Ethical Issues

Handling Complex Auto Insurance Coverage

Disputes
Wednesday, February 29, 2012
Crowne Plaza Little Rock
What is the ethics hour all about?
Less than 125 pages of the most recent rule
book is devoted to the Arkansas Rules of
Professional Conduct
Yet somehow were supposed to have an
hour of professional ethics every year in our
CLE.
In Texas its worse. We have three hours of
mandatory CLE.
"Legal ethics includes, but is not necessarily
limited to, instruction on the Model Rules of
Professional Conduct and the Code of
Judicial Conduct."
Ethics may include professionalism courses
addressing the principles of competency,
dedication to the service of clients, civility,
improvement of justice, advancement of the
rule of law, and service to the community.

Professionalism courses may include a

lawyer's responsibility as an officer of the
Court; responsibility to treat fellow lawyers,
members of the bench, and clients with
respect and dignity; responsibility to protect
the image of the profession; responsibility
generally to the public service; the duty to be
informed about methods of dispute resolution
and to counsel clients accordingly; and
misuse and abuse of discovery and litigation
Are there any moral or ethical
obligations above, beyond, or
different from those imposed by
the rules?
The Rules do not . . . exhaust the moral and
ethical considerations that should inform a
lawyer, for no worthwhile human activity can
be completely defined by legal rules. The
Rules simply provide a framework for the
ethical practice of law. Preamble, Arkansas
Model Rules of Professional Conduct.
Hypothetical
You are an insurance defense lawyer for
Consolidated Federated. Another
Consolidated Federated fender-bender
comes across your desk. One Andrew
Volstead was rear-ended by Jos Cuervo.
Your insured is Guillermo Cuervo, Joss
brother, the owner of the car.
Jos got a ticket for following too close and
driving while intoxicated, his third. Volsteads
lawyer demanded the limits. The policy
excludes punitive damages, and Volstead
wasnt seriously injured. He went to a doctor
who treated him for two weeks and released
him. The total medical involvement was
$625. Volsteads attorney has, of course,
sued both Jos and Guillermo, alleging
negligent entrustment.
Jos and Guillermo come to see you.
Guillermo tells you that the car isnt really
even his. Its just in his name because Jos
couldnt get insurance because of his driving
record. Thats why the insurance agent
recommended that Guillermo buy his car and
take out the insurance in his own name.
Discuss
Who is the client?
Discuss
Can/must you inform the insurer of the
circumstances?
Rule 1.6. Confidentiality of information

