insurance law concepts that would limit the ability of &InsCo& to make such disclosures, but we make no comment on that possibility.
• An actual conflict could arise in the future if we receive conflicting instructions from you. That situation, if unresolved, normally could require us to withdraw from representing either of you, which would result in the burden of expense and delay involved in obtaining new lawyers. Inconsistent instructions could arise from your developing different objectives. No two jointly represented clients have exactly the same needs. Differences in financial strength, objectives, long-term business strategies, and a host of other matters could result in your later developing different objectives and giving us inconsistent instructions. In addition, some litigation involves non-economic considerations that might affect you differently. You should examine these differences in personal circumstances and needs now before agreeing to this joint representation.
• An actual conflict also could arise if you develop inconsistent strategies or objectives during the course of the litigation. For example, if one of you wants us to pursue a strategy or claim that might adversely affect the other, a conflict of interest would exist that could require us to withdraw as your lawyers. It therefore will be important for you to make certain that we are pursuing common objectives and strategies for both of you so that we will not be required to withdraw later. At the same time, if either of you determines that pursuing a common objective is not in your best interest, we might be required to withdraw from representing you.
• An actual conflict could arise if you adopt conflicting settlement positions. This might happen, for example, because the reservation of rights by &InsCo& means that a proposed settlement affects you differently.
• An actual conflict also could arise because of any litigation guidelines we receive from &InsCo&. These guidelines might bear on the way we handle the litigation, and we will appraise both of you of any guidelines that we feel could interfere with our competent representation and our duty to favor the interests of the insured.
It is important for &Client& to know that our law firm has represented &InsCo& and its related insurance entities for years, and that we have served as appointed counsel for it and its insureds in approximately separate matters during this period. We currently have approximately open files in which we serve as its appointed counsel. We never have provided any other form of legal services to &InsCo& or its related insurance entities. If we undertake this joint representation, there will be no loss of the attorney-client privilege with &InsCo& with regard to information that we have or later obtain separate from the subject of the Plaintiff, Inc. v. &Client& matter. If for any reason we cease this proposed joint representation, we will continue to represent &InsCo& on unrelated matters.
During the course of these proceedings, we will timely respond to any requests for information either of you have, subject to our duty to favor the interests of the insured, including without limitation providing to &Client& copies of all correspondence with &InsCo& and all insurance reports. We will maintain a file containing original correspondence, pleadings, and other documents and materials. If we are required to withdraw from representing you, we will retain the original file until we receive a common set of instructions or court order to transmit the file somewhere else. At your request and at your expense, we will provide each of you or your new counsel with a copy of the file.
I finally must explain the connection between the reservation of rights letter and the scope of our duties to each of you. Because of our obligation to favor the interests of the insured over those of the insurance carrier, it is essential that we understand the coverage position reserved by &InsCo&. Without that understanding, we would not know how we must conduct the defense of the current litigation in order to favor the interests of &Client&. We therefor have read the reservation of rights letter and will be guided by it. We assume, and we hereby request, that &InsCo& will advise us promptly if it later amends its current reservation of rights letter.
The fact that we have read the reservation of rights letter does not mean that we have any opinion on it. I want to repeat that we cannot take any position on, or advise either of you with respect to, the reservation of rights or any other right or claim that either of you might have against the other. Because our responsibilities are strictly limited to the defense of the current lawsuit, we will have no role with respect to any question regarding the meaning or effect of the applicable insurance policy. You should consult confidentially with separate counsel if you have any such question or concern.
We strongly recommend that each of you consult independently with other counsel to review your personal objectives and to advise you on whether it is in your interest to consent to our representing you jointly. Each of you may retain separate counsel to monitor the defense being provided by us and we will cooperate with any separate counsel within the guidelines set forth in this letter and our professional responsibilities.
Please forgive the length and formality of this letter. It is important that we be certain that you are fully informed about these important issues and that you are comfortable with our joint representation of all of you. Please do not hesitate to call me if you have any questions about this letter.
Very truly yours,
&DependentCounsel&
We agree to __ representing us jointly notwithstanding the potential conflicts of interest between us. We understand that we have the right to seek independent counsel before signing this authorization and consent.
Dated:
&Client&
&InsCo&