Insurance Company Defending Defendant and Third-Party Defendant; Attorney Representing Both Insureds

99 N.J.L.J. 496
June 3, 1976

ADVISORY COMMITTEE ON PROFESSIONAL ETHICS
 
Appointed by the New Jersey Supreme Court
 

OPINION 333

Insurance Company Defending
Defendant and Third-Party Defendant;
Attorney Representing Both Insureds

The inquirer's firm was retained by an insurance company to defend a certain negligence action and filed an answer and a third-party complaint on behalf of the insured defendant. The plaintiff then amended his complaint to state a claim against the third-party defendant. It subsequently developed that both the original defendant and the third-party defendant were insured by the same company. The insurance company requested the attorneys who were retained to represent the initial defendant to represent the additional third-party defendant and to dismiss the third-party complaint.
The inquirer feels that there is no longer any conflict between the two defendants, since both are represented by the same insurance company, and the amount sought by plaintiff is within the coverage limitations of both policies. He, therefore, asks whether it is ethically permissible for his firm to represent both defendants so that the insurance company will not be compelled to hire two attorneys.
We said in Opinion 165, 92 N.J.L.J. 831 (1969), that the essential point of ethics involved in such cases requires the lawyer so employed to represent both insureds as his clients with undivided fidelity, as required by Canon 6, now DR 5-105(A), (B) and (C). We further cited American Employers Ins. Co. v. Goble Aircraft Specialties, 205 Misc. 1066, 1075, 131 N.Y.S.2d 393, 401 (1954), where the court said: "The Canons of Professional Ethics make it pellucid that there are not two standards, one applying to counsel privately retained by a client, and the other to counsel paid by an insurance carrier." (At p. 401)
However, in this case, the one attorney may be permitted to represent both defendants if, in fact, the insurance company is the one real party in interest. The inquirer states that plaintiffs demand for damages is within the policy limits of both insurance policies. We question whether we can safely conclude that the "demand for damages is bound to be within the policy limits," since in negligence suits the plaintiff no longer demands specific dollar damages; and it would not necessarily follow that any verdict in a jury trial would be no higher than the "estimated value of the case." We also question whether there isn't a possibility that each insured may suffer unexpected consequences on his experience rating as a result of the litigation.
DR 5-105(B) and (C) read as follows:
(B) A lawyer shall net continue multiple employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by his representation of another client, except to the extent permitted under DR 5-105(C).

(C) In situations covered by DR 5-105(A) and (B) except as prohibited by rule, opinion, directive or statute, a lawyer may represent multiple clients if he believes that he can adequately represent the interests of each and if each consents to the representation after full disclosure of the facts and of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each.
 
We, therefore, hold that before representing multiple clients, if the attorney believes that he can adequately represent the interests of each, he must procure the consent of the clients after
full disclosure of the facts and the possible effect of such representation, including, under the facts of this case, the possibility a jury verdict may exceed the policy limits, and the responsibility, if any, of the insurance campaign to pay any excess, if such a verdict is rendered, as well as the possible adverse aspirins rating to one or the other insured, which may result from the litigation.
Notwithstanding that it may be ethically permissible for the attorney to represent both defendants in these proceedings, this type of dual representation should be undertaken only in extremely rare circumstances and only where there is no reasonable alternative.
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