Editor's Note:

State Bar Ethics Opinions cite the applicable California Rules of Professional Conduct in effect at the time of the writing of the opinion. Please refer to the California Rules of Professional Conduct Cross Reference Chart for a table indicating the corresponding current operative rule. There, you can also link to the text of the current rule.




To whom does an attorney owe duties when he or she acts as insurance defense counsel and is hired by an insurer to represent an insured in the substantive defense of the insured's case? Specifically, to whom are the duties owed: (a) where counsel discovers information that demonstrates the insured has or may have no coverage; or (b) where the attorney learns the insured has perpetrated a fraud for the purpose of obtaining coverage?


The attorney owes his or her loyalty to the insured, even where there are duties which are ordinarily owed by the attorney to the insurer. This means that in situations where matters adverse to the insurer are discovered, even where the insured has failed to be candid with the insurer or the attorney, the attorney may not reveal these matters to insurer, and may be required to withdraw.


Rules 3-310, 3-500 and 3-700 of the California Rules of Professional Conduct.

Business and Professions Code section 6068, subdivision (e) and 6068, subdivision (m).

Civil Code section 2860.


Representation of an insured by an attorney hired by the insurer is a common litigation event. In most of these cases, no overt conflict of interest exists between insurer and insured. In State Bar Formal Opinion No. 1987-91, this committee quoted from American Mutual Liability Insurance Co. v. Superior Court (1974) 38 Cal.App.3d 579, 592 [113 Cal.Rptr. 561, 571]:

Case law predating rule 3-310 of the California Rules of Professional Conduct1 assumes, as the above quote indicates, that the insured may ordinarily be represented without a separate, specific written disclosure to insurer and insured -- or a written consent from insurer and insured -- other than the insurance contract itself. Rule 3-310(B)(3), however, requires written disclosure to all clients where, inter alia, "[t]he member has or had a legal, business, financial, professional, or personal relationship with another person or entity the member knows or reasonably should know would be affected substantially by resolution of the matter." Moreover rule 3-310(C)(1) requires that the informed written consent of each client be obtained where there is ". . . representation of more than one client in a matter in which the interests of the clients potentially conflict."

Rule 3-310 may seem at odds with some case law dicta. Clearly, insurer is denominated a "client" by case law -- albeit in dicta as discussed infra -- and is substantially affected by the insured's matter. But while insurer is indeed a client in some respects -- the ongoing relationship with the member, the payment of fees, etc. -- it is a client whose rights under case law are clearly limited. (See infra.)

Where a member complies with the mandates of this opinion to protect the interests of the insured, his or her additional compliance with rule 3-310 is not necessary for two reasons: First, given the unusual, perhaps unique, interrelationship of insurer, insured and counsel, the contract of insurance itself, drafted by the insurer for its own benefit, provides more than adequate disclosure under rule 3-310(B)(3) to the insurer.2 Second, the "potential conflict" trigger of rule 3-310(C)(1) is never pulled because, as seen infra, when such a conflict manifests itself, case law resolves any potential conflict in that matter by mandating a resolution in favor of the represented insured and against the non-represented, non-party insurer. Put another way, case law instructs that ultimately, there can be no conflict between insurer and insured since, as discussed infra, the insured will always prevail where an issue is created between them. (See L.A. Cty. Bar Formal Opn. No. 464.) Thus, the notice to and waiver by the insured is superfluous.3

Where a known conflict of interest does exist, the insured may be entitled to independent counsel. (San Diego Federal Credit Union v. Cumis Insurance Society, Inc. (1984) 162 Cal.App.3d 358 [208 Cal.Rptr. 494].) Civil Code section 2860 dictates guidelines for when an insurer owes a duty to an insured to provide independent counsel. When there are separate, independent counsel for both insurer and insured, they "shall cooperate fully in the exchange of information that is consistent with each counsel's ethical and legal obligation to the insured." (Civ. Code, § 2860 (f).) But the insured's independent counsel, freed from serving two clients, owes his or her fiduciary duties entirely to the insured and should maintain decision-making control over the litigation on the insured's behalf. (See L.A. Cty. Bar Formal Opn. No. 464.)

