Conflicts of Interest in Insurance Defense and Dual Representation
Published .
The general concept
When a liability insurer hires and pays a lawyer to defend its policyholder, the lawyer’s central duty is to the client or clients the lawyer has agreed to represent. Depending on the arrangement, the insured may be the lawyer’s client, the insurer may also be a client for limited purposes, or the representation may involve both. Payment by the insurer does not give it the right to control the lawyer’s professional judgment or to receive confidential information without authorization. A conflict can arise when the insurer and insured have different interests in how the case is defended, whether to settle, or which facts to emphasize. Examples include a dispute over whether conduct was covered or excluded, a question whether an employee acted within the scope of employment, or a settlement opportunity when a claim may exceed the available limits. Not every difference in preference is a disabling conflict, but a lawyer must identify material risks, communicate them, and follow the applicable professional-conduct rules.
How Maryland applies it
Maryland Rule 19-301.7 treats a conflict as present when representation is directly adverse to another client or when there is a significant risk that duties to another client, a third person, or the lawyer’s own interests will materially limit the representation. A conflict may be consentable only when the lawyer reasonably believes competent and diligent representation remains possible, the law does not prohibit it, the clients are not directly opposed in the same proceeding, and each affected client gives informed consent confirmed in writing. Rule 19-301.8(f) separately limits representation paid for by someone other than the client: the client must give informed consent, the payer cannot interfere with the lawyer’s independent judgment or the lawyer-client relationship, and confidentiality must be protected. In Brohawn and later cases, Maryland courts recognized that when a real conflict arises in an insurer-funded defense, the insured must be told about it and given an informed choice concerning independent counsel. Common examples include covered and uncovered theories where the facts developed at trial could decide coverage, or a settlement decision that places the insured’s personal assets at risk. The existence of a reservation-of-rights letter alone does not answer whether a conflict is actual or whether joint representation may continue. Counsel must assess the specific interests, explain the issue, and withdraw or obtain valid consent when the rules require it. An insured can ask who the lawyer represents, what information may be shared with the insurer, how settlement authority works, and what independent-counsel options apply under the policy and Maryland law.
Related Maryland Cases and Authorities
Maryland Rules of Professional Conduct 19-301.7 and 19-301.8(f).; Brohawn v. Transamerica Insurance Co., 276 Md. 396, 347 A.2d 842 (1975).; Allstate Insurance Co. v. Atwood, 319 Md. 247, 572 A.2d 154 (1990).; Allstate Insurance Co. v. Campbell, 334 Md. 381, 639 A.2d 652 (1994).; Roussos v. Allstate Insurance Co., 104 Md. App. 80, 655 A.2d 42 (1995).