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

of their policies, thereby allowing them to seek additional counsel for the uncovered
conduct. Insurer’s obligations to defend under a reservation of rights also require lawyers to
provide a defense for covered events focused on the insured’s interests alone.
Conclusion
Understanding the ethical obligations of insurance defense counsel begins with identifying
the insured as the primary or sole client of the lawyer. Once this has been done, four
conclusions quickly follow:
1. Defense lawyers owe insureds all of the six C’s, meaning that they cannot allow
insurers to interfere in the exercise of their independent professional judgment.
Lawyers who breach any of the six C’s will be accountable to the insured. Insurers
harmed by incompetence also may be able to obtain relief.
2. Insurers may exert some control over fees and strategy, but only if consistent with
the lawyer’s independent judgment. However, they cannot impose prior approval
requirements on defense counsel. Lawyers can agree to direction that is reasonable
in scope, but they must inform insureds about the insurer’s imposed limitations and
obtain informed consent to any disclosures to the insurer.
3. Arrangements with defense counsel that offer insurers more opportunity to control
fees and strategy, such as flat fees or inside counsel status, are prohibited in some
jurisdictions to prevent interference with independent professional judgment.
4. Insurers may have contractual control over settlement decisions, but insurance law
and the ethical responsibilities of defense counsel impose obligations of good faith
on both in communicating and responding to settlement offers.
When any conflict over confidentiality, coverage, settlement, or control develops,
defense lawyers who understand that the insured is their primary or only client will view
that matter through the correct lens of the insured’s best interests. They will communicate
relevant facts and options, insist on competent defense of the insured’s case, keep the
insured’s confidences, and identify and respond to conflicts of interest. When a conflict is
identified, defense lawyers will notify their client(s) about the source and nature of the
conflict and determine how counsel without such a conflict would proceed. Insurance law
usually assists defense lawyers in fully understanding their obligations because it provides
additional incentives for insurers to meet their contractual obligations.
Paradigm Insurance Co. v. The Langerman Law Offices, P.A.
24 P.3d 593 (Ariz. 2001)
FELDMAN, J.
The ultimate question in this case is whether an attorney may be held liable to an
insurer, which assigned him to represent an insured, when the attorney’s negligence
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