New Zealand Law Society - Acting for insurer and insured was unsatisfactory conduct

Acting for insurer and insured was unsatisfactory conduct

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A lawyer, D, who acted for an insurer and for the insured was guilty of unsatisfactory conduct a lawyers standards committee has found. The Legal Complaints Review Officer (LCRO) upheld the committee’s decision on review.

Another lawyer, Mr L, represented a defendant who was charged with importing a Class C drug. The defendant was convicted and sentenced to three years’ imprisonment. The Court of Appeal quashed the conviction and ordered a retrial. The defendant was discharged.

Negligence proceedings and insurance

The defendant’s solicitors then wrote to Mr L giving notice of an impending claim. Mr L had professional indemnity insurance and notified his insurers.

His insurers instructed a lawyer, D, to advise on indemnity issues and to prepare a statement of defence to the claim against Mr L.

Following D’s advice, the insurer declined cover. Unaware that D had provided advice to his insurer on indemnity issues, Mr L instructed D to represent him in the negligence proceedings and then to challenge the insurer’s decision on indemnity. Mr L advised D that he could not provide advice on indemnity issues because he had acted for the insurer.

The complaint

Mr L later discovered that D had provided advice to his insurer on indemnity issues.

Mr L then lodged a complaint with the Law Society, stating that D ought not to have accepted instructions to act for him. This was because he had a conflict of interest given that he advised the insurer about indemnity.

D’s counsel said that Mr L’s and the insurer’s interests diverged only on indemnity and that Mr L took advice from another lawyer on indemnity. He said that there was no breach of rule 6.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 in the circumstances.

Rule 6.1 states that a lawyer must not act for more than one client on a matter where there is a more than “negligible risk” that the lawyer may be unable to discharge the obligations owed to one or more of the clients.

At the point D obtained information from Mr L so that he could file a statement of defence, D was “plainly acting both for the insurer and the insured,” the committee said.

Mr L needed to be represented by a lawyer who could give “disinterested and objective advice” both on defending the claim and on any claim for indemnity.

The committee also said that a lawyer’s responsibility to act diligently without any conflict of interest “does not reduce simply because the client happens to be another lawyer”.

Conflict risk arose at an earlier point

The LCRO upheld the committee’s determination (LCRO 332/2013) but found that the risk of conflict arose at an earlier point. At the point that the insurer asked for advice on indemnity more than a negligible risk of conflict arose. The LCRO said that:

“It is not always the case that a lawyer cannot act for an insurer and insured. The distinguishing features of the present facts are that [the insurer] had not decided whether it would indemnify [Mr L] or not, and it wanted D to use all the information at his disposal to provide it with advice on that.”

This meant that there was more than a neglible risk that D would not be able to discharge the obligations he owed separately to D and the insurer.

D was ordered to pay $1,200 costs in addition to the $1,000 costs to the committee. As the parties had reached a private agreement as to compensation, no other order was made.

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