New Zealand Law Society - Acting for insurer and insured was unsatisfactory conduct
A lawyer, D, who acted for an insurer and for the insured was guilty of unsatisfactory conduct a lawyers standards committee has found. The Legal Complaints Review Officer (LCRO) upheld the committee’s decision on review.
Another lawyer, Mr L, represented a defendant who was charged with importing a Class C drug. The defendant was convicted and sentenced to three years’ imprisonment. The Court of Appeal quashed the conviction and ordered a retrial. The defendant was discharged.
The defendant’s solicitors then wrote to Mr L giving notice of an impending claim. Mr L had professional indemnity insurance and notified his insurers.
His insurers instructed a lawyer, D, to advise on indemnity issues and to prepare a statement of defence to the claim against Mr L.
Following D’s advice, the insurer declined cover. Unaware that D had provided advice to his insurer on indemnity issues, Mr L instructed D to represent him in the negligence proceedings and then to challenge the insurer’s decision on indemnity. Mr L advised D that he could not provide advice on indemnity issues because he had acted for the insurer.
Mr L later discovered that D had provided advice to his insurer on indemnity issues.
Mr L then lodged a complaint with the Law Society, stating that D ought not to have accepted instructions to act for him. This was because he had a conflict of interest given that he advised the insurer about indemnity.
D’s counsel said that Mr L’s and the insurer’s interests diverged only on indemnity and that Mr L took advice from another lawyer on indemnity. He said that there was no breach of rule 6.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 in the circumstances.
Rule 6.1 states that a lawyer must not act for more than one client on a matter where there is a more than “negligible risk” that the lawyer may be unable to discharge the obligations owed to one or more of the clients.
At the point D obtained information from Mr L so that he could file a statement of defence, D was “plainly acting both for the insurer and the insured,” the committee said.
Mr L needed to be represented by a lawyer who could give “disinterested and objective advice” both on defending the claim and on any claim for indemnity.
The committee also said that a lawyer’s responsibility to act diligently without any conflict of interest “does not reduce simply because the client happens to be another lawyer”.
The LCRO upheld the committee’s determination (LCRO 332/2013) but found that the risk of conflict arose at an earlier point. At the point that the insurer asked for advice on indemnity more than a negligible risk of conflict arose. The LCRO said that:
“It is not always the case that a lawyer cannot act for an insurer and insured. The distinguishing features of the present facts are that [the insurer] had not decided whether it would indemnify [Mr L] or not, and it wanted D to use all the information at his disposal to provide it with advice on that.”
This meant that there was more than a neglible risk that D would not be able to discharge the obligations he owed separately to D and the insurer.
D was ordered to pay $1,200 costs in addition to the $1,000 costs to the committee. As the parties had reached a private agreement as to compensation, no other order was made.