Comment on issues created by triangular relationship and the appointment of independent counsel to represent an insured

The New York Personal Injury Law blog has a good short comment on the duties of an attorney hired by an insurance company to represent one of several insured parties involved in a medical malpractice claim.  The case scenario discussed in the comment is not too uncommon.  The plaintiff sued two physicians (and "attending" and a "resident") for injuries during a procedure but it is not clear which one of them actually caused the injury.  The both want to claim it was the other, but their actions are covered by one same insurance policy.  The insurance company assigns the case to two separate attorneys to represent each individual defendant separately.  Also, and again not unusual, the insurance company retains the right to agree to the terms of any settlement.  What happens when the insurance company wants to agree to a settlement that includes placing the blame on only one of the doctors?  How can it determine which one to blame and what are the rights of that doctor in the negotiating process?  What happens if the insurance company does not invite the attorney for one of the doctors to participate in the negotiation of a settlement?  These are some of the issues discussed.  You can read the comment here.

I think the comment is correct in the end - the bottom line being that the attorney assigned to represent the insured has a duty to demand to be part of all negotiations and a duty to defend the client's interests even if they are contrary to those of the insurance company.  The comment argues that even if the client does not have a financial interest at issue in the negotiation of the settlement, there are other interests at stake that require that he or she be represented fully.

I agree with the bottom line.  However, I think the comment is not entirely accurate in one small point.  It starts from the premise that the resident does not have a financial interest in the settlement negotiations "because the hospital has vicarious liability for its resident."   In other words, according to the premise, the insurance company justifies not inviting the attorney for the resident doctor to participate in the settlement process because the resident does not have to contribute to the settlement from her own funds," or because he or she "has no out-of-pocket responsibility to pay any part of the settlement amount."

It is true the resident doctor has no responsibility to contribute to the settlement amount, but that does not mean that he or she does not have a financial interest at stake.   It is not entirely correct to say that because there is vicarious liability, the resident does not have to contribute to the settlement.  The fact that there is vicarious liability allows the plaintiff to recover the full amount of compensation from the employer but it does not relieve the actor/tortfeasor from his or her liability to the employer.  The employer has the right to be indemnified in full.  The fact that employers rarely, if ever, decide to exercise that right does not mean the right does not exist.

Thus, unless the employer has agreed beforehand to waive the right to indemnity, the resident does have a duty to repay the employer for what the employer pays in the settlement.  And, for this reason, I would say that the resident can clearly argue that he or she does have a financial interest in participating in the negotiation. 

In other words, I agree there is duty on the attorney to represent the interests of the insured in the negotiation but that duty is based not only on the insured's personal interests but also on his or her financial interests at stake.

NOTE I posted this in my Professional Responsibility blog too.