Dual Retainers and Conflicts of Interest: Acting for Insurers And Insureds

In Short

  • To avoid a conflict situation, it is best to:
    • Give clear instructions to the lawyer as to whether indemnity and/or defence advice is required
    • Ensure the lawyer clearly sets out the basis of their retainer and states whether they are advising on indemnity, and whether the insured’s documents will be passed to the insurer
    • Promptly inform the client of changing instructions which require a fresh assessment of whether a conflict exists
    • Be open with your clients if a potential conflict arises and obtain informed consent to for the lawyer to continue to act


A claim is made against an insured, who turns to its insurer for cover.  The insurer instructs a lawyer to act in the defence of the claim.  Normally this tri-partite relationship works well, because there is a common interest in defeating the claim or reducing the damage.  However, tensions can arise due to the differing interests and obligations of the parties.

It is useful for us to remind ourselves of the legal principles which underpin the relationship between the insurer, the insured and the lawyer when the lawyer is instructed under a joint retainer.  This article discusses those principles and explains how conflicts of interests can be mitigated.

Rule 6.1 Lawyers Conduct and Client Care Rules 2008

Rule 6.1 permits a lawyer to act for more than one client on a matter provided the risk of a conflict is negligible.  It provides (our emphasis):

A lawyer must not act for more than one client on a matter where there is a more than negligible risk that the lawyer may be unable to discharge the obligations owed to one or more of the clients.

Rule 6.1 prohibits a lawyer from acting for more than one client where there is a more than negligible risk that the lawyer may be unable to discharge the obligations owed to one or more of the clients.

In AC v BT, the Legal Complaints Review Office (LCRO) said:1

The threshold ‘a more than negligible’ risk is very low.  A negligible risk has been described in a decision of this Office as circumstances where there is ‘no meaningful risk that the obligations to the parties would not be able to be fulfilled’.  Conversely, a more than negligible risk is ‘a real risk of an actual conflict of interest’.2

Under Rule 6.1.3 a conflict of interest can be waived provided there is informed consent.  This requires both clients to agree to the lawyer continuing to act, after each has received independent legal advice, and provided that no duties to the consenting clients have been breached.

Below are two cases which demonstrate how conflicts can arise.

Conflicts and Confidentiality:Information imparted to the lawyer relevant to indemnity

In Nicholson v Icepak Coolstores Ltd, the lawyer appointed by the insurer to act for the insurer and the insured was found to have conflicting duties of disclosure and confidence.3

In brief, Icepak had stored Nashi pears in its cool stores.  The pears were damaged whilst in storage.  The growers of the pears made a claim against Icepak.  It had public liability insurance with State Insurance.  State agreed to indemnify Icepak and appointed lawyers to act.

The growers commenced proceedings.  The lawyer received briefs from the growers suggesting that Icepak’s director had made false statements to him, and the director had made admissions to the growers.  Acting on the lawyer’s advice, State then declined indemnity on the basis that the disclosures breached a policy condition.

The High Court had to determine the admissibility of the lawyer’s intended evidence in the proceedings.  Icepak maintained there was a solicitor/client relationship between the lawyer and Icepak which meant their communications were privileged.

The Court found that the information Icepak supplied to the lawyer was given in confidence.  This was notwithstanding the contractual policy obligation imposed on Icepak to “give all such information and assistance that State may require”.  It held that the policy provisions that gave State control of the litigation and the right to information were arrangements between State and Icepak for State’s benefit.  However, importantly, they did not constitute a contractual obligation enforceable by the lawyers against Icepak.  The lawyers still had to secure Icepak’s agreement to waive its duty of confidentiality which arose on their appointment.

Unsatisfactory Conduct:Acting Under a Joint Retainer and Providing Separate Indemnity Advice

In AB v CD, the LCRO upheld a Standards Committee’s determination of unsatisfactory conduct arising from a conflict of interest in breach of Rule 6.1.1.  The lawyer (who specialised in insurance litigation) was acting under a joint retainer for the insured and insurer in the defence of a third-party claim and provided separate indemnity advice to the insurer.4

The insurer instructed the lawyer to act for both insured and insurer in the defence of a third-party claim.  The lawyer took instructions from the insured and prepared a statement of defence.  The insurer then asked the lawyer to advise it on indemnity.  After considering the available information, including the insured’s instructions, the lawyer advised the insurer that it had grounds to decline indemnity.  Acting on that advice, the insurer declined the claim.

The insured, unaware that the lawyer had provided advice to the insurer on indemnity, instructed the lawyer to represent him to defend the proceeding and to challenge the insurer’s decision on indemnity.  The lawyer then advised the insured that he could not provide advice on the indemnity issues because he had originally been instructed by the insurer.  He did not advise the insured that the insurer had declined cover after receiving the lawyer’s indemnity advice.  When the insured found out, he complained to the Law Society.

The LCRO found that a more than negligible risk of conflict arose at the point that the insurer asked for advice on indemnity making the following findings:

…It is not always the case that a lawyer cannot act for an insurer and insured.  The distinguishing features of the present facts are that [the insurer] had not decided whether it would indemnify [the insured] or not, and it wanted [the lawyer] to use all the information at its disposal to provide it with advice on that.

The LCRO held there was a more than negligible risk that the lawyer may have been unable to discharge the duties owed to both insurer and insured.  A dispute between them as to indemnity was likely and foreseeable.  When the insurer asked for advice on indemnity, there was a more than negligible risk that the lawyer would be unable to discharge his/her obligations to both clients.  The insured’s interests in being indemnified would not be met if the lawyer formed the opinion that the insurer had grounds to decline cover.

The lawyer had not made it clear from the outset of the retainer the basis on which they had been instructed.  The lawyer could have and should have clarified with the insurer whether it wanted advice on indemnity from the outset.

Concluding Comments & Suggestions for Minimising & Resolving Conflicts

As the Icepack decision demonstrates, if the interests of insurers and insureds do conflict, information provided by insureds to jointly retained lawyers could be privileged against insurers.  Although most insurance policies require the insured to provide information to the insurer, Icepack establishes that such clauses do not affect the lawyer/client relationship.  This may mean the insurer will be prevented from using information provided by the insured relevant to policy coverage against the insured in any indemnity dispute.

This can be mitigated by an express term in the lawyer’s retainer with the insured from the outset which permits the lawyer to disclose confidential information relevant to policy coverage to the insurer.

AB v CD demonstrates the need for insurers to be mindful of conflicts.  If at the outset it is obvious that there are policy coverage issues, insurers should consider appointing separate coverage counsel.  If there are no policy issues, then appointing counsel to assist with the defence of the claim and, at the same time, undertake the initial investigation and report to insurers on policy coverage is acceptable as long as the insured knows the basis on which the instructions are being carried out for both parties.

For any further information regarding this please contact Darren Turnbull

  1. AC v BT LCRO 143/2017
  2. Sandy v Kahn LCRO 181/2009 (25 December 2009) at [27], [36].  In this context, the word “negligible” which is not defined in either the Act of the Conduct Rules, means “unworthy of notice or regard; so small or insignificant as to be ignorable”.
  3. Nicholson v Icepak Coolstores Ltd [1999] 3 NZLR 475
  4. AB v CD LCRO 332/2013

This publication is intended as a general overview and discussion of the content dealt with. It should not be used in any specific situation, in which case you should seek specific legal advice.