Legal Challenges and Potential Conflicts in Serving Both Insurance Companies and Insured Parties

In the myriad varieties of insurance claims, attorneys can find themselves walking a tightrope when representing both insurance companies and insured parties concurrently. While this dual representation often provides a practical and cost-effective solution, it introduces challenges that require meticulous handling to maintain ethical standards and provide equitable representation for all parties.

1. Conflicting Interests:

The fundamental challenge in dual representation lies in managing the potentially conflicting interests of insurance companies and insured parties. From the outset, care must be taken that the policy is valid and is sufficient to cover the damages claimed.

In circumstances in which coverage is disputed, or a policy may have been avoided by an insured, it is inadvisable for any single attorney or firm to act for both parties: a clear and obvious conflict of interest exists.

Prior to accepting instructions to represent both parties, a rigorous investigation is necessary to ensure that potential future conflicts are avoided. Such an issue may arise as to the sufficiency of coverage for a claim. For example, if injuries are significant enough, and threaten a claimant’s ability to work in the future, advice must be provided early to both parties as to the sufficiency of any cap on damages as described in any policy.

Similarly, an issue may arise in which an insurer exercises its discretion to settle a claim on a commercial basis, whereas the insured party remains adamant that they wish to dispute liability and run a trial. In such cases, the policy terms usually provide the insurer with a broad discretion to take whatever decision it decides is fair. If the insured party seeks to run a trial against the wishes of the insurance company they may find their insurer will refuse to cover the cost of litigation under the terms of the policy. The conflict between the commercial decisions of an insurer and access to justice for the insured is an issue which attacks the very core of the relationship between the parties.

2. Information Asymmetry:

When an attorney is instructed by an insurance company to represent its interests as well as those of the insured, difficulties may arise in the exchange of information. If both parties are clients, and therefore entitled to an equal duty of disclosure and confidentiality, how may this be reconciled in a case in which the attorney discovers confidential information in the possession of the insurance company that may adversely affect the insured? Or the insured admits in private consultation to conduct that would potentially avoid the relevant policy, and which was not previously known to the insurer?

These situations are likely to result in professional embarrassment, and a duty to withdraw the representation of at least one of the parties. If the issue arises shortly prior to, or during, a trial before the court, it is likely that the attorney, and/or firm, in question would be subject to heavy criticism for failing to note the risk early in the process, and may even become subject to a wasted costs award.

It is imperative, therefore, for attorneys to ensure that immediate and full enquiry is made of all relevant parties, circumstances, and the risk of any such conflict is nipped in the bud as early as possible.

3. Ethical Dilemmas:

Rigorous adherence to professional codes of ethics is paramount for legal practitioners. Potential pitfalls are most common in circumstances where duties are owed to more than one client in the same proceeding.

A single attorney or firm retained by more than one client in the same matter present can present a simpler and more cost-effective solution in cases in which the interests of both clients are aligned.

4. Informed Consent and Disclosure:

Obtaining informed consent is a pivotal step in dual representation. Attorneys must provide clear and comprehensive disclosure about the potential conflicts of interest to both the insurance company and the insured party. This process involves explaining the implications, risks, and benefits associated with dual representation. The roles of the insured and insurer ought clearly to be defined in the contract of engagement, with any waivers of duties relating to information exchange explained and signed by both parties.

Informed consent is not a one-time event but an ongoing process. Attorneys must continuously update both parties about any developments that could impact their representation and obtain reaffirmation of their consent as necessary throughout the process, as necessary.

Conclusion

While dual representation in insurance claims may offer practical advantages, the complexities and potential conflicts involved demand a sophisticated approach from attorneys. Navigating conflicting interests, information asymmetry, ethical dilemmas, and informed consent requires a keen eye, anticipation of conflicts and sometimes a deft touch. Attorneys must uphold the highest ethical standards, prioritise transparency, and consistently communicate with both the insurance company and the insured party to mitigate potential conflicts and ensure proper representation.

Alex Davies in HSM’s litigation team has extensive experience dealing with insurance matters, receiving instructions from insurance companies based locally and internationally, as well as acting for insured parties in claims in conjunction with, and against, their insurance companies. Alex’s practice includes advice on policy coverage, personal injury, fatal accidents, medical negligence, and complex road traffic matters.