3.3 The Counsel-insurer Relationship

• Library: Insurance Law in Virginia (Virginia CLE) (2020 Ed.)

3.3 THE COUNSEL-INSURER RELATIONSHIP

Customarily, the insurer retains the counsel for the representation of the insured. The engagement is usually expressly limited to the litigation at hand. Virtually all insurance companies issue guidelines to govern the representation and the activities that are authorized and require reports of its progress. The insurer also typically participates in formulating strategy for the defense of the case.

This description, however, may belie the true depth of the relationship between the counsel and the insurer. Frequently, the insurer and its counsel have a longstanding association, and the attorney and his or her firm may rely heavily on regular assignments from the insurer for economic success. Thus, counsel will likely be required to accept the guidelines as a condition of accepting the assignment and must work within the guidelines in a manner consistent with the ethical requirements of representing the insured. When the guidelines impact the ability of counsel to perform those services, counsel must be guided by the Rules of Professional Conduct.

The management guidelines, including preapproval requirements for activities and auditing of legal services under billing guidelines, have been a source of conflict in the counsel-insurer relationship. Some courts have addressed this tension between cost containment and the possibility of the insurer's limiting the ability of counsel to adequately represent the insured. For example, in In re The Rules of Professional Conduct & Insurer Imposed Billing Rules & Procedures, ⁹ the Montana Supreme Court determined that certain insurer-imposed guidelines violated the Montana Rules of Professional Conduct. Specifically, the court found that guidelines requiring attorneys to secure the insurer's approval before "scheduling depositions, undertaking research, employing experts or preparing motions" interfered with the defense counsel's exercise of independent judgment required by Rule 1.8(f). ¹⁰ The court also cautioned that "a mere requirement of consultation

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may be indistinguishable, in its interference with a defense counsel's exercise of independent judgment and ability to provide competent representation, from a requirement of prior approval." ¹¹

The Virginia State Bar and the Virginia Supreme Court agree with the Montana Supreme Court's assessment that the insured is the sole client of the attorney in the tripartite relationship. ¹² Thus, in Legal Ethics Opinion (LEO)...