[textbook]Traversing the Ethical Minefield Problems, Law, and Professional Responsibility by Susan R. Martyn (z-lib.org)(1) (1)

delegate authority to the insurer “to make such investigation, negotiation, and settlement of
any claim or suit as it deems expedient.”
These contract provisions can create a conflict between the interests of insured and
insurer; for example, when the insured insists on the insurer’s duty to defend and the
insurer stands on its right to control settlement. Insurance law addresses any such conflict
by construing the contract language against the insurer-drafter. Courts read the insurance
contract to promote more consistent obligations — for example, to both defend and settle
with due consideration for the insured’s interests. By requiring due regard for the insured’s
interests, this insurance law also indirectly supports maintaining the integrity of the lawyers’
obligations to their client-insureds.
The Six C’s
The Clients When an insurer hires a lawyer or law firm to defend an insured, all
jurisdictions agree that the lawyer represents the insured. 1 Providing a “defense” necessarily
includes providing a lawyer, complete with the six C’s. Jurisdictions do not agree about
whether the lawyer also represents the insurer. Some characterize insurance defense as a
one-client/third-party payer situation. 2 Lawyers have only one client, the insured, and must
comply with Model Rules 1.8(f) and 5.4(c) by resisting pressure from insurers that might
interfere with the lawyer’s independent professional judgment. Other jurisdictions, as in
Paradigm, adopt a joint-client approach, meaning that defense lawyers in many cases
initially can represent both the insured and the insurer, but remain subject to the rigors of
Model Rule 1.7 with respect to each client. 3 Some courts do not specify, but instead
require lawyers to clarify the matter in each representation. 4
Each of these constructs solves some problems and creates others. First, who can sue for
incompetence? Paradigm indicates that, at least where the harm was caused to the insurer
but not the insured, some jurisdictions find the insurer need not be a client to seek
malpractice relief. Similarly, vicarious liability claims against the insurer will turn on the
insurer’s right to control the details of the lawyer’s conduct. 5
Second, who can invoke and waive the attorney-client and work-product privileges? If
both insured and insurer are clients, the co-client privilege 6 protects matters of common
interest against third persons, but not between the co-clients. Note 3 in Paradigm points to
the same result, even when the insurer is not a client if the insurer acts as agent of the
insured for the purposes of preparing the defense.
Third, can insurers use inside counsel-employees to represent insureds? Some courts
have allowed such a practice, 7 on the grounds that a lawyer/employee owes the same loyalty
to the client, whether employed directly by the insured or retained as an independent
contractor. 8 Others have specifically prohibited it, on the grounds that an insurer/employer
would be able to assert so much pressure on its employee/counsel that insurers would
interfere with the exercise of counsel’s professional judgment. 9
Regardless of the characterization that is adopted, the insurance defense lawyer must
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