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Conflict possible when acting for insurer and insured

01 November 2019

All names used in this article are fictitious

The practice of lawyers giving advice on cover to the insurer when also engaged to act for the insured is a matter of concern, a lawyers standards committee has said.

The committee was considering a complaint about a lawyer, Buckinghamshire, who submitted that the practice is currently common in the profession.

“That is a matter of concern because the practice appears to have arisen without sufficient consideration of the conflicting duties which can arise when a lawyer acts for both insurer and insured,” the committee said.

“In cases where a joint engagement is appropriate (because of the extent to which the interests in defending an insured liability are common), great care needs to be exercised about conflicts arising and [the committee] doubts that consent to act with a conflict can be obtained in advance by the policy terms, in the manner that, say, privilege might be waived.”

Buckinghamshire acted for Mr Suffolk on a professional disciplinary matter. Mr Suffolk had cover under a costs of professional disciplinary representation extension to his professional indemnity insurance policy and Buckinghamshire was appointed to act for Mr Suffolk by an insurer. Cover was limited to the costs of representation and there was no cover in respect of any adverse orders which might be made.

Buckinghamshire conducted an internal conflict check, naming Mr Suffolk as the client. However, he sent a letter of engagement to the insurer and not to Mr Suffolk.

After the professional body declined an application to stay the charges against Mr Suffolk, consideration was given – on Buckinghamshire’s advice – to challenge the stay by way of judicial review.

However, the insurer declined to cover the cost of a judicial review application, saying it fell outside the terms of its cover. The insurer’s decision was conveyed to Mr Suffolk in terms which Buckinghamshire had reviewed for the insurer in advance (without Mr Suffolk’s knowledge).

Following consideration of draft briefs of expert evidence, Buckinghamshire advised the insurer (without disclosing the advice to Mr Suffolk) that the defence of the charges was likely to fail. As a result, the insurer did not approve the costs of presenting a defence and indicated it would meet only the costs of entering a guilty plea and submissions on penalty.

Buckinghamshire immediately advised Mr Suffolk that he would only be able to continue to act for him if a guilty plea were entered. That advice was given one day before evidence for Mr Suffolk was due to be filed. Mr Suffolk informed Buckinghamshire that he felt he had no practical alternative but to plead guilty. The disciplinary body fined Mr Suffolk and also ordered him to pay costs.

Mr Suffolk was unhappy with the outcome and complained to the New Zealand Law Society.

Appointed to act for insured

Although Buckinghamshire was appointed by the insurer “he was appointed to act for the insured, and not for the insurer”, the standards committee said.

“It was to the insured that he owed professional obligations as a client.

“[Buckinghamshire] did, however, have a contractual relationship with the insurer, which was obligated to pay [Buckinghamshire]’s fees which qualified within the terms of the policy coverage.

“As a result, [the committee] considers that [Buckinghamshire]’s engagement included incidental reporting obligations to the insurer. Those reporting obligations, however, were neither discrete nor separate from the insured and did not involve reporting without disclosure to the insured. They certainly did not extend to giving advice on cover to the insurer, especially advice contrary to the client’s interests and without his consent.”

The committee said that Buckinghamshire failed to identify Mr Suffolk as his client and therefore breached his obligations to Mr Suffolk in a series of respects.

They included:

  • failing to provide Mr Suffolk with a letter of engagement and related information;
  • accepting instructions from the insurer when the interests of Mr Suffolk and the insurer were in conflict;
  • withholding from his client information relevant to the engagement – namely reports and advice to the insurer;
  • failing to protect Mr Suffolk’s interests and preferring the insurer’s interests, and
  • when the insurer declined to approve the costs of a defended hearing, he “abandoned” his client, saying he would not continue to act for him unless he pleaded guilty.

That constituted unsatisfactory conduct, the committee determined.

The committee fined Buckinghamshire $1,000 and ordered him to pay $2,500 costs. In determining penalty, the committee said it took into account the fact that the breaches arose from an error of analysis of the instructions received, were not willful and reckless, and arose from what may be common practice.

Last updated on the 1st November 2019