SNR Denton on Weitz Co. v. Ohio Casualty Insurance Co.: Is an Insurer a Co-Client of Defense Counsel It Retains to Defend an Insured?

   By William T. Barker, Partner, SNR Denton

The Colorado federal district court in Weitz Co. v. Ohio Casualty Insurance Co. concluded that a Colorado liability insurer is not a client of defense counsel for its insured.  That was correct on the facts before the court and its decision on the issue before it (standing of insurer to bring malpractice claim against an insured's lawyer) was also correct (under the majority rule disallowing nonclient claims based on equitable subrogation).  But the dual-client issue is an important one and unsettled in Colorado.  This commentary examines that issue and questions the court's conclusion, as applied to more normal facts.

Weitz Co. was an insurance coverage action growing out of a construction defect suit.  A condo association was suing Weitz, which made claims over against certain subcontractors, including NPW Contracting.  Weitz was also an additional insured under NPW's policies with Ohio Casualty and Mountain States, and tendered the suit to them for defense.  They accepted the defense under reservation of rights.  Lottner was defense counsel for Weitz in the underlying suit, but no agreement was reached on the apportionment of its fees and the insurers had paid none of those fees.  Lottner also represented Weitz in filing the coverage action.  The insurers moved to disqualify, on the ground that Lottner represented them in the underlying action.  The court disagreed and denied the motion to disqualify.

The commentary states its thesis as follows:

If Weitz is correct about Colorado law, Colorado will have joined a fairly small minority of jurisdictions flatly precluding the insurer from being a client of defense counsel....  But none of the Colorado authorities offer any real analysis to support the supposed rule they state, and all of the cases involve peculiar facts where the result does not depend on whatever may be the rule in the usual run of cases.  A closer analysis suggests that Colorado should, and well might, adopt the majority rule in more ordinary cases.  To the extent the authorities seem to suggest otherwise, they are dicta and fail to take account of other relevant authorities and analysis.

The commentary analyzes the issue under the principles stated in the Restatement (Third) of the Law Governing Lawyers, at least some of which are accepted by Colorado law and none of the relevant ones rejected.  The commentary argues that:

Under [those] principles ..., which are widely accepted and supported by cogent analysis, defense counsel ordinarily represents both insurer and insured unless (a) either the insurer or defense counsel indicates that there will not be an attorney-client relationship or (b) the facts of the particular case create a conflict of interest precluding joint representation without informed consent.  This is the most common result reached by courts that have explicitly considered the issue.  Because the analysis is sound, Colorado ought to accept it.

The commentary then reviews the relevant Colorado authority, concluding that

General principles give strong reason to believe that defense counsel usually represents both insured and insurer, unless there is a conflict of interest affecting the defense.  Colorado case law and the bar opinions are, at worst, equivocal.  While the question is not free from doubt, it seems probable that, were the question properly presented, the Colorado courts would follow the general principles and join the strong majority of jurisdictions where that is the law.

William T. Barker is a partner in the Chicago office of SNR Denton, L.L.P., with a nationwide practice representing insurers in complex litigation, including matters relating to coverage, claims handling, sales practices, risk classification and selection, agent relationships, and regulatory matters. He is a member of the Editorial Board of the New Appleman on Insurance Law Library Edition and a Consulting Author of the New Appleman Insurance Law Practice Guide. He has published over 100 articles and speaks frequently on insurance and litigation subjects. He was a Contributing Editor and then Editor of Bad Faith Law Report until that publication merged with Insurance Litigation Reporter, where he is currently Senior Contributing Editor and Editorial Board Director. He has been described as the leading lawyer commentator on the connections between procedure and insurance. See Charles Silver & Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J. 255, 257 n.4 (1995). Mr. Barker is a member of the American Law Institute. Mr. Barker is the co- author of New Appleman Insurance Bad Faith Litigation, Second Edition.

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Download a free copy of the unenhanced version of the decision in Weitz Co., LLC v. Ohio Cas. Ins. Co., 2011 U.S. Dist. LEXIS 68801 (D. Colo. June 27, 2011).

Lexis.com subscribers can access the Lexis enhanced version of the decision with summary, headnotes, and Shepard's, Weitz Co., LLC v. Ohio Cas. Ins. Co., 2011 U.S. Dist. LEXIS 68801 (D. Colo. June 27, 2011).

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