Florida Business Litigation Update: Florida Appeals Court Requires Insurer to Provide Separate Counsel for Multiple Insureds Under Single Policy
In Univ. of Miami v. Great Am. Assur. Co., 38 Fla. L. Weekly D392 (Fla. 3d DCA 2013), Florida’s Third District Court of Appeals announced a ruling in a case of first impression that will have a substantial impact in Florida’s legal community. Specifically, the court held that where multiple defendants are covered by the same policy of insurance, the insurer must provide independent and separate counsel for each defendant. This decision should be called the Lawyer’s Employment Opportunity Act of 2013. A copy of the decision is available here.
The Univ. of Miami decision was unique because one of the defendants, MagiCamp, contractually agreed to indemnify University of Miami (“The U”) for any damages arising from the activity. Because of that indemnification, the insurer took the position that there could be no conflict. The U disagreed, retained its own counsel, and later sued the insurer for reimbursement of its fees and costs. The Third District agreed with The U, and found that “where both the insured and the additional insured have been sued, and the allegations claim that each is directly negligent for the injuries sustained, a conflict between the insured and the additional named insured exists that would require the insurer to provide separate and independent counsel for each.”
Still, the decision raises more questions than it answers. Many policies are “wasting policies,” meaning that the total amount of coverage declines for every dollar expended on litigation costs. Thus, what happens when there a lawsuit claiming damages of $1,000,000 filed against an entire Board of Directors consisting of 6 directors, where the aggregate limits of total insurance coverage of their “wasting” policy is for $1,500,000? In this situation, there are (at least) two competing conflicts: (i) one for representation where there exists the possibility of finger pointing amongst the directors, and (ii) another where every available dollar of coverage is expended for every dollar spent on lawyers. To exacerbate the conflict, what should the insurer do when all but one of the insured-defendants agree amongst themselves that only one lawyer should represent them (in order to conserve available insurance dollars), yet there exists one dissenting director who wants his/her own counsel? The questions are endless.
It is expressly because of the endless array of “conflict questions” that Judge Shepherd dissented. Judge Shepherd rationalized that the issue of “conflict” is not and should not be decided on the basis of insurance law; rather, it is a question of professional ethics. Explaining that there was no conflict-in-fact because there was no adversity between the co-insureds, Judge Shepherd noted, “A conflict of interest between jointly represented clients occurs whenever their common lawyer’s representation is rendered less effective by reason of his representation of the other. Furthermore, the difference in the potential for liability [between] two insureds, standing alone, does not necessarily result in an actual conflict of interest between them so far as their joint defense is concerned.” In other words, a hypothetical “paper conflict” is insufficient to mandate the engagement of separate counsel.
Recognizing the logic of Judge Shepherd’s dissent, the majority noted that the Univ. Of Miami holding does not reach or address “[c]onflicts created by coverage or policy limit issues [which are] not the issue in this appeal.” Id. at fn 5. But that only begs the question of when the insurer must retain independent counsel for multiple insureds?
The answer, respectfully, lies not within the terms of the insurance policy, but within the confines of the professional responsibility of defense counsel. Rule 4-1.7(a)(1) provides that “a lawyer shall not represent a client if the representation of 1 client will be directly adverse to another client; or (2) there is a substantial risk that the representation … will be limited by the lawyer’s responsibility to another client.” Thus, the counsel retained to represent MagiCamp and The U was obliged to stand up to the carrier and explain that he/she was ethically barred from representing both parties. Unless, of course, said counsel was not ethically barred in fact, thus underscoring the point that the alleged “conflict” was nothing more than a “paper conflict.”
In any event, what remains clear is that skilled counsel is necessary to engineer the defense strategy at the inception of the case. Defense issues ranging from insurability and coverage, as well as counter-maneuvers and tactics designed to undermine the plaintiff’s case-in-chief need to be vetted at the earliest opportunities. Otherwise, parties remain entrenched in lawsuits even after the underlying case is over.
The attorneys at Fuerst Ittleman David & Joseph have extensive experience in all areas of complex litigation, including international and domestic business matters, contract disputes, and insurance issues. Please contact us by email at firstname.lastname@example.org or telephone at 305.350.5690 with any questions.