Tales from the dark side.

• Author: Aylward, Michael F.
• Position: Disqualification of insurance defense counsel

Recognizing that International Association of Defense Counsel committee members prepare a wide range of practical and helpful material in monthly newsletters, this section highlights an interesting topic covered in a recent newsletter.

In recent years, a number of "insurance defense" law firms and lawyers have "gone to the dark side" owing to dissatisfaction with the hourly rates, litigation guidelines and other restrictions imposed by certain insurance companies. Some of these lawyers are now representing policyholders in coverage litigation and, in a few cases, have sued former clients claiming bad faith. These cases have required courts to consider whether a "substantial relationship" exists between the past and current representations and, in particular, what sort of identity must exist between the issues in the cases to warrant disqualification.

Rule 1.9 of the Model Rules of Professional Conduct requires that "a lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after consultation."

Note that not all state rules use this language. In California, for instance, Rule 3-310(E) of the Model Rules of Professional Conduct provides that an attorney cannot "without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment."

Two recent decisions of the California Court of Appeal illustrate the restrictions that courts are now imposing to limit successive representations in the coverage context.

The first case to frame this issue in the insurance context was Farris v. Fireman's Fund Ins. Co., 119 Cal. App.4th 671 (2004). Attorney James Wilkins brought a bad faith action against Fireman's Fund on behalf of Jason Farris, whom Fireman's Fund had refused to defend in a pending personal injury action. Fireman's Fund moved to disqualify Wilkins on the grounds that, until a few months earlier, he had worked for a law firm where he had handled numerous coverage matters for Fireman's Fund.

Arguing against disqualification, Wilkins contended that almost all of his work for Fireman's Fund had involved the preparation of coverage opinions, which he claimed was a fact-specific task involving comparing case law to the circumstances of specific claims. As a result, he claimed to have no knowledge of internal policies or procedures of Fireman's Fund that would be of any value to him with respect to the bad faith claims he was asserting on behalf of Farris.

By contrast, Fireman's Fund presented evidence that Wilkins had handled over two hundred coverage matters for them during the past decade; had provided claims handling advice to senior employees and decision makers at Fireman's Fund; had been a party to discussions about settlement, litigation and claims handling strategies; and had participated in confidential communications with top level Fireman's Fund employees. Additionally, he had presented numerous in-house seminars and training programs for Fireman's Fund claims personnel. As a result, Fireman's Fund argued that Wilkins had acquired a "thorough knowledge of [its] policies and procedures with respect to policy interpretations and coverage positions."

Notwithstanding these arguments, the Superior Court denied Fireman's Fund's motion to disqualify Wilkins, finding that there was no "substantial relationship" between the specific cases that he had previously handled for Fireman's Fund and the issues involved in his current representation of Farris.

This finding was reversed by the California Court of Appeal on October 31, 2002...