(a) A lawyer shall not reveal information relating

to representation of a client unless the client
gives informed consent, the disclosure is
impliedly authorized in order to carry out the
representation or the disclosure is permitted by
paragraph (b).
(b) A lawyer may reveal such information to the
extent the lawyer reasonably believes necessary:
(1) to prevent the commission of a criminal act;
(2) to prevent the client from committing a fraud
that is reasonably certain to result in injury to the
financial interests or property of another and in
furtherance of which the client has used or is
using the lawyer's services;
(3) to prevent, mitigate or rectify injury to the
financial interest or property of another that is
reasonably certain to result or has resulted from
the client's commission of a crime or fraud in
furtherance of which the client has used the
lawyer's services
(4) to secure legal advice about the lawyer's
compliance with these Rules;
(5) to establish a claim or defense on behalf of the
lawyer in a controversy between the lawyer and
the client, to establish a defense to a criminal
charge or civil claim against the lawyer based
upon conduct in which the client was involved, or
to respond to allegations in any proceeding
concerning the lawyer's representation of the
client or,
(6) to comply with other law or a court order
STATE BAR OF NEVADA
STANDING COMMITTEE ON ETHICS AND
PROFESSIONAL RESPONSIBILITY
Formal Opinion No. 9
(originally issued on 4/21/88, conclusion
amended 9/24/07)
QUESTIONS - 1. Is an attorney required to disclose
to the insurance company which hires him to defend
a personal injury lawsuit arising from a vehicle
accident information communicated by the insured
client
as to potential fraud of the client in obtaining vehicle
liability insurance?
2. Does the client's communication of information as
to potential fraud in obtaining vehicle liability
insurance create a conflict of interest which requires
or suggests a) the attorney withdraw his
representation from client or b) terminate his
employment by the insurance company?
3. Does the client's disclosure create a conflict of
interest which precludes the attorney from accepting
compensation from the insurance company for
representing the client?
1. Information communicated by an insured
client to his attorney as to potential fraud in
obtaining vehicle liability insurance is
confidential. Unless the client consents to
disclosure, it would be a violation of Nevada
Supreme Court Rule 156 (hereinafter SCR)
for attorney to reveal such information to the
insurance company which hired him because
a) disclosure is not impliedly authorized to
carry out attorney's representation,
b) there is no threatened criminal act likely to
result in death or bodily harm,
c) the attorney's services have not been used
in the commission of the fraud, and
d) disclosure is not necessary for the
attorney's self-defense.
2. Information of the potential fraud
communicated by client to the attorney does
not create a conflict of interest within the
meaning of SCR 157 to require that attorney
withdraw his representation from the client or
terminate his employment by the insurance
company provided that:
a) the attorney believes his representation of
client will not be adversely affected and
b) the client consents to continuing
representation.
Nor does the communication suggest the
attorney should consider withdrawal under
SCR 166 because a) continuing
representation does not violate the Nevada
Rules of Professional Conduct or other law,
b) the client has not used the attorney's
services to perpetrate the fraud and c) the
fraud does not involve continuing use of the
attorney's services.
3. Client's communication of potential fraud in
obtaining vehicle insurance does not create a
conflict of interest under SCR 158 to require
the attorney decline compensation from the
insurance company provided
a) the client consents after consultation,
b) there is no interference with the attorney's
independence of professional judgment or the
client-lawyer relationship and
c) information relating to representation of the
client is protected as required by SCR 156.
From the discussion:
Whether the client actually committed fraud is
a question of law beyond the scope or
jurisdiction of this Committee. It is suggested
the attorney advise client that fraud may have
been committed, and if discovered
independently by the insurance company, this
may be grounds for denial of coverage and
possible criminal prosecution. Accordingly,
client should be advised of his right to consult
with other counsel as to these matters.
First, the client's fraudulent conduct in
obtaining vehicle insurance for his brother
occurred before attorney's representation and
not in the course of representation. Discovery
of the fraudulent conduct was "incidental" to
the attorney's representation. The attorney's
conduct was not "instrumental" in the
commission of the fraud.
Secondly, the fraud has already occurred and
cannot be prevented by the attorney's
disclosure.
Amended in 2007
NOTE: The Nevada Supreme Court has expressly
held that when an insurer retains a lawyer to
represent an insured, the lawyer represents both the
insured and the insurer. Nevada Yellow Cab Corp. v.
Eighth Judicial District Court, 123 Nev. Adv. Op. No. 6
(March 8, 2007). Although the insured remains the
lawyers primary client, the retention also
establishes an attorney-client relationship between
the lawyer and the insurer, absent a conflict of
interest. Id. While statements to the contrary in this
opinion are thereby superseded, the Courts holding
does not otherwise overrule or alter this opinion or its
conclusions.
Compare Arkansas law
First American Carriers, Inc. v. Kroger Co.,
302 Ark. 86, 787 S.W.2d 669 (1990).
Attorney is attorney for insured, not insurer.
Dr. Dan Detroit is a chiropractor in Little Rock. In
order to increase his business, Dr. Detroit hires
Roger Rabbit and his wife, Jessica Rabbit to find new
patients for him. Roger and Jessica go to the police
station and gather police reports. They then contact
the injured partiesboth by telephone and in
personand encourage them to see Dr. Detroit.
Sometimes Roger will make statements that are
strictly speakingnot true. Roger Rabbit frequently
poses as a former patient of Dr. Detroit, although he
has never in fact had any chiropractic treatment
whatsoever. He has also made promises of success
that may or may not have any basis at all in fact.
Jessica, on the other hand, has not engaged in any
false or misleading statements.
Dr. Detroit treats the accident victims and bills
their automobile insurance company.
Amazingly, the average course of treatment
costs just under $5,000.00. Then the patient
is released as healed.
Note that Arkansas chiropractors are twice as
efficient as chiropractors in Florida, where the
minimum limits on med-pay are $10,000.
Insurers become suspicious of Dr. Detroit and stop
paying his bills. At first, he begins contacting insurers
and negotiating settlements of his patients injury
cases. His patients agree to sign releases in order to
get the matter resolved. Some of them even get
money left over after the chiropractic bills have been
paid. He charges no fee for this service, but he does
make sure that his bill gets paid out of the proceeds.
Some insurers, however, refuse to deal with him. He
contacts you about a claim against those insurers:
Can you represent Dr. Detroit in private suits
against the insurance companies?
Can you represent his patients that he
brings to you?
Can you, while youre at it, represent those
patients in personal injury actions against
tortfeasors?
Is there any difference in how you may treat
cases involving persons solicited by Roger
and those solicited by Jessica?
The chiropractor himself does not have a
cause of action against the insurer in his own
name.
Elsner v. Farmers Ins. Group, Inc., 220 S.W.
3d 633 (2005).
The chiropractor has engaged in solicitation
that would be a violation of the code of
professional conduct if you did it. But does it
violate chiropractors ethics?
Culpepper v. Arkansas Board of Chiropractic
Examiners 343 Ark. 467, 36 S.W.3d 335
(2001)
Unethical adjustors
The adversary nature of the relationship
between an insured and the insurer makes it
difficult to deal with unethical practices unless
youre prepared to file suit.
Unfair Claims Practices
Unfair claims settlement practices means
committing or performing with such frequency
as to indicate a general business practice any
of the following:
[the list is in the handbook]
An important thing to remember about the
statutory grounds is that a single violation will
not ordinarily serve to be an unfair practice.
The statute requires committing or
performing the unfair practice with such
frequency as to indicate a general business
practice.
Penalty and Attorneys fees
Bad faith