You have asked for this Committee's opinion whether the following situation raises any possible violations of the Rules of Professional Conduct:
Your firm is in-house counsel for B Insurance Company (BIC). On behalf of BIC's Claims Department, a Worker's Compensation Attorney (WCA) of your firm typically handles the defense of a Worker's Compensation case referred to him by the Claims Department.1 Subsequently, when a Worker's Compensation lien claim on such a case has matured (whether by a one-time payment of a compensation award in full or by an initial payment on a continuing obligation), the Claims Department's subrogation unit sends a subrogation file to a Subrogation Unit Attorney (SUA) of your firm. The SUA monitors any third-party lawsuit brought by the Worker's Compensation Claimant (WCC) against any alleged tortfeasors other than the WCC's Employer (Employer), with the intent of (a) advising WCC's attorney in the third-party case of the existence of the lien claim, (b) requesting periodic information on the status of the third-party case, and (c) pursuing collection on the lien in the event of any recovery in the third-party case.
The SUA does not enter his appearance in the third-party lawsuit, since he does not represent any party to that suit. Typically, however, WCC's attorney will contact the SUA when the third-party case is at settlement stage to discuss the extent to which BIC may be willing to compromise the lien claim in order to facilitate settlement of the third-party case.
The Committee viewed your inquiry as requiring analysis under the Rules pertaining to prohibited communications (Rule 4.2), confidentiality of information (Rule 1.6), and conflict of interest (Rules 1.7 & 1.9). 2
The Committee sees no arguable violation of Rule 4.2, given that under the facts as you have stated them no attorney proposes to contact directly any opposing party represented by counsel except through that counsel.
As to confidentiality of information and conflict of interest, however, the Committee perceives several possible violations of the Rules. The analysis differs depending on whether the underlying Worker's Compensation claim has been resolved finally by a one-time payment or is an open, continuing claim.
A Claim Resolved by One-Time Payment
In this factual setting, the Committee understands that your firm's WCA no longer represents the Employer. Thus there appears to be no arguable present conflict of interest (see Rule 1.7) raised by your firm's SUA representing BIC's interests in the collection on the Worker's Compensation lien. Moreover, it appears that under most circumstances the rule concerning any conflict of interest raised by prior representation of a former client (Rule 1.9) would not be violated, given that the interests of your firm's present client (BIC) and former client (Employer) are likely to be the same, not adverse. Both BIC and Employer will want to maximize recovery on the lien: BIC, so as to reduce its net pay-out on the claim; Employer, so as to improve its loss history and consequently reduce its future premiums. 3
Notwithstanding the above, several cautionary notes are in order. First, the WCA must be careful to observe the prohibition in Rule l.9(b) against disclosing information that could be used to Employer's disadvantage; such caution appears particularly necessary in light of the fact that WCA and SUA practice in the same firm (see Rule 1.10).
Second, notwithstanding the general conclusion reached above - that BIC's and Employer's interests in this situation are the same and not adverse - particular circumstances could render their interests adverse, e.g., whether BIC's legal fees incurred in pursuing lien claims are included in Employer's loss history for underwriting purposes. It follows that the background of the relationships must be examined in relation to each subrogation file proposed to be handled by your firm. Where a possible conflict appears, the Committee believes it would be waivable under Rule 1.9(a) but, as the Rule requires, only after full disclosure to, consultation with, and consent from the former client.
Third, certain types of employment-related injuries, although apparently resolved by a one-time payment, might give rise to subsequent claims based on recurrence, aggravation of other conditions, etc., and the Committee understands that in such circumstances the WCC is not barred from reopening his/her claim under Worker's Compensation. In that event the Employer would continue to be a present client of your firm, and thus the situation would require the same analysis as in a continuing claim (see infra).
Fourth, it appears to the Committee there exists a danger of misunderstanding in the communications between the SUA and third-party plaintiff's counsel. If the SUA does not carefully and fully explain the nature of his relationship to BIC and of the firm's relationship to the Employer, third-party plaintiffs counsel may be left with the impression that her clients' interests are coterminous with those of SUA's client. She may believe she may safely share client confidences with the SUA. While all the ramifications of such a complex situation are beyond the scope of this Opinion, the Committee believes the SUA must analyze each situation with care to ensure that there is no violation of Rule 4.1's requirement of truthfulness in statements to others (whether by false statement, by incorporating or affirming another's statement the SUA knows to be false, or by misrepresentation by failure to act; see
Rule 4.1, Comment, Misrepresentation
B. Continuing Claim
Where a claim has proceeded through a liability finding but remains open because treatment is ongoing, and therefore there remain open issues regarding the necessity of, and/or the appropriateness of the charges for, that treatment, your firm concurrently represents both BIC and Employer. Here, by contrast with the situation analyzed above, the potential for a conflict between the interests of BIC and Employer appears substantial. In the continuing Worker's Compensation proceeding, Employer's interest is in showing that the WCC's injury was minor and/or has been fully corrected, and/or that the charges sought for reimbursement are excessive. In the third-party action, however, BIC's interest (as it monitors that action through the SUA) is in supporting the third-party plaintiff's (i.e., the WCC's) claim that his/her injury is severe and not yet or not easily corrected, and/or that the treatment charges being incurred are proper.
Accordingly, in that situation your firm must scrupulously comply with the requirements of Rule 1.7, first by determining whether it reasonably believes it is able to carry forward both representations without adverse effect, and second by obtaining the required client consent after full disclosure and consultation.
Further, as was the case above, your firm must ensure against violations of Rule 1.6 concerning confidentiality of information4
and Rule 4.1 concerning truthfulness in statements to others.
In addition to the specific questions and situations analyzed above, the Committee notes that your inquiry raises again, and with pointed emphasis, the likelihood of potential violations of the rules governing conflict of interest and prohibited communications when a law firm operating as a department of, and its attorneys as employees of, an insurance carrier undertakes representation of one of the carrier's insureds. The Committee addressed this issue at length in Opinion 86-108
, which the Committee hereby reaffirms.5
Specifically, the Committee re-emphasizes the concluding language of that Opinion: Whenever in-house counsel undertakes to represent an insured, counsel should be vigilant in assuring that the interests of the insured are not subordinated to the interests of counsel's employer
- Your inquiry stated the situation in the past tense, but the Committee understands your inquiry to concern ongoing and future conduct as well.
- Rules 1.7 and 1.9 come into play because the WCA and the SUA must be viewed as essentially one lawyer. Comment, Rule 1.10 (imputed disqualification).
- The Committee understands that Worker's Compensation carriers typically calculate future premiums based on the insured's prior loss history. If that is not the case in any given instance, and loss history does not affect the Employer's upcoming premium, then it appears the Employer has no continuing interest in the results of BIC's effort to collect on the lien. Thus, the clients' interests in that situation could not be adverse.
- As to confidentiality of information, in both situations analyzed above there is danger that communications by the SUA and the WCA to personnel in BIC's Claims Department may be divulged improperly. This factor further emphasizes the Committee's view that caution is required.
- Opinion 86-108 turned on interpretation of the Code of Professional Responsibility, but the Committee sees no different result under the Rules of Professional Conduct. Cf., e.g., Rule 1.7(b)'s focus on the effect of the lawyer's own interests with EC 5-1, EC 5-2, EC 5-21, EC 5-23, DR 5-101.