The starting point will always be the terms of the insurance policy. However, it is necessary to consider the particular facts in each case within the framework provided by the common law and we highlight the key authorities below.
In TSB Bank v Robert Irving and Burns & Colonia Baltica Insurance [2000] the key issue before the Court of Appeal was whether an admission by a surveyor insured in a conference with counsel, which the insured believed was called to assist the defence of the claim against him, could be used by insurers to repudiate cover.
The court held that “one of the principal purposes of the conference as a whole was to elicit information to justify a repudiation of liability” and it was “clear beyond doubt that at the time [the jointly-retained solicitor] started the instructions to counsel there was an actual conflict”. It was of particular note that the instructions to counsel described the insured as someone “who may have the benefit of cover” and counsel was asked specifically “to consider again on behalf of underwriters their liability to indemnify”. As a result, “the privilege to which, but for the joint retainer, [insurers] would have otherwise been entitled did not extend to the communications made by [the insured] to [the jointly-retained solicitor] and Counsel at the conference…”.
However, the courts are aware that the situation must be workable if a solicitor is ever to accept a joint retainer. In Brown v Guardian Royal Exchange Assurance [1994] the insurer was entitled to reports as to everything that the jointly-retained solicitor had learned about the claim and was not limited to matters relevant to the claim against the solicitor, as opposed to the liability of the insurer. In that case, the solicitors were entitled to express to the insurers a view as to whether the solicitor insured had been “fraudulent, negligent or neither”, notwithstanding allegations of fraud were not pleaded but were relevant to coverage issues, as an intelligible report could not have been produced without such information.
It is somewhat inevitable that where a dispute arises between insurer and insured, the jointly-retained solicitor will need to give evidence on its assessment of the issue of conflict between insurer and insured. Recently in Zurich Professional v Karim & Others [2006] the court had to rule on whether the information passed to insurers by the jointly-retained solicitors during the course of the defence of the claim against the defendant could be relied upon by insurers — insurers were seeking a declaration that they were not liable to indemnify the defendant solicitors in relation to underlying claims which arose from “dishonesty or a fraudulent act or omission permitted or condoned by the insured”. Evidence that there was only a potential and not an actual conflict of interest at the relevant time, was accepted by the court.
Although the authorities are fact-dependent, a number of lessons can be discerned. A consistent theme is that an insured who is seen to be unfairly treated is likely to attract the court’s sympathy. However, insurers should not feel obliged to instruct separate solicitors for coverage and claims work as a matter of course. It should be possible for insurers to ask a retained solicitor who is unable due to conflict to advise on coverage issues, nevertheless to identify those issues on which insurers may require independent advice. However, as a corollary it is important that an insured is warned at an early stage if policy coverage is under review, and that all information and documents provided to the solicitor will be passed to the insurer. A warning after an admission is made is likely to be too late. Ultimately, if the interests of insurers and insured are deemed to actually, and not just potentially conflict, then information provided by insureds to jointly-retained solicitors could be privileged against insurers, and the insurer will not be able to use that material against the insured in any coverage dispute — this is what occurred in TSB.
While potential conflicts of interest are not always a problem, it is an issue that both insurers and the retained solicitors should be alive to, particularly where coverage is still in issue. However, provided that the insured is treated fairly, then insurers should be able to avoid a TSB-type situation arising.
Philip Murrin is a partner and Evi White an associate at Davies Arnold Cooper.