Professional Liability Implications arising out of

matters involving Multiple Representation, Multiple

Policies, and Non-Insurance Contracts

Westin New York Grand Central Hotel | New York, NY

November 9-10, 2017

Bradley C. Nahrstadt – Lipe Lyons Murphy Nahrstadt &

Pontikis Ltd. (Chicago, IL)
Kevin M. Norchi – Norchi Forbes LLC (Cleveland, OH)
 Attorney Professional Liability
Duty of attorney to avoid conflicts of interests resulting
from representation of multiple clients in same lawsuit.

ABA Model Code of Professional Conduct

Preamble:
v As advisor, a lawyer provides a client with an informed
understanding of the client’s legal rights & obligations
and explains their practical implications.
v A lawyer should maintain communication with a client
concerning the representation.
 Client-Lawyer Relationship
Rule 1.0 Terminology

v "Confirmed in writing" when used in reference to the informed consent

of a person, denotes informed consent that is given in writing by the
person or a writing that a lawyer promptly transmits to the person
confirming an oral informed consent…If it is not feasible to obtain or
transmit the writing at the time the person gives informed consent,
then the lawyer must obtain or transmit it within a reasonable time
thereafter.
v "Informed consent" denotes the agreement by a person to a
proposed course of conduct after the lawyer has communicated
adequate information and explanation about the material risks of and
reasonably available alternatives to the proposed course of conduct.
 Client-Lawyer Relationship
Rule 1.2 (a) Scope Of Representation And Allocation Of Authority Between Client And Lawyer

v A lawyer shall abide by a client's decisions concerning the

objectives of representation.
v A lawyer shall consult with the client as to the means by which
they are to be pursued.
v A lawyer may take such action on behalf of the client as is
impliedly authorized to carry out the representation.
Rule 1.4 Communication
(a) A lawyer shall:
(1) promptly inform the client of any decision or circumstance with respect to which
the client's informed consent, as defined in Rule 1.0(e), is required by these Rules;
(2) reasonably consult with the client about the means by which the client's objectives
are to be accomplished;
(3) keep the client reasonably informed about the status of the matter;
(4) promptly comply with reasonable requests for information; and
(5) consult with the client about any relevant limitation on the lawyer's conduct when
the lawyer knows that the client expects assistance not permitted by the Rules of
Professional Conduct or other law.
(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the
client to make informed decisions regarding the representation.
Rule 1.7 Conflict of Interest: Current Clients
(a) A lawyer shall not represent a client if the representation involves a concurrent
conflict of interest. A concurrent conflict of interest exists if:
(1) the representation of one client will be directly adverse to another client; or
(2) there is a significant risk that 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.
(b) Notwithstanding the existence of a concurrent conflict of interest under
paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to provide
competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against
another client represented by the lawyer in the same litigation or other
proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing.
Rule 1.8 – Conflict of Interest; Current Clients: Specific Rules
(g) A lawyer who represents two or more clients shall not participate in
making an aggregate settlement of the claims of or against the
clients, … unless each client gives informed consent, in a writing
signed by the client. The lawyer's disclosure shall include the
existence and nature of all the claims … involved and of the
participation of each person in the settlement.
´ Whether a conflict exists for an attorney is not, typically, a contractual
obligation, but rather is governed by the Rules for Professional Conduct.
´ If no conflict or potential conflict, then no problem.
´ Although not always clear at the beginning of a case, there remains a
potential for conflict where there is ongoing representation of multiple clients/
insureds. Thus, a conflict evaluation is a dynamic process that continues
throughout the litigation.
 Case Law Regarding
Conflict of Interest – Waiver
´ Generally a client who is affected by attorney’s conflict of interest can give informed
consent to the representation after consultation. Prudential Insurance Company of
America v. Anodyne, Inc., 365 F.Supp.2d 1232, 1236 (S.D. Fla., 2005).
´ An attorney must communicate sufficient information and explanation of material
risks and reasonable alternatives to a proposed cause of conduct to obtain informed
consent. Fla. Bar R. of Professional Conduct Ch. 4, Preamble, State Farm Mutual
Automobile Insurance Co. v. Kugler, 2012 WL 12868734 (S.D. Fla., 2012).
´ Some conflicts of interest that are inherent in an attorney’s representation are so
fundamental that they cannot be waived, even with full disclosure. Fla. Bar v. Feige,
596 So.2d 433, 434 (Fla., 1992).
v Attorney is witness; cannot represent party.
v Attorney is defendant; cannot represent party.
v Attorney’s financial and/or professional interests impair independent professional
judgment.
 What should have been done…

