Managing your obligations

In some areas of practice, the potential for multiple interested parties and/or a dual retainer can arise. A dual retainer is where a lawyer is acting for two parties with related but not identical interests in a proceeding. One such area is where a lawyer might be acting in litigation on behalf of both an insurer which provides professional indemnity insurance and the indemnified party. Other examples may include cases in which litigation is being funded by a third-party funder, family member, trust or other related entity. Care must be taken to ensure lawyers do not find themselves in a position of conflict and are aware of their obligations under the “Rules”.¹

Whether a dual retainer arises will depend on the individual circumstances. In relation to specific scenarios, this is an area where there are diverging views and in which the law will continue to evolve.

Despite these challenges, this guidance aims to provide some practical assistance for lawyers specifically relevant to insurance engagements. It is not intended to be legal advice nor a definitive pronouncement on the law, in what can be a complex area. Instead, we set out considerations that, at a minimum, it is prudent for lawyers to consider early when there are multiple interested parties involved in a matter.

Although this guidance is focused on insurance practice, the principles have wider general application for all lawyers dealing with multiple interested parties in an instructed matter.

Issues raised in dual retainers for insurance policies

1. The guidance below is directed at the situation which can arise mainly under liability insurance policies where the insurer has the contractual right to appoint a lawyer to act for the insured and conduct the defence of the insured claim.

2. This guidance, however, is intended to be a general reminder for all lawyers to consider their obligations in the given particular circumstances.

Who is my client and what are my obligations in this situation?

3. The question of client identification featured in the High Court decision - Gallaway v National Standards Committee.²

4. It is axiomatic that a lawyer must turn their mind to and clearly identify who their client is at beginning of any instruction. Identifying the interests of other interested parties and any responsibilities the lawyer has to them is also important. This is vital to determine what professional obligations are owed and to whom. Only after this step, can a lawyer correctly identify any potential for conflict of interest or duty.

5. In the insurance context, the identification of the client and other relevant interests and obligations will depend on the particular circumstances, policy and interests in each case. In Gallaway, the Court indicated that care needs to be taken before being certain as to which party a lawyer is acting for, in what it described as a “tripartite relationship”.  It may be tripartite, with dual retainers (see, for example, the discussion [46]-[49]), or the situation may be one, where the lawyer must consider both lawyer-client and contractual obligations and how to appropriately manage these.

6. As the discussion above indicates, what the nature and scope of retainer(s) is and how to discharge other responsibilities can be challenging. However, early identification of potential issues can avoid complications and disputes later on.

Initial Letter – being clear at the outset avoids complications later

7. Most liability policies will contain a provision whereby the insured agrees that the insurer is entitled to take over, in the name of the insured, conduct of the defence or settlement of any claim (including any quasi-judicial or disciplinary proceeding). In addition, the policy will usually contain a provision that the insurer is entitled to appoint its own lawyers to represent the insured and that those lawyers will report directly to the insurer.

8. There is often a pre-existing contractual relationship between the lawyer and the insurer where the lawyer is on the insurer’s panel. If the lawyer does not have a pre-existing contract, a letter of engagement must be provided to the insurer.

9. In situations where a lawyer has identified a dual retainer, the initial engagement letter should go to both insurer and insured and all information go to both clients.  The lawyer should ensure there are no coverage issues to be raised by the insurer if acting for both parties.

10. Outside a dual retainer, an initial letter regarding the lawyer’s appointment should be provided to the insured. The lawyer should consider addressing the following matters as appropriate:

1. An explanation of the insurance contract provisions that give the insurer the right to appoint lawyers, conduct the defence, require the insured’s co-operation and any waiver of privilege. The lawyer should specifically address the implications of any provision waiving the insured’s privilege. Advising the insured to consider obtaining independent legal advice about those provisions is prudent. 
2. How fees are to be paid, whether they are to be paid by the insurer and whether there is some payment required from the insured, including any excess. If the lawyer is appointed to act for the insured only, they owe obligations to the insured, even though the contractual entitlement to receive fees is with the insurer- it is important that everyone understands this. If a payment is required from the insured, the usual charging and fee information should be provided. 
3. The scope of the lawyer’s retainer with the insurer, in particular, whether the lawyer is engaged to act in respect of indemnity, the insured’s defence or both. This will come back to the client identification exercise carried out by the lawyer at the outset.  
4. Enclose a copy of the client care and service information set out in the preface to the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008. 
5. If solely acting on indemnity, or, if retained to act on indemnity prior to the insurer assuming conduct of the defence, the fact the lawyer is acting to advise the insurer on indemnity solely for the insurer’s benefit should be clearly explained. This should, where appropriate, include advice that the insured is not entitled to provide input into, or receive a copy of, such advice. 
6. The lawyer may wish to expressly exclude particular issues from the scope of its retainer. For example, if acting for the insured, the lawyer can record that advising on the scope and breadth of insurance cover or any claim that might arise against the insurer itself is excluded. Conversely, being clear that services to the insurer, such as advising on indemnity issues, are excluded will also be prudent.  
7. In cases of a dual retainer, the letter of engagement should also record for both parties the potential consequences if, at a later stage, the insured’s and insurer’s interest begin to diverge (for example, the retainer(s) may need to be terminated). 

