Ethics Opinions from the Bar Association of San Francisco
An attorney who is a director, but not counsel, for an insurance company and who desires to represent the carrier's insured in a third party claim against the insured, is subject to the same rules governing the representation of conflicting (or appearing to be conflicting) interests as apply to counsel for the carrier.
Attorney X, who is a director of Insurance Company Y, wishes to represent Z (Y's insured) in connection with a third party claim against Z. May he ethically do so?
The relevant authorities governing the question presented are set forth in the Rules of Professional Conduct (Rules 4-101 and 5-102), the California Corporations Code (section 310) and Klemm v. Superior Court (1977) 75 Cal.App.3d 893:
RULES OF PROFESSIONAL CONDUCT (Effective January 1, 1975)
Rule 4-101. Accepting Employment Adverse to a Client
A member of the State Bar shall not accept employment adverse to a client or former client, without the informed and written consent of the client or former client, relating to a matter in reference to which he has obtained confidential information by reason of or in the course of his employment by such client or former client."
Rule 5-102. Avoiding the Representation of Adverse Interests
(A) A member of the State Bar shall not accept professional employment without first disclosing his relation, if any, with the adverse party, and his interest, if any, in the subject matter of the employment. A member of the State Bar who accepts employment under this rule shall first obtain the client's written consent to such employment.
(B) A member of the State Bar shall not represent conflicting interests, except with the written consent of all parties concerned.
CALIFORNIA CORPORATIONS CODE
No contract or other transaction between a corporation and one or more of its directors . . . is either void or voidable because such director [is]a party.if
RECENT CASE LAW
The Court then held that the conflict in Klemm (a marital dissolution case) was "merely potential" since the parties had settled their differences by agreement. Therefore, it was permissible, the Court said, for a single attorney to represent both husband and wife, subject to the following caveat:
Klemm is cited with approval in Spindle v. Chubb/Pacific Indemnity Group (1979) 89 Cal.App.3d 706 at page 713. In Spindle, the Court discusses the difference between "divergence in interest " and "conflict of interest":
The plaintiff in Spindle v. Chubb/Pacific Indemnity Group, supra, is a doctor who sued his malpractice carrier for fraud and bad faith arising out of the carrier's use of a single law firm to defend both plaintiff and another doctor in a medical malpractice case. The plaintiff alleged a conflict of interest by reason of the dual representation.
The Court acknowledged a divergence of interest, but held that there was no conflict of interest, notwithstanding that the potential liability of the second doctor was greater and his coverage narrower than that of the plaintiff.
No case or ethics opinion  was found dealing squarely with the question presented. It is submitted, however, that the guidelines of Klemm would probably be applicable.
Among the "facts and circumstances" which should be disclosed (in the opinion of the Committee) are the potential areas of conflict wherein the insurance carrier denies coverage, or refuses "in bad faith" to settle within policy limits, or contends that misrepresentations were made by the insured in the policy application. Closely related would be the question of the attorney's fees (if any), which would be due in the event these or other conflicts necessitate X's eventual withdrawal from the case.
In Opinion No. 352 dated January 15, 1976, the Los Angeles County Bar Association's Ethics Committee concluded (in a different but related context) that "while rule 5-102 would permit such representation, the Committee believes that the difficulties of explaining all the possible conflicts and adverse interests involved may, as a practical matter, preclude obtaining the knowledgeable consent of the client, except in extraordinary cases." The Committee left it up to the inquiring attorney to decide whether he could satisfy the burden of explaining the possible conflicts and adverse interests to the client, after setting forth the relevant ground rules.
While attorney X in the present case is a Director of Insurance Company Y and not "representing" Y within the context of the foregoing authorities, it is submitted that the dual relationship is tantamount to a representation and, accordingly, the foregoing strictures dealing with informed consent should apply.
In the unanimous opinion of the Committee, the inquiring attorney should decide for himself whether he can comply with the Rules of Professional Conduct and section 310 of the California Corporations Code, in light of the foregoing points and authorities, and on the basis of facts which are known to him, but not to this Committee.
In the further (unanimous) opinion of the Committee, such dual representation should not be undertaken even with an informed consent, unless the potential conflict or appearance thereof is so remote as to be negligible.
All opinions of the Committee are subject to the following disclaimer:
In using these opinions you should be aware that subsequent judicial opinions and revised rules of professional conduct may have dealt with the areas covered by these ethics opinions.