The term “tripartite relationship” describes the relationship that arises between and among an insured, the insurer, and defense counsel hired by the insurer to represent the policyholder. Specifically, the tripartite relationship arises out of the insurer’s duty to defend the insured against claims asserted by third parties. This relationship has been described as “deeply and unavoidably vexing”[1] and is governed by an interconnected system of case and statutory law, contracts (both insurance policies and engagement letters), and ethical rules. Under the traditional (and majority view), insurer-appointed defense counsel has two clients, the insured and the insurer, and owes the full spectrum of attorney-client duties to them both. A minority of jurisdictions, including Arkansas, Colorado, Pennsylvania, Tennessee, South Dakota, Texas, West Virginia, and Connecticut, either provide that the insured is defense counsel’s only client, or consider the insured the “primary client,” implying that defense counsel has a lesser obligation to the insurer.[2]

Many liability policies give the insurer the exclusive right to control the defense and settlement of claims against the insured. The insurer’s ultimate control over the insured’s defense, coupled with the sometimes competing interests between the insurer, the insured, and defense counsel, can create conflicts in a tripartite relationship. A conflict of interest between the insurer and its insured “occurs whenever their common lawyer’s representation of the one is rendered less effective by reason of [the lawyer’s] representation of the other.”[3] Undoubtedly, insurer-appointed defense counsel should be mindful of the various ethical conundrums that can arise in the context of the tripartite relationship.

That said, the specter of potential conflicts should not detract from the fact that, in the context of a third-party claim against the insured, the insurer, and defense counsel share a common goal: to eliminate or minimize the third party’s claim. Indeed, courts recognize that this shared motivation to defeat a common adversary is one of the foundational elements of the tripartite relationship.[4] When defense counsel, the insured, and the insurer view each other as teammates, all parties can benefit.

In addition to defense counsel, the insured, and the insurer, that team can also include brokers and monitoring counsel.  The role of the broker and the insurer’s representative/monitoring counsel are often overlooked and misunderstood players in the tripartite arena.  There is often ambiguity surrounding not only the broker’s relationship with the insured, but, also, the broker’s role in the handling of the insured’s claims.  In some coverage lines, you never hear from the broker and their role appears to be simply the procurement of insurance for the policyholder.  However, in complex and specialty lines of coverage, and specifically professional lines, the insured’s broker’s involvement is much more substantial and the relationship between the broker and the insured is often very close. The insured’s broker often has in-depth knowledge of the insured’s business but also of the specific claims that can arise therefrom. The broker’s role can be advantageous to the parties as they often bring expertise in a specific line of coverage and the claims handling process.  Brokers serve as advocates for their clients (typically, the insureds) and facilitate communications between the parties, including assisting in the handling of the insured’s claims.   Additionally, the broker’s expertise as to the client’s insurance program and business is often relied upon in the formation of legal strategy in the underlying case. The broker can often help diffuse challenging situations that arise between the insured, insurer and defense counsel with their in-depth industry and claims knowledge and experience.

Monitoring counsel are typically hired by the insurer to evaluate the underlying claim against the insured, provide recommendations on the handling of that claim, and to advise the insurer on insurance coverage issues.  In this role, monitoring counsel can facilitate the exchange of positions, ideas, and solutions between the various parties to the arrangement.  Monitoring counsel’s interests are, of course, aligned with the insurer and as a result, monitoring counsel works with defense counsel to achieve the most effective resolution of a claim.  In the event that there are coverage issues, monitoring counsel will address those issues with the insured and usually will leave defense counsel out of these communications to avoid potential conflicts of interest.  While we hope this summary is useful, we recognize that every situation is different and the roles of the various parties are not always clear.  When all else fails, never hesitate to ask a party to clarify their role and who they represent.

This article will offer an overview of the tripartite relationship, focusing especially on the importance of communication between and among defense counsel, the insurer, and the insured, (as well as the brokers and monitoring counsel) and address issues regarding the attorney-client privilege and the work product doctrine that may arise in the context of those communications. It will then offer specific tips for defense counsel that can help ensure that not only will the insured receive a high-quality defense, but also that the insurer will receive a level of client service that will make the insurer more likely to send additional business to the attorney and his/her law firm… Read Full Article

[1] Charles Silver, Does Insurance Defense Counsel Represent the Company or the Insured?, 72 Tex. L. Rev. 1583, 1584 (1994).

[2] First Am. Carriers, Inc. v. Kroger Co., 787 S.W.2d 669, 671 (Ark. 1990); Colorado Bar Ass’n Ethics Opinion 43; Atlanta Intern. Ins. Co. v. Bell, 475 N.W.2d 294 (Mich. 1991); CAMICO Mut. Ins. Co. v. Heffler, Radetich & Saitta, LLP, 2013 WL 315716 (E.D. Pa. 2013); Givens v. Mullikin ex rel. Estate of McElwaney, 75 S.W.3d 383 (Tenn. 2002); St. Paul Fire & Marine Ins. Co. v. Engelmann, 639 N.W.2d 192, 200 (S.D. 2000); Safeway Man. Gen. Agency, Inc. v. Clark & Gamble, 985 S.W.2d 166 (Tex. Ct. App. 1998); Barefield v. DPIC Cos., Inc., 600 S.E.2d 256 (W. Va. 2004); Metro. Life Ins. Co. v. Aetna Cas. & Sur. Co., 730 A.2d 51 (Conn. 1999).

[3] Spindle v. Chubb/Pacific Indem. Grp., 89 Cal. App. 3d 706 (1979); see also ABA Model Rules of Prof’l Conduct 1.7(a)(2) (noting that attorney has a concurrent conflict of interests when “the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.”).

[4] Am. Mut. Liab. Ins. Co. v. Superior Ct., 113 Cal. Rptr. 561, 571–72 (Cal. Ct. App. 1974).