Costs inclusive excess 

11. A costs inclusive excess is an excess that the insured has agreed will be paid when costs are incurred (legal or otherwise) by the insurer in dealing with the claim made under the policy. The contractual obligation to pay a costs inclusive excess arises from the insurance contract between the insurer and the insured. On occasion, insurers may request that lawyers invoice the insured directly in respect of costs incurred that would fall within a costs inclusive excess. Absent a separate contractual arrangement, a lawyer has no right to render an invoice directly to an insured in respect of a costs inclusive excess and no right to collect the same on its own behalf. 

12. Accordingly, a costs inclusive excess should be collected by the insurer once it has incurred costs (legal or otherwise) in respect of the claim (absent some contractual arrangement between the lawyer and the insured). The lawyer’s invoice should be addressed and rendered to its insurer client. This does not prevent a lawyer from seeking payment, on behalf of its insurer client, from the insured in respect of a costs inclusive excess. In those circumstances, the lawyer should be clear with the insured that it is collecting the excess at the request of and on behalf of the insurer pursuant to the insurer’s contractual rights. Ultimate liability to pay the invoice, however, remains with the lawyer’s insurer client. 

“Monitoring the situation”- Conflicts of Interest 

13. The Court in Gallaway emphasised that it is up to the engaged lawyer to monitor the potential for conflicts to arise and take the appropriate steps under r6.1, if one does.³ Whether a conflict of interest arises in a particular case is highly fact-specific and may change over the course of the retainer as new information and evidence comes to light and the proceeding develops. Some issues the lawyer may wish to consider are: 

1. If the lawyer needs to ask the insured questions that go to indemnity and/or defence, the lawyer should, in posing the questions, advise the insured if the question goes to indemnity and the nature of the indemnity issue that arises (for instance, identifying the relevant exclusion clause). The insured should also be advised to take independent legal advice and speak to its broker before answering indemnity questions. 
2. If the insurer wishes to settle but the insured does not, the policy will usually contain a clause which entitles the insured to elect to contest the claim at their own expense, but the insurer’s liability will not exceed the amount for which the claim could have been settled. Before this provision is invoked, the insured should be advised to seek independent legal advice and be given an opportunity to do so, so the lawyer can obtain informed consent to every settlement. 
3. When considering the implications of any judgment or appeal the lawyer should ensure that the insured has an opportunity to have input into that decision and, if the position of the insurer and insured diverge, the insured should be advised to take independent advice. This is particularly important if any appeal involves a risk that the insured may incur an uninsured loss. The lawyer will need to act promptly to ensure that any appeal rights are preserved while this issue is resolved. 
4. The lawyer should always be aware of the need for timely interaction (including timetable compliance and preparation time) with the insured, in particular, in circumstances where the interests of the insurer and the insured may diverge. 

14. If a conflict of interest arises that cannot be resolved, the lawyer must bear in mind their obligations under rules 4.2, 6.1 and 8.7 of the CCC (duty to complete the retainer, conflicting duties, use of confidential information). 

Disciplinary Proceedings 

15. The lawyer should bear in mind that different issues may arise in relation to claims involving disciplinary proceedings. In those circumstances, the lawyer needs to be aware that the purpose of the insurance which the insured has purchased may only be to provide defence costs cover rather than insurance against any penalty such as a fine. Naturally, the insured’s wishes with regard to the defence of such proceedings will need to be given careful consideration given the nature of the cover offered and the personal professional exposure. 

16. If a situation arises where the insurer considers a defence is unreasonable or should not be pursued, or a guilty plea entered, the reasons for that should be disclosed to the insured well in advance of any such decision needing to be made, and giving the insured a reasonable opportunity to take independent legal advice on that issue. In making such decisions, the insurer will undoubtedly be aware of its duty of utmost good faith to the insured in handling the claim. 

Expert Reports 

17. If the lawyer is engaged to report on indemnity, the lawyer, as distinct from the insurer, does not have a duty to provide any expert reports obtained for that purpose to the insured.  

18. If the lawyer is retained to advise on defence or both indemnity and defence, the lawyer should provide any expert reports obtained to the insured if it is intended that the insurer will rely upon such reports for the purposes of either determining indemnity or conducting the defence. 

19. If the lawyer is providing defence advice (as distinct from indemnity advice) to the insurer, that advice should also be provided to the insured. 

Termination of Retainer 

20. Generally, a lawyer should be aware that there may be circumstances where they are required, by their obligation to the insured, to take steps for which they may not be able to obtain recompense. For instance, where imminent timetabling requires steps to be taken to protect the insured’s legitimate interests, but the insurer has for whatever reason declined to pay for such steps. 

21. If the retainer between the lawyer and the insured comes to an end for any reason, the lawyer should ensure that they do not leave the insured in a position where they are unable to comply with Court orders or timetables as a consequence of the timing of the termination of the retainer. The lawyer should always be aware of their obligations to the insured under rules 4.2, 6.1 and 8.7 of the CCC and to the Court. 

1. Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008

2. Gallaway v National Standards Committee v New Zealand Law Society Te Kāhui Ture o Aotearoa [2020] NZHC 3384

3. Gallaway at para 59.