The issue is more complex in evaluating the responsibilities of a lawyer where a conflict between insurer and insured arises, and there is not independent counsel for both insurer and insured. This can occur, inter alia, where a coverage problem is known to exist,4 or where counsel becomes aware of problems during the course of the representation.

Although insurance defense counsel's representation of divergent interests can be attempted "provided there is full disclosure and consent," this dual role cannot diminish counsel's responsibility to the insured. (Betts v. Allstate Insurance Co. (1984) 154 Cal.App.3d 688, 715-716 [201 Cal.Rptr. 528].) The attorney is obligated at all times to protect the insured/client and may not act in any way which prevents "devoting his entire energies to his client's interest." (Ibid. quoting from Anderson v. Eaton (1931) 211 Cal. 113, 116 and Klemm v. Superior Court (1977) 75 Cal.App.3d 893, 901-902 [142 Cal.Rptr. 509].)5

It is the obligation of any attorney to keep clients "reasonably informed about significant developments" relating to the case. (Rule 3-500; Bus. & Prof. Code, § 6068, subd. (m).) For the insurance defense counsel, this communication must include a duty to disclose "all facts and circumstances . . . necessary to enable each of his clients to make free and intelligent decisions regarding the subject matter of the representation." (Lysick v. Walcom (1968) 258 Cal.App.2d 136, 151 [65 Cal.Rptr. 406] [criticizing a lawyer who communicated a third party demand in excess of policy limits only to insurer, and not to insured].)

It is also the duty of any attorney to maintain inviolate the confidences of a client and to preserve at every peril to himself or herself the client's secrets. (Bus. & Prof. Code, § 6068, subd. (e).) Thus, if an insured reveals matters to the attorney in confidence, and these matters are not intended to be heard by the insurer, the attorney may not reveal them to the insurer, regardless of the relationship between them. (American Mutual Liability Insurance Co. v. Superior Court, supra, 38 Cal.App.3d at p. 592.) The same analysis applies to any secrets of the insured/client learned by the attorney during the course of the representation.6

This means that, even where the attorney has a close ongoing relationship with an insurer, and from a business perspective considers insurer an important "client," in any particular representation it is the obligation to protect the insured's confidences and secrets which is paramount. Thus, if, for example, the attorney gains information during the course of representation which the attorney believes demonstrates that the insured is actually not entitled to coverage, the attorney nevertheless owes a duty to the insured/client not to reveal this information to the insurer.

This is true even where the attorney comes to believe that the insured has fraudulently created a situation in which coverage appears to exist where it actually does not. For example, an insured might claim to be driving a vehicle when the actual driving was done by a friend or family member who was not insured. Even in these relatively extreme situations, the requirements of Business and Professions Code section 6068, subdivision (e) prevent disclosure to anyone, including the insurer, of material harmful to the insured. (Price v. Giles (1987) 196 Cal.App.3d 1469, 1473 [242 Cal.Rptr. 559]; Pennix v. Winton (1943) 61 Cal.App.2d 761 [143 P.2d 940].)

In coverage question situations where there has not been a Civil Code section 2860 disclosure and consent to the representation, or where subsequent to disclosure and consent, new information has come to light which affects the question of coverage, the attorney may be required to withdraw. Such withdrawal is governed by rule 3-700. In any matter which is pending in litigation, permission must be obtained by the tribunal before withdrawal may be accomplished. (Rule 3-700(A).) Depending on the circumstances and the reasons for withdrawal, termination of employment may be permissive or mandatory. The line between mandatory and permissive withdrawal is not always a clear one.

Where insurance defense counsel is confronted by new information which changes the apparent coverage situation of insurer in a way not contemplated in an initial disclosure and consent between insurer and insured, continued representation may place counsel in the position of representing conflicting interests. This may best be understood if counsel evaluates the information he or she cannot reveal to insurer from the point of view of that insurer -- that is, is the information something which counsel devoted to insurer's interests would ordinarily be obligated to reveal, but for the dual loyalties involved? Withdrawal in such situations is best viewed as being mandatory, as continued representation would place counsel in the position of representing conflicting interests in violation of rule 3-310(C)(2).

