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Finley v. Home Insurance Company12/30/1998
vantage in litigation concerning coverage." CHI of Alaska, Inc. v. Employers Reinsurance Corp., 844 P.2d 1113, 1116 (Alaska 1993) (quotation marks and citations omitted).
In our view, any of the scenarios envisioned by the CHI of Alaska court would expose the attorney to malpractice liability. The attorney cannot conduct merely a "token defense" without violating the duty of competent representation mandated by HRPC Rule 1.1. The attorney could not slant the outcome of the case to a theory of liability not covered by insurance without violating the duty of loyalty to his or her client, the insured. Finally, the attorney is precluded from sharing privileged information received in the representation with the insurer. See HRPC Rule 1.6. See also Tripartite Relationship at 295, opining that " s a general rule, a defense attorney should never share with the insurer confidential information communicated by the insured. If defense counsel learns of information suggesting coverage defenses, such information must be kept confidential. Under no circumstances should appointed counsel attempt to uncover or develop coverage defenses."
In Best Place, Inc. v. Penn America Ins. Co., 82 Hawaii 120, 132, 920 P.2d 334, 346 (1996), we held that "there is a legal duty, implied in a first- and third-party insurance contract, that the insurer must act in good faith in dealing with its insured, and a breach of that duty of good faith gives rise to an independent tort cause of action." We are of the view that, where an insurer is required to provide a defense for its insured, it would be a breach of the duty of good faith to induce retained counsel to provide a defense which did not meet the professional standard set forth by the HRPC. The attorney may be liable for professional malpractice, and the insurer may also be liable if its actions caused the attorney's breach of its duties.
In Tank v. State Farm Fire & Casualty Co., 715 P.2d 1133 (Wash. 1986), the Washington Supreme Court held that, when an insurer defends under a reservation of rights, an "enhanced" standard of good faith is applicable to judicial scrutiny of the insurer's actions. We believe that the Tank court's reasoning is persuasive. The court held that:
"We have stated that the duty of good faith of an insurer requires fair dealing and equal consideration for the insured's interests. Thus . . . the same standard of fair dealing and equal consideration is unquestionably applicable to a reservation-of-rights defense. We find, however, that the potential conflicts of interest between insurer and insured inherent in this type of defense mandate an even higher standard: an insurance company must fulfill an enhanced obligation to its insured as part of its duty of good faith. Failure to satisfy this enhanced obligation may result in liability of the company, or retained defense counsel, or both. This enhanced obligation is fulfilled by meeting specific criteria. First, the company must thoroughly investigate the cause of the insured's accident and the nature and severity of the plaintiff's injuries. Second, it must retain competent defense counsel for the insured. Both retained defense counsel and the insurer must understand that only the insured is the client. Third, the company has the responsibility for fully informing the insured not only of the reservation-of-rights defense itself, but of all developments relevant to his policy coverage and the progress of his lawsuit. Information regarding progress of the lawsuit includes disclosure of all settlement offers made by the company. Finally, an insurance company must refrain from engaging in any action which would demonstrate a greater concern for the insurer's monetary interest
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