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

remain focused on the interests of the insured, despite the reality that the insurer is a repeat
player in the world of law firm finance. Neither Rule 1.7 nor Rule 1.8(f) allows lawyers to
behave in any other way. 10
Competence The insured client has no incentive to seek anything other than a Cadillac
defense. The insurer, however, may rank lawyers as among its highest costs of doing
business. Insurers may attempt to limit their costs by relying on insurance policy language
that cedes substantial control of the representation to the insurer. Decisions about fees and
strategy extending to matters such as staffing, motion practice, and the need for expert
witnesses, all can be second-guessed, often by nonlawyer auditors. 11 At the very least,
insureds are entitled to know when insurers refuse to pay for a service that the defense
lawyer deems necessary for the insured’s defense. At the same time, the insurance contract
cannot provide the lawyer with a waiver sufficient to compromise the lawyer’s judgment as
to what is required to provide a competent representation. 12
This conflict about the cost necessary to provide competent representation has led to
literally dozens of bar association opinions that often condemn insurers’ interference with
retained counsel. 13 Many of these opinions hold that lawyers may not ethically comply
with any insurer’s requirement of prior approval before undertaking research, depositions,
or retaining expert witnesses. 14 The Restatement does allow for some outside direction, but
only if it is reasonable in scope, does not create interference with the lawyer’s independent
professional judgment, and the client consents. 15 This means that so long as a defense
lawyer reasonably believes that forgoing a deposition, a motion, or having an expert testify
will not violate his or her duty of competent representation, he or she may comply, but
only if the insured consents. 16
Control The typical insurance policy’s delegation of the right to control settlement
decisions to the insurer creates the potential for a direct conflict between insured and
insurer whenever the two do not agree about the response to a settlement offer. The lawyer
for the insured should realize that the policy language granting the insured the right to a
“defense” includes a lawyer who owes an ordinary fiduciary duty of obedience, as required
by Model Rule 1.2(a).
In all situations, the lawyer’s representation of the insured continues to be governed by
the lawyer’s ethical obligations, including the obligation to relay each settlement offer to
the insured and to relay each insured’s response to the insurer. 17 Any conflict in the
decision to settle requires disclosure to the insured. If serious enough, many courts
recognize that the policy language that creates the conflict also requires affirmative duties of
good faith imposed by insurance law on the insurer. 18 Usually, this will put pressure on the
insurer to settle in a manner consistent with the best interests of the insured.
The right to settle has been especially contentious in professional liability cases. In
medical malpractice defense, an actual conflict can develop if an insurer wishes to settle a
matter rather than pay the cost of litigating it, but an insured demands a full defense,
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