ETHICS OPINION 318
NUMBER 318 1933
Question. Liability policies issued by a casualty insurance company contain the usual provisions for the defense of claims against its assured, and for the payment of judgments up to the policy limits. There are also provisions requiring the cooperation of the assured in defending claims.
Occasionally a flagrant case of noncooperation arises in which the insurance company is compelled to disclaim liability under its policy. The continued defense of a claim after a disclaimer may result in a waiver of the company’s rights. Usually the question as to whether or not to continue a defense arises immediately preceding the trial of an action in which the general counsel of the insurance company are the attorneys of record for the defendant, and the trial counsel for the assured, but sometimes such question arises while the trial is in progress. In such wise the said attorneys are confronted with the alternative of withdrawing from the case upon short notice to the assured or of continuing the defense at some peril to the insurance company.
1. Is it proper professional conduct for such attorneys for the assured upon the disclosure of lack of cooperation by the defendant to notify him of the withdrawal of such attorneys from the case, provided sufficient opportunity is given to employ other attorneys?
2. Is it proper professional conduct for such attorneys for the assured to continue the defense of the action until such time as the facts have been disclosed to the Court, and then withdraw for the cause above stated from the case, provided that then the assured is afforded sufficient opportunity to retain other counsel?
Answer. The Committee assumes that the liability cover referred to in the question contains the usual condition which in substance is that in the event of a claim or suit covered by the policy the insured shall in no manner aid or abet the claimant, but shall fully cooperate with the company in defense of such claim or suit. Some forms of cover specify in particular that the insured upon request of the company but at the company’s expense shall aid in securing information and evidence and the attendance of witnesses.
Usually the refusal or failure to cooperate will become apparent prior to going to trial. In such case a notice of withdrawal would undoubtedly be proper.
Where the breach of the policy condition is disclosed for the first time after the case is on trial, if proper opportunity can be afforded the assured, as by continuance of the cause or withdrawal of a juror, the attorney would be entirely within his rights to refuse to proceed further in the case.
If the interests of the assured might be prejudiced by withdrawal, the attorney should notify the proper officials of the insurance company of the situation. If they shall elect to stand upon the policy condition and its breach and so notify the assured, the attorney should advise the insured that any further participation on his part would be as the direct representative of the assured and not of the insurance company.
1. The answer to the first question is yes.
2. The answer to the second question is yes—with the further suggestion that if the trial is under way, and no sufficient opportunity can be afforded the assured to procure other counsel, the counsel may continue in the defense, upon the distinct understanding that he is representing the assured and not the insurance company which has elected to stand upon the condition of its policy and its alleged breach by the assured.