Opinion #44. Representation of Injured Claimant and Subrogated Insurance Company of Same Attorney
Issued by the Professional Ethics Commission
Date Issued: November 22, 1983
A lawyer inquires as to the propriety under the Maine Bar Rules of representing in a personal injury action both insureds and a health insurer which has paid benefits to the insureds and is subrogated to their rights under the insurance conflict.
It is the Commission’s opinion that a lawyer may represent both an insured and an insurer subrogated to the insured’s rights, but only after observing appropriate safeguards.
The relevant parts of the Code of Professional Responsibility (“the Code”) of the Maine Bar Rules are found in Rule 3.4, subdivisions (b) and (d). Subdivision (b) provides that:
A lawyer shall not accept employment if the exercise of his independent professional judgment in behalf of a client will be, or is likely to be, adversely affected by the acceptance of such employment, or if it would be likely to involve him in representing differing interests, except to the extent such employment is permitted by subdivision (d) of this rule.
Subdivision (d) of Rule 3.4 provides as follows:
A lawyer may represent multiple clients if it is obvious that he can adequately represent the interests of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of the lawyer’s independent professional judgment on behalf of each.
Because of the nature of the relationship between subrogees and subrogors a lawyer may represent both in certain phases of the litigation when those phases will be unlikely “to involve him in representing differing interests. . . .”
In the ordinary course of events, when an insurer is subrogated to the rights of its insured, it succeeds to the same rights against the tortfeasor that the insurer would have. See generally 16 Couch on Insurance 2d, § 61:1, 61:4. Indeed, sometimes the concept of subrogation is known as “substitution.” See 73 Am.Jr.2d Subrogation, § 1. The insurer’s cause of action against the defendant is identical to the injured party’s. While the potential for a conflict of interest must be examined on a case‑by‑case basis, in the usual case the insured and the subrogated insurer have identical interests in providing the tortfeasor’s liability. Thus a lawyer in the usual case may represent both parties in establishing liability.
However, a conflict of interest will often arise during settlement negotiations. The insured and the subrogated insurer are likely to be competing for the larger share of the settlement. Similarly, if the matter goes to trial and the fact‑finder returns a verdict for less than the full amount of damages claimed, the insurer may be entitled to only a pro‑rata of the recovery. See 24‑A M.R.S.A. § 2729‑A (Supp. 1983). In such cases, a single lawyer could not adequately represent both insured and insurer at arm’s‑length in negotiating a division of the money received as damages.
Despite the problems noted above, the lawyer may structure his representation in advance so as to avoid any impermissible conflicts of interest. In fact, it will often be in the best interest of both parties to avoid a separate appearance at trial by counsel for the insurance company. For example, while representing the insured but before agreeing to represent the insurer, the attorney could negotiate an arm’s‑length agreement with the insurer on behalf of the insured. The agreement could specify, for example, how any recovery would be divided, which party would be responsible for conducting the case and deciding on settlements, and which party would have responsibility for other decisions apt to arise during the case. The attorney might then (but not before) be able to represent both parties after appropriate disclosure. Alternatively, the attorney might agree after appropriate disclosures, to represent both parties except as to settlement or division of the settlement proceeds, provided it was first made clear through arm’s‑length negotiations which party would be responsible for which tactical decisions.
Given these or other adequate safeguards, the code would permit an attorney to represent both the insured and the subrogated insurer in the same transaction.