1. Obtain waiver from each client and insurer.

´ Waiver must be meaningful and include agreement where co-defendants may not pursue
particular claims or defenses in order to enable joint representation.
** See NYCBA Op. 2004-2 (requiring “disclosure of any and all defenses and arguments that
a client will forgo because of the joint representation, together with the lawyer’s fair and
reasoned evaluation of such defenses and arguments, and the possible consequences to
the client of failing to raise them”); but see Sanford v. Comm. of Va., 687 F. Supp. 2d 591,
604 (E.D. Va. 2009) (where joint representation of multiple groups of defendants in
complex tort action arising from hospital patient’s death led counsel to “eschew the best
defense for each individual defendant” and instead to “present the best defense for the
group of clients considered as a whole,” “the Court cannot reasonably conclude that
any lawyer reasonably could believe, as the first condition [for obtaining joint
representation client consent] requires, that he would be able to provide competent and
diligent representation to each of the affected clients”).
´ Illinois Rules re: joint and several liability.
 What should have been done…

2. Continue to monitor for conflicts throughout the litigation.

** Lawyers are under a continuing obligation to monitor for conflicts and obtain
renewed consent when there are material changes in the factual basis on which
the client originally gave the informed consent, and if the conflict is not waivable
then the attorney must withdraw from representing all affected clients adverse to
any former client in the matter. See Blecher v. Collins, P.C. v. Northwest Airline, Inc.,
858 F. Supp. 1442 (C.D. Cal. 1994) (under superseded California ethics rules, joint
airline clients’ agreement that common counsel would advance only the airlines’
common purpose and that individual carriers would have to pursue any individual
claims on their own, was not a sufficient advance consent to the actual conflict
that materialized when clients took counsel’s advice to abandon a damages
theory that could not be developed for all clients; lawyer should have obtained
contemporaneous consent to conflict that actually developed); See also
Restatement Section 122.
 What should have been done…
´ Attorney Smith had knowledge the claim had a potential value in excess of $50 million and that
any judgment/settlement would require all defendants’ insurers to contribute.
´ There was an obligation on the part of Smith to inform the clients of the changes and what the
effect would be on her ability to defend each client individually.
´ Smith had a second chance to advise the clients when the settlement conference failed and it
became clear that the interests of the defendants were no longer aligned.
´ At the time the other insurers each retained new counsel.
´ Continued representation is compromised because it is unlikely she could represent each as
diligently as her actual client, A Indemnity.
´ A separate lawyer representing Prune & Filtch and High Roller would have likely attempted to
get them dismissed once the circumstances of the accident became known as Prune or High
Roller have limited or no liability.
´ It’s arguable that the irreconcilable conflict was known from the beginning because of these
facts, but there is the issue that the initial consent appears to have been verbal/informal
because “After coming to an understanding that a united defense for all named defendants
was the best approach, Smith filed an answer on behalf of High Roller.”
´ Any informed consent should have been in writing per Rule 1.7. A united defense approach,
also, is directly on point with Sanford, where the representation must be the best for each
individual client and not just the group as a whole.
 Two Analyses:

Mary is concerned about protecting client interests while

preparing for trial and her own personal liability.

I. What should Mary Smith do now on the eve of trial?

II. What is Mary Smith’s attorney to do when representing
her in the professional liability case that is sure to be
filed?
 Now What?
WIN THE TRIAL!!!
1. Who is Attorney Smith’s client?
To whom is the attorney obligated and responsible?
To whom has she been communicating throughout the litigation?
Has notice been given to the clients and their insurers?
Actual and Constructive?
2. Should Mary Smith withdraw?
Unlikely to be permitted by a Court on the eve of trial.
Also, is that an admission of wrongdoing on her part?
Would it be in the best interest of her client?
Probably not as she is prepared for trial, and has reasonable trial defenses.
3. Should Mary talk to her clients now and their insurers?
To what end and purpose? To identify joint defense benefit (again). Obtain waiver?
4. Settlement, MRCP 1.8(g) , requires informed consent in writing signed by the client.
 What is Attorney Smith’s lawyer to do?
1. Notice of claim to Professional Liability Carrier triggers assignment of counsel.
a. Timing of Notice during pending case.
b. Assignment of counsel.
c. Prepare assessment of liability.
d. Identify what can be done to limit potential liability.
e. Can Mary Smith’s PL attorney advise her as to how she should conduct herself in the current
litigation?
2. Meeting with client, Attorney Smith?
3. Attendance at Trial?
4. Involvement in settlement efforts?
5. Notice to excess insurer? Should Smith have given notice to the excess insurer? Smith’s
partners give notice?
 Defending Mary Smith
´ Estoppel Argument re: knowledge of insureds imputed to insurers (primary and excess)
´ Joint defense of each party was enhanced by having one lawyer. No violation of Model
Rule 1.7(a)(2) thereby mitigating the conflict because the lawyer reasonably believes they
will be able to provide competent and diligent representation to each affected client,
and the representation does not involve the assertion of a claim by one client against
another in the same litigation. Of course this requires that each affected client gives
informed consent in writing. See MR 1.8.
´ Where the conflict is subject to waiver and the insureds and the primary insurance carriers
had provided a waiver of conflict, then the excess carrier arguably would have been
bound by the waiver. In such an event, it could be argued that the waiver barred the
excess carrier from bringing any causes of action based on the existence of a waived
conflict.
´ No Harm.
´ By the way, does the lawyer representing Mary Smith have any personal issues/concerns
in defending Mary and also her firm and its partners? Should that lawyer get waivers?
Ingerman Affordable Housing v. Margolis Edelstein, No.
93 EDA 2009 (Pa. Super. Ct. June 20, 2011)]

