Dependent Counsel Is Beholded to the Insurer

Introduction

California law has long recognized that dependent counsel is beholden to the insurer, as a client. In contrast, independent counsel is not. The difference between dependent and independent counsel is that independent counsel represents only the policyholder while dependent counsel represents the interests of the insurer and the policyholder.1

Dependent Counsel

Dependent counsel are regularly hired by insurers and rely upon the continued favor of liability insurers for their continued financial well being. If dependent counsel displeases an insurer only once, the firm risks losing not just one case, but an entire line of business. Disloyalty to the insurer by dependent counsel may destroy careers and fortunes. Independent counsel has no realistic expectation of ever being hired by the insurer.

Dependent counsel represents the insurer and the policyholder, is hired by the insurer and takes direction from the insurer.2 In contrast, independent counsel represents only the policyholder, is selected by the policyholder and takes direction only from the policyholder.3

"[D]efense counsel and the insurer frequently have a longstanding, if not collegial, relationship."4 "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."5 "This reality frequently gives rise to conflicts of interest between the insurer and its insured."6 "Insurance 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."7 Dependent counsel, "who typically has a long-standing relationship with the insurer and none with the insured (including little prospect of future work), may be forced to make 'numerous and varied' decisions that could 'help one of his clients concerning insurance coverage and harm the other.'"8

"Where an insurer is called upon to defend its insured, the attorney retained by the insurer may have a compelling interest in perfecting the insurer's position, whether or not it coincides with what is best for the insured."9 "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."10

Both dependent counsel and the insurer have a duty to analyze conflicts of interest and make written disclosure of them to the policyholder.11

Independent Counsel

The moniker "independent" denotes that the lawyer is independent of and owes no duties to the insurer. "[W]e 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 [independent counsel] from having any duty to the insurer. . . . Cumis counsel is under no duty to the insurer to investigate or make determinations regarding how the case will be handled."12

"The Cumis line of cases evolved out of express concern that counsel representing the insurer as well as the insured might prejudice the insured's coverage and liability positions by favoring the insurer's coverage position. . . . [A]n attorney in actual trial would be tempted to develop the facts to help his real client, the [insurer], as opposed to the Insured, for whom he will never likely work again. . . . A lawyer who does not look out for the [insurer's] best interest might soon find himself out of work. . . . [T]he Cumis decisions [was] intended to eliminate the ethical dilemmas and temptations that arise along with conflict in joint representations, and that they accomplished this through mandating the insured's right to Cumis counsel that represent only the insured."13 "In California, an attorney may usually, under minimum standards of professional ethics, represent dual interests as long as full consent and full disclosure occur."14