“Advice” to the Defendant from Plaintiff’s Counsel
Ethical issues may arise when an insurer refuses an offer to settle within policy limits, and the plaintiff’s counsel writes a letter to the insured defendant regarding the matter. In Formal Advisory Opinion No. 86-4, the Supreme Court of Georgia first stated the general rules that an insurer is normally only liable for:
- the portion of a judgment that is within the policy limits
- the insured is liable for any portion of the judgment that is in excess of those limits
- an insurer may have a duty to settle a claim within policy limits under the “equal consideration” rule
- failure to do so may subject the insurance company to liability for a judgment in excess of policy limitsThe plaintiff’s attorney is clearly prohibited from directly contacting an insured defendant who is represented by counsel. Thus, such a letter to an insured defendant represented by counsel is “impermissible.” The Supreme Court laid the task of informing the insured of his or her rights against the insurer squarely on the shoulders of the insured’s attorney:The appropriate attorney for this purpose [to inform the insured of his or her rights] is the insured’s attorney. The problem here, of course, is that the attorney for the insured is also the attorney for the insurer…The lawyer representing the insured and the insurer thus faces an apparent dilemma. But the dilemma is only apparent. He or she represents the insured as a client and has a duty to keep the insured fully informed by virtue of the rules of ethics…The lawyer for the insurer has a duty to inform the insured not only of any offer of settlement…but also of the potential liability of the insurer for a bad faith refusal to accept any reasonable offer within the policy limits.
Insurance Fraud
If an insured engages in fraud (for example, arson) and the defense attorney becomes aware of the fraud, several ethical rules come in to play. Obviously, defense counsel cannot assist or advise an insured that is engaging in such conduct. If an attorney knows that the client is engaging in fraud, the attorney must withdraw from the representation. If an attorney withdraws due to an insured’s fraud, the attorney cannot disclose the fraud to the insurer. However, the attorney can give notice of the withdrawal and “may also withdraw or disaffirm any opinion, document, affirmation, or the like.