Sunshine State Enlightens Clients’ Rights

Lawyers hired by insurance companies to defend policyholders in Florida must give them a Statement of Insured Clients’ Rights under a new mandatory disclosure rule adopted last year by the Florida Supreme Court. It is believed to be the first of its kind in the country, and I believe it should be more widespread.

The statement informs the client of possible conflicts of interest faced by his or her lawyer. The document spells out the policyholders’ rights and, in the case of an insurance contract, explains the three- way relationship between the lawyer, the policyholder and the insurance carrier that often can lead to competing loyalties.

Initially, it had been reported that the insurance industry resisted these new rules; but, after increasing support from other factions, insurance representatives participated in the drafting of the document. The effort to adopt these rules was instigated by lawyers who formed a special committee in 1999 to examine a number of insurance defense ethics issues including these questions:

When an insurance company hires a lawyer to defend a policyholder, can the company’s claim adjuster tell the lawyer how to conduct the defense?

Can the company require the lawyer to sacrifice independent professional judgment in favor of cost-cutting guidelines imposed by the company?

Can the law firm hired by the insurance company send an itemized bill containing confidential client information to the insurer’s outside auditor?

What happens when the insurance company agrees to pay for the policyholder’s lawyer but reserves the right not to pay any judgment if it decides that the claim wasn’t covered?

Does a policyholder have any greater say in his legal defense when he faces a judgment that exceeds his policy limits?

Following a year of study and hearings, the committee found it was unable to definitively answer these and other questions.

There’s no bright line. What the insurance industry calls "controlling the litigation," many attorneys call "treading on the attorney’s professional conduct," the committee said in its report issued in 2001.

The Florida Supreme Court approved the Statement of Insured Client’s Rights without comment in April 2002 under Florida Rule 4-1.8(j) entitled " Conflicts of Interest; Prohibited and Other Transactions."

The Statement is a breakthrough in professional conduct involving representation in insurance coverage disputes in that it contains 10 paragraphs of information to the client about the lawyer- client relationship, fees, confidentiality, conflicts of interest and risks. It also addresses who has the right to direct the lawyer, the right to hire independent counsel and the right to report disciplinary violations to the bar.

The client must sign the Statement and the lawyer must keep a copy of it in his or her file for six years after the representation is completed. The rule affects all defense lawyers in personal injury and property damage cases, other than those working for a governmental entity.

Frankly, I think the Statement doesn’t go far enough. Defense lawyers often don’t advise their clients of the inherent conflicts in insurance matters; and this statement is a step toward informing a client, which is paramount in any representation.

The American Bar Association has dealt with these another ethical dilemmas head on. Canon 6 ABA Canons of Professional Ethics provides, " It is the duty of a lawyer at the time of retainer to disclose to the client all the circumstances of his relations to the parties, and any interest in or connection with the controversy, which might influence the client in the seletion of counsel. It is unprofessional to represent conflicting interests, except by express consent of all concerned given after a full disclosure of the facts."

The ABA House of Delegates recommended last year that the Section of Litigation’s "Ethical Guidelines for Settlement Negotiations" that address the relationship among insures, insurance companies and lawyers no to be limited to insurance matters.

The guidelines are meant to be a resource to facilitate and promote ethical conduct in settlement negotiations.

In particular, the Committee Notes to Section 3.7 entitled " Clients with Insured Claims/ Dealing with Insurers" state that in insurance cases, the financial and other interests of the insurance carrier and those of the insured will often diverge."

The Notes also cite ABA Formal Opinion 96-403 (1996) which states, "[w]hen such divergences arise in the context of the lawyer’s representation of both the insured and the insurer, the attorney is obliged to advance the interests of the insured, and to inform the insurer that the attorney is treating the insured’s interests as paramount."

Although many defense lawyers recognize that the client is their priority, too often lawyers are conflicted because of the dualing loyalties to those who are signing their paychecks. Privately, many will admit to this ethical dilemma.

It is difficult to make these conflicts disappear, but it is wise to disclose as much as possible to the client so that s/he is well informed and can make decisions based upon accurate and full information.

And, it is heartening to see, as in Florida, that the insurance industry finally is embracing this effort.