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Formal Advisory Opinion No. 05-7

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STATE BAR OF GEORGIA
FORMAL ADVISORY OPINION NO. 05-7
Approved And Issued On November 26, 2007 Pursuant To Bar Rule 4-403
By Order Of The Supreme Court Of Georgia Thereby Replacing
FAO No. 93-2
Supreme Court Docket No. S08U0023

QUESTION PRESENTED:

    Ethical considerations of an attorney representing an insurance company on a subrogation claim and simultaneously representing the insured.

SUMMARY ANSWER:

    A lawyer representing an insurance company on a subrogation claim should not undertake the simultaneous representation of the insured on related claims, unless it is reasonably likely that the lawyer will be able to provide adequate representation to both clients, and only if both the insurance company and the insured have consented to the representation after consultation with the lawyer, have received in writing reasonable and adequate information about the material risks of the representation, and have been given the opportunity to consult with the independent counsel.  Rule 1.7, Conflict of Interest: General Rule.

OPINION:

    This inquiry addresses several questions as to ethical propriety and possible conflicts between the representation of the client, the insurance company, and its insured.

Hypothetical Fact Situation

    The insurance company makes a payment to its insured under a provision of an insurance policy which provides that such payment is contingent upon the transfer and assignment of subrogation of the insured's rights to a third party for recovery with respect to such payment.

Question 1: May the attorney institute suit against the tortfeasor in the insured's name without getting the insured's permission?

    Pursuant to the provisions of Rule 1.2(a), a lawyer may not institute a legal proceeding without obtaining proper authorization from his client.  The ordinary provision in an insurance policy giving the insurance company the right of subrogation does not give the lawyer the right to institute a lawsuit in the name of the insured without specific authority from the insured.  The normal subrogation agreements, trust agreements or loan receipts which are executed at the time of the payment by the insurer usually give the insurance company the right to pursue the claim in the insured's name and depending upon the language may grant proper authorization from the insured to proceed in such fashion.  Appropriate authorization to bring the suit in the insured's name should be obtained and the insured should be kept advised with respect to developments in the case.

Question 2: Does the attorney represent both the insured and the insurance company, and, if so, would he then have a duty to inform the insured of his potential causes of action such as for diminution of value and personal injury?

    The insurance policy does not create an attorney/client relationship between the lawyer and the insured.  If the lawyer undertakes to represent the insured, the lawyer has duties to the insured, which must be respected with respect to advising the insured as to other potential causes of action such as diminution of value and personal injury.  Rule 1.7(b); see also, Comment 10 (assuring independence of counsel) and Comment 12 (common representations permissible even with some differences in interests).

Question 3: Is there a conflict of interest in representing the insured as to other potential causes of action?

    In most instances no problem would be presented with representing the insured as to his deductible, diminution of value, etc.  Generally an insurance company retains the right to compromise the claim, which would reasonably result in a pro-rata payment to the insurance carrier and the insured.  The attorney representing the insured must be cautious to avoid taking any action, which would preclude the insured from any recovery to which the insured might otherwise be entitled.  Rule 1.7, Conflict of Interest: General Rule, (b); see also, Comment 10 (assuring independence of counsel) and Comment 12 (common representations permissible even with some differences in interest.) to Rule 1.7.

    A much more difficult problem is presented in the event an attorney attempts to represent both an insurance company's subrogation interest in property damage and an insured's personal injury claim.  In most cases the possibility of settlement must be considered.  Any aggregate settlement would necessarily have to be allocated between the liquidated damages of the subrogated property loss and the unliquidated damages of the personal injury claim.  Any aggregate settlement would require each client's consent after consultation, and this requirement cannot be met by blanket consent prior to settlement negotiations.  Rule 1.8(g); see also Comment 6 to Rule 1.8.  Only the most sophisticated of insureds could intelligently waive such a conflict, and therefore in almost all cases an attorney would be precluded from representing both the insurer and the insured in such cases.

    In conclusion, a lawyer representing an insurance company on a subrogation claim should not undertake the simultaneous representation of the insured on related claims, unless it is reasonably likely that the lawyer will be able to provide adequate representation to both clients, and only if both the insurance company and the insured have consented to the representation after consultation with the lawyer, have received in writing reasonable and adequate information about the material risks of the representation, and have been given the opportunity to consult with independent counsel.  Rule 1.7(a) and (b).



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