´ Case involved three insureds with five insurance companies and their three primary
policies and three excess policies.
´ An excess carrier raised the conflict issue as the case was approaching trial and,
concerned about its exposure, settled the case for $5 million during trial while reserving
its right under the terms of the settlement agreement to pursue any claims arising out of
its necessity to settle the claims against the insured.
´ The excess carrier subsequently brought actions against the other carriers as well as
defense counsel stating it had no liability although it had paid $5 million to settle.
Ingerman, continued.
´ In claims against defense counsel, the carrier alleged that the decisions made by the
conflicted counsel resulted in the $5 million settlement payment to avoid the risk of an
excess verdict against the insured.
´ The underlying case went to verdict after settlement with the excess carrier, and its insured
was found to have no liability. However, the excess carrier argued that the conflicted
lawyer’s case management decisions postured the case for the $5 million settlement.
´ The excess insurer argued that the verdict simply reflected the plaintiff’s counsel’s attempt
to focus the evidence against the other targets who did not settle.
´ At the trial court level, summary judgment was granted in defense counsel’s favor finding
there were no damages to the insured/assignor. Although the excess insurer settled out of
a fear of the potential for an excess verdict, there was no actual harm and so no
actionable damage claim.
´ The appellate court in a majority decision concluded that the excess carrier acted to
ameliorate future harm in paying the settlement based upon a calculated speculation,
rather than addressing an ascertainable immediate harm to the insured.
´ Thus, the court found there was no actual loss to the insured in those circumstances. The
Pennsylvania Supreme Court did not accept the appeal and (it appears) the case settled.
 Can insurance companies ignore apparent
conflicts and rely solely on assigned counsel?
´ Insurer’s Obligations to be addressed by other presentation, however...
´ In the absence of a waiver, the insureds still arguably held the right to claims against counsel
and the primary carrier based upon the putative conflict of interest. If insureds were aware
of the conflict and chose not to act until the eve of trial, counsel could assert an estoppel
argument. However, an estoppel argument based on an express waiver still requires an
informed waiver. (See American Technologies, Inc. v. Mason Chamberlain, Inc., 1986 U.S.
Dist. LEXIS 21719 (1986)).
´ In cases of multiple clients and insureds, the insureds’ interests may change as the case
develops and an excess carrier identifies a conflict. Where the insureds may not have had
any interest in a conflict as long as its interests were covered, the insureds may still see the
potential conflict claim as a benefit and then assign it to the excess carrier as part of a
settlement. In that regard, the conflict claim develops a value for the insured because it is
something that the excess carrier wants in connection with settling the case on the behalf of
the insured.
 Lessons Learned
´ Attorneys representing multiple defendants need to remain aware of the
potential for conflicts.
´ Attorneys need to identify conflicts and notify clients and insureds as early
as possible.
´ Where permitted, conflict waivers should be obtained consistent with
Professional Conduct Rules.
´ Even in circumstances where conflict may be waived, clients still must be
advised throughout as to any change.
´ Know the nature and extent of insurance coverage and provide notice to
ALL insurers of potential claims.
Bradley C. Nahrstadt Kevin M. Norchi
Lipe Lyons Murphy Nahrstadt & Pontikis Ltd. Norchi Forbes, LLC
230 West Monroe Street, Suite 2260 23240 Chagrin Boulevard, Suite 210
Chicago, IL 60606-4703 Cleveland, OH 44122
Phone: 312.448.6230 Phone: 216.514.9500
Email: bcn@lipelyons.com Email: kmn@norchilaw.com