As most readers know, the tripartite relationship refers to the association among the insurer, the insured, and defense counsel in the standard insurance defense arrangement. While the tripartite relationship is common to all areas of insurance defense, the nature of workers’ compensation shields practitioners from some of its problematic variations. For example, because workers’ compensation policies generally cover all statutory liability, lawyers are insulated from having to deal with ethical challenges related to punitive damages or verdicts in excess of coverage.
Still, workers’ compensation lawyers deal with the tripartite relationship and many of the ethical challenges that come with it. In most jurisdictions, a lawyer who accepts the defense of a workers’ compensation matter takes on the concurrent representation of two clients: the insurer and the insured. Generally, this concurrent representation is not problematic because the interests of both the insurer and the insured are aligned. But what happens when those interests are not aligned?
Insured as Claimant
Suppose the insured is a self-employed individual who has workers’ compensation coverage and is claiming an injury disputed by the insurer. In that situation, the interests of the insurer (who wants the claim denied) and those of the insured (who wants the claim accepted) are diametrically opposed. What is the lawyer to do?
An argument can be made that this situation calls for the appointment of independent counsel to represent the insured. After all, how can one lawyer ethically represent two clients with conflicting interests? In my experience, though, that seldom happens. Too often, a single lawyer will continue to represent both the insurer and the insured, despite his clients’ divergent interests.
This begs the question as to why a lawyer would willingly tread on such ethically treacherous ground. Some lawyers may fundamentally misunderstand who they are representing. I have heard lawyers say that when they represent both the insurer and the insured, the insured is their “primary” client. The trouble with this line of thinking is that it relegates the insurer to the status of a “less than primary” client. Lawyers owe every client—including those they are representing concurrently—a full measure of ethical and fiduciary compliance.
Another potential explanation is that the lawyer may have fallen into the habit of treating the insurer (often a source of repeat business) as the client, viewing the insured only through the prism of the insurer’s interests. The risk of this ethical trap is particularly acute for lawyers whose book of business comes primarily from a particular insurer.
Whatever the reason, lawyers who subordinate the interests of one client to those of another client (or their own self-interest) do so at their ethical peril.
Last Exposure Rule
Workers’ compensation statutes commonly contain “last exposure rule” provisions to assign liability for conditions involving long-term exposure or repetitive trauma. In many last exposure rule cases—carpal tunnel and asbestosis are classic examples—it is undisputed that the claimant has a compensable injury, but the claimant’s work history includes work for multiple employers over a long exposure period. Standard defense practice is for each employer/insurer to deny compensability, pointing the finger at someone else until the matter is litigated.
For a defense lawyer concurrently representing an insurer and an insured in this situation, are the interests of both aligned? The insurer almost certainly supports the denial. Though the delay in treatment may increase the indemnity cost of the claim, it is a small risk compared with the opportunity to evade liability.
The calculus for the insured currently employing the claimant may be very different, however. One of their employees having submitted a valid claim, the insured may well prefer that the claim be accepted so that the employee can be treated and returned to productivity as quickly as possible.
Fortunately, the problems in this scenario can be resolved with a bit of creative and collaborative lawyering. Many times, the various defense counsel can agree for one defendant to provide treatment and temporary benefits (usually the claimant’s current employer), subject to reimbursement if another defendant is later found to be the responsible party.
While the tripartite relationship can create some ethical dilemmas, most can be avoided with a little forethought.
Know what client(s) you are representing. This seems elemental, but I have met lawyers who don’t seem to know if they practice in a “dual-client” state where they represent both the insurer and the insured, or one of the few “single-client” states where their only client is the insured. There are many sources for this information; a good one is Insurance Practices and Coverage in Liability Defense, Second Edition by John S. Pierce, et. al. (Aspen Press 2013), which includes a state-by-state appendix.
Train your brain. If you are in a “dual client” state, think carefully about the issues in your case from the standpoint of both the insurer and the insured. It is easy (and dangerous) to fall into the habit of thinking only in terms of one or the other.
Don’t be afraid to speak up. If the interests of the insurer and the insured are not aligned, take appropriate action—even if that action is not welcomed by the insurer. Being ethical is more important than being popular.
In the vast majority of cases, the tripartite relationship causes no problems because the interests of the insurer and the insured are aligned. In the rare instance that those interests are not aligned, knowing and following the ethical rules can keep the tripartite relationship from becoming an unholy alliance.