Conflicts of Interest Faced by Solicitors Instructed by Insurers to Conduct Litigation on Behalf of Insureds

Abstract

If an insurer pays on a claim for loss, either by the terms of the insurance contract itself or by virtue of its equitable right of subrogation, the insurer becomes entitled to stand in the shoes of the insured and pursue any person causing the loss. That may involve the insurer instructing solicitors to issue a proceeding in which the insured will be named as the plaintiff. The insured's co-operation is required by the terms of the insurance contract. Although remunerated by the insurer, the solicitors will be on the record as solicitors for the insured as the named plaintiff. In the course of conducting the litigation and, in particular, in the course of interviewing the insured, it may come to the solicitors' attention that the insurer did have grounds for rejecting the claim. In addition, the insured's lack of co-operation in the prosecution of the claim may amount to a breach of the insured's contractual obligation to assist. In such instances, conflicts of interest arise. In addition, where the policy provides for a deductible which is other than nominal, decisions made as to the conduct of the litigation, in particular, decisions relating to settlement of claims, may impact differently on insurer and insured and give rise to conflicts of interest. Part I of this article looks at conflicts faced by solicitors who, while acting for both insurer and insured, become aware of grounds upon which a claim under a policy could be rejected or, in the case of a claim which has already been accepted, could have been rejected. Part II examines a number of conflict problems which can arise in the conduct of litigation other than conflicts caused by the discovery of grounds for rejection.