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Horns of a Defense Counsel Dilemma

By William Passannante and Diana Shafter Gliedman
December 21, 2007

What happens when an attorney acts on behalf of two clients with potentially diverging interests ' a policyholder in the midst of defending important litigation and the liability insurance company paying the defense bills? How can policyholders ensure that insurance company-appointed defense counsel are able to defend the policyholder without worry of conflicts with the insurance company? This article examines the conflicts that surround the so-called 'tripartite relationship' among policyholder, insurance company, and defense counsel hired by the insurance company, as well as techniques to preserve defense counsel's un-conflicted duty to its client, the policyholder. Insurance conflicts counsel is one such technique.

Three's a Crowd: The Duty to Defend the Tripartite Relationship

The tripartite relationship has its origins in the two-part duty of the insurance company as defined in the typical insurance policy. Liability insurance policies typically provide protection against: 1) the cost of defending a lawsuit; and 2) any damages arising out of or related to the claim, such as the cost of a settlement or an eventual jury verdict. As a general rule, an insurance company's duty to defend the policyholder is much broader than its duty to indemnify. Indeed, the duty to defend may be activated or 'triggered' even if the insurance company ultimately has no obligation to indemnify the policyholder for a loss. If a complaint states several potential grounds of liability and any single one of those grounds is potentially covered by any provision of the insurance policy, the policyholder is entitled to a defense. The insurance company is not excused from providing a defense unless the complaint against the policyholder clearly shows that there is no possible basis for coverage.

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