OPINION 156
June 1957

CONFLICTS OF INTEREST - ADVISING ON THE MERITS OF A CLIENT’S' CAUSE- It is an open question whether it is improper for an attorney retained by an insurance company to defend its assured in a damage suit to fail to timely inform the assured of his rights against the company under the doctrine of Stowers v. American Indemnity Co. 15 S. W 2d 544.

Canons 6 8.

Question

Is it a violation of the Canons of Ethics for an attorney retained by an insurance company to defend its assured in a damage suit to fail to inform the assured of his rights against the insurance company under the Stowers Case in time for assured to make demand on the insurance company that they settle the case within the limits of their liability policy?

Opinion

The eight members of the committee are equally divided on the matter. Four members are of the opinion that said insurance company attorney is under a duty to inform assured of his rights under the Stowers Case, and that it is unethical for him not to do so. This view is based largely upon the provision of Canon 6 reading: "It is unprofessional to represent conflicting interests, except by express consent of all concerned given after a full disclosure of the facts." The interests of the insurance company and of the assured are said to be conflicting, especially with respect to the matter of a settlement, and hence it is contended that it would be unethical for said attorney not to make a "full disclosure of the facts" and that that would include an explanation of the Stowers Case.

It is contended this duty also arises by reason of the provision of Canon 6 that, "It is the duty of a member at the time of retainer to disclose to his client all the circumstance of his relations to the parties, and any interest in, or connection with, the controversy which might influence the client in the selection of counsel," but, on the other hand, it is said such provision only applies to relation between said attorney and the insurance company. Failure to advise assured of the holding of the Stowers Case was also considered by two members to possibly violate Canon 28 and to violate Canon 8 requiring the attorney to give his client "a candid opinion of the merits and probable results of pending or "contemplated litigation."

The other half of the committee is of the opinion that said attorney is under no duty to advise assured of the Stowers case and that such attorney is engaged by the insurance company not to advise assured as to assured's rights under the policy but to defend assured in the damage suit. It was pointed out that the policy gives the insurance company complete control of the litigation, and that under the Stowers case the insurance company only owed assured the duty and obligation to exercise ordinary care in the defense of the litigation. It was said that to hold the conduct in question unethical would be to in-graft a requirement upon a judicial interpretation of substantive law not made by the Stowers Case.

The members seemed to be in agreement that when the amount sued for exceeds the policy limits that said attorney should advise assured of such fact and that he was free to consult an attorney of his own selection to represent his individual interest. (4-4)