It is common for lawyers to work as defense counsel for clients whose legal fees are being paid by an insurance company as a result of an insurance policy. In those situations, the relationship between an insured, their defense counsel and their insurer is called the tripartite relationship, reflecting the fact that the client, the lawyer and the insurer are part of the same team.

Stepping into this occasionally misunderstood three-way relationship requires navigation of some key considerations, including an understanding of the applicable Rules of Professional Conduct as well as of the roles or obligations of the parties. Defense counsel may also have obligations with regard to the insured’s obligations under the policy. From a business perspective, it is important for defense counsel to support the insurer-insured relationship to ensure that the insured complies with its obligations and continues to receive a defense. From an ethical perspective, how the lawyer interacts with the insurance company can create risk for the client if the lawyer does not support the insured’s obligations.

Below are some tips for defense counsel working with an insurance company.

Remember the Tripartite Relationship

The tripartite relationship involves the insured, defense counsel, and the insurer. The insured is the client, defense counsel represents the client, and the insurer generally has a contractual right to participate in and/or to control the defense. The Rules of Professional Conduct establish that a lawyer’s primary obligations are to the client: the insured. This includes the duty of confidentiality and of keeping the insured informed throughout the representation.

Notably, although having a third party involved in otherwise privileged communications would typically break the privilege, the rules and case law generally allow for the insurer’s participation in such privileged communications without waiving privilege. See FRCP 26(b)(3) (“Ordinarily, a party may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent).”). Accordingly, the insurer often participates in conversations related to strategy and matters involving the defense without putting the privilege at risk.

Indeed, as often provided for in the policy’s terms, insurers have a right to ask the insured and counsel to keep them reasonably involved in the overall strategy and decision-making related to the defense.

Comply With the Policy’s Terms

Typically, an insurance policy’s terms will provide instructions to which the insured, and therefore counsel, must adhere. For example, policies typically include the duty of cooperation. This requires an insured, for example, to provide information to the insurer and to cooperate in the ongoing claim; if defense counsel refuses or fails to act in compliance with the insured’s duty of cooperation, that can put coverage at risk.

For example, an insured and its counsel should keep the insurer updated on the key strategies of the case. This allows the insurer to properly control the defense of the case in a matter consistent with the terms of the policy. This typically includes providing summaries of court hearings, depositions, case management meetings and other routine events in a litigation that shape where the case may be headed.

Defense counsel also may be required to provide the insurer with any information requested in support of the insurer’s ongoing investigation into the claim or assessment of the risk. Notably, defense counsel typically should not advise the client on issues relating to insurance coverage; coverage disputes are handled separately to avoid a conflict of interest. However, to the extent that defense counsel must assist the insured in providing necessary documentation and information to the insurer, that also helps avoid disputes over whether the insured is meeting their obligations to the insurer (and vice versa).

Keep Both Parties Informed

Rule 1.4 of the Rules of Professional Conduct establishes a lawyer’s duty to keep their client informed about matters pertaining to the representation. Thus, even though the insurer may control the defense, the insured, as the client, must also remain informed.

It is also important for defense counsel to remember the obligations—both ethical and contractual—to keep the insurer apprised of pertinent information. Generally speaking, the lawyer should ensure that both parties have access to the information that they need for decision-making. While the client is the ultimate decisionmaker on many strategic points, the insurer has a right to weigh in on any issues that might ultimately impact the defense and indemnity obligations. Thus, both parties play a key role in the ongoing litigation.

If defense counsel has not been communicating fully with the insurer or providing the insurer with sufficient information to allow it to assess the likelihood of success or risk, defense counsel’s conduct could result in a scenario in which the insurer is not able to fully participate in settlement or commit to a resolution. In that event, a settlement opportunity could be lost because the insurer has not received enough information to allow them to participate. Then, the defense counsel could face a claim from the client arguing that the counsel negatively impacted the client’s ability to successfully resolve a claim by failing to keep the insurer sufficiently apprised.

In the event of a coverage dispute, defense counsel is typically not permitted to withhold important litigation-related information from the client or the insurer. Indeed, defense counsel’s failure to keep the insurer properly informed as to the risks and developments of the litigation may lead to the insurer to terminate the defense for violation of policy terms. Such a failure on defense counsel’s part may leave the client in a worse position—and could lead to a claim of professional negligence.

One way to ease potential confusion or tension is to simply ask the insurance company’s representative what their expectations are in terms of content and frequency of communications. By being aware of the obligations defense counsel has to both the insurer and the insured, counsel can help ensure a smooth relationship for the life of the litigation.