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Finley v. Home Insurance Company12/30/1998
due to a conflict of interest rests in part upon an implicit assumption that the attorney is engaging in dual representation, that both the insurer and the insured are clients of the attorney. See Cumis, 208 Cal. Rptr. at 498 ("the attorney selected by the insurer a dual agency status.") Whether the attorney has an attorney-client relationship with the insurer is a matter of substantive law and varies by state. See ABA Committee on Ethics and Professional Responsibility, Formal Op. 96-403 (hereinafter ABA Opinion), stating that:
"The Model Rules of Professional Conduct offer virtually no guidance as to whether a lawyer retained and paid by an insurer to defend its insured represents the insured, the insurer, or both. . . . or purposes of determining the lawyer's authority and responsibility, principles of substantive law external to these Rules determine whether a client-lawyer relationship exists. . . . Absent an express agreement specifying the identity of the lawyer's client or clients, however, a lawyer hired by an insurer to defend its insured may be held to have a client-lawyer relationship with the insured alone or with both the insured and the insurer."
The Finleys impliedly assert in their opening brief that MacLaren and Tom represented both HIGA and the Aaron Defendants as clients. The record on appeal does not contain any information on the specific arrangement between HIGA and counsel retained by HIGA. The rule implied by the HRPC, which we expressly approve herein, is that retained counsel solely represents the insured when a conflict arises between the interests of the insurer and the insured.
The portion of the HRPC dealing with conflicts of interests provides that:
"[Rule 1.7(b) ] A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:"
"(1) the lawyer reasonably believes the representation will not be adversely affected; and (2) the client consents after consultation."
"[Comment 10 to Rule 1.7] A lawyer may be paid from a source other than a client, if the client is informed of that fact and consents and the arrangement does not compromise the lawyer's duty of loyalty to the client. For example, when an insurer and its insured have conflicting interests in a matter arising from a liability insurance agreement, and the insurer is required to provide special counsel for the insured, the arrangement should assure the special counsel's professional independence."
The HRPC do not allow an attorney to represent a client if this representation will be materially limited by his responsibilities to another client or a third person. If both the insured and the insurer were clients of the attorney and a conflict existed, such that each desired a different outcome to the litigation, it would be impossible for the attorney to adequately represent the interests of both, and the requirements of HRPC Rule 1.7(b)(1) could not be met. Comment 10 expressly allows the representation of an insured by special (i.e. independent) counsel paid for by the insurer, with the caveat that the arrangement must "assure the special counsel's professional independence." Clearly, this does not contemplate dual representation of both the insurer and the insured by a single attorney where a conflict of interest between the two exists.
Our holding that the sole client of the attorney is the insured reflects the modern view. See, e.g., State Farm Fire & Cas. Co. v. Mabry, 497 S.E.2d 844, 847 (Va. 1998) ("The attorney employed by the insurer to defend the insured is bound
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