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Montgomery County Judge Finds No Conflict of Interest Regarding Defense of an Insured Between Insurance Company and its Hired Attorney

In the court’s opinion of August 6, 2010, Judge Kent H. Albright refused to recognize a conflict of interest existing between Defendant-insurance company and its appointed attorney when Defendant invoked a reservation-of-rights clause to potentially limit the coverage provided in a defamation suit brought against Plaintiff-insured.

Upon being served with a complaint for a defamation action, of which included counts of punitive damages, Plaintiff submitted a copy to Defendant, her insurer. Because Plaintiff’s policy with Defendant excluded coverage for defamation, intentional acts, and punitive damages, Defendant issued to Plaintiff a notice reserving its right to provide coverage for these claims. Nevertheless, pursuant to its policy with Plaintiff, Defendant agreed to investigate the defamation lawsuit through its own appointed attorney. Concerned that Defendant’s reservations to provide coverage would create a conflict of interest between Defendant and the appointed attorney, Plaintiff retained her own private counsel and requested that Defendant pay for the respective legal services. When Defendant refused this request, Plaintiff brought suit against Defendant seeking both Declaratory Judgment and a Preliminary Injunction.

In her motion for a Preliminary Injunction, Plaintiff’s privately retained counsel acknowledged that there existed “no controlling Pennsylvania case law” on which to grant Plaintiff injunctive relief. Rather, counsel petitioned the court to create a new law regarding the alleged conflict of interest. The court denied this request, holding first that Plaintiff had failed to establish the “essential prerequisites” of a preliminary injunction set forth in Summit Towne Centre, Inc. v. Shoe Show of Rocky Mount, Inc., 828 A.2d 995, 1001 (Pa. 2003).

Citing to Canoe Rental Inc. v. Tinicum Twp., 110 F.R.D. 166, 170 (E.D. Pa. 1986), the court then added that no conflict of interest existed between Defendant and its appointed attorney, stating that “once engaged in an attorney-client relationship with the insurer’s insured, the lawyer is ethically bound to advocate exclusively on behalf of the insured client, regardless of who hires him or her or pays for the costs of the insured’s representation.” Despite Defendant’s control over the hiring and firing of its appointed counsel, the court further disclaimed the existence of a conflict, stating that Defendant did not exercise control over the “decision-making or judgments made” regarding Plaintiff’s defense. Finally, Plaintiff’s reliance on Pennsylvania Rule of Professional Conduct 1.7, which prohibits the representation of clients under concurrent conflicts of interest, was also found to be incorrect, since Plaintiff was found the sole client of Defendant’s appointed counsel.


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