Where counsel learns that the intentional wrongful acts of insured have damaged insurer, such as where insurer has accepted coverage based on insured's fraudulent assertions, or where the insured has concealed material facts from the insurer, not only does a conflict of interest exist, but the member has learned that the insured/client has acted in a manner injurious to the insurer. When these circumstances are viewed together, withdrawal is required. (Rules 3-700(B)(1) & 3-700(B)(2).) Moreover, in such circumstances, failure to withdraw would involve the lawyer, who is billing the insurer, in the perpetuation of insured's fraudulent efforts to have insurer pay defense costs.

Where such withdrawal is necessary, however, it may be done only with express court approval (rule 3-700(A)(1)), and only where it is accomplished in a manner which does not prejudice the rights of the insured, while protecting confidential communications. (Rule 3-700(A)(2).) It is imperative that, although withdrawal may be required, assiduous effort be made to accomplish it in such a way as does not disclose the very information which caused the attorney to seek withdrawal in the first place. Moreover, given the ongoing relationship between the attorney and the insurer, special care must be taken by the attorney during the withdrawal process to protect the reasons for withdrawal.

This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of the State Bar of California. It is advisory only. It is not binding upon the courts, the State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.

1 All rule references are to the Rules of Professional Conduct of the State Bar of California.

2 We speak here of those situations where the lawyer's role is as counsel providing substantive defense to the insured, and thus not "coverage counsel" responsible for addressing coverage issues. This limited scope of representation should be clearly delineated and understood between attorney and insurer to avoid requiring further compliance with rule 3-310(B).

3 Counsel has an obligation, however, to be circumspect in communications with the insurer, which continues to "hold the purse strings" under the insurance contract, so that matters are not disclosed to insurer which could be adverse to insured.

4 San Diego Federal Credit Union v. Cumis Insurance Society,Inc., supra, 162 Cal.App.3d at p. 358, implies that the existence of insurance coverage issues gives rise to the insured's right to independent counsel. Other courts disagreed that this is always the case (see, e.g., McGee v. Superior Court (1985) 176 Cal.App.3d 1265 [221 Cal.Rptr. 421]), and Civil Code section 2860 (b), passed subsequently, also expresses a narrower view. After stating that the insurer's outright denial of coverage presents no conflict, the statute continues: "[H]owever, when an insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim, a conflict of interest may exist". (Emphasis added.)

5 The conclusions expressed in this opinion apply generally to an insurer's in-house defense counsel retained to defend an insured. However, additional considerations not addressed in this opinion may also be applicable.

6 The term "secrets" is defined in Business and Professions Code section 6068, subdivision (e), and interpreted, inter alia, in California State Bar Formal Opinion Number 1980-52 and Los Angeles County Bar Formal Opinion Number 456. The existence of such secrets necessarily limits the communication that insurer/client would ordinarily be entitled to, as described above. This is best viewed by understanding that at the point at which a conflict develops, the insurer is no longer a client in the usual sense, because the "overlapping and common" interest described in American Mutual Liability Insurance Co., supra, 38 Cal.App.3d at pages 591-592, no longer exists. Thus, when courts in insurance conflict cases have referred to duties owed to "the client," they necessarily mean the insured/client. Indeed, it is the insured who is to be "protect[ed] . . . in every possible way," (Betts v. Allstate Ins. Co., supra, 154 Cal.App.3d at p. 715), and who is entitled to the same efforts from counsel that would be owed had insured personally hired the attorney. (Lysick v. Walcom, supra, 258 Cal.App.2d at p. 136.) Indeed, it is worth noting that both American Mutual Liability Insurance Co. and Betts v. Allstate Insurance Co., as well as other cases which refer to both the insured and insurer as clients do so for the sole purpose of emphasizing the protections that must be afforded the insured/client. Thus, the reference, in dicta, to the insurer as a client, is a use of the term "client" which is materially different from the traditional use of that term.