The 2008 Texas Supreme Court case Unauthorized Practice of Law Committee v. American Home Assurance Co. Inc., et al., declared that whether an insurer or insured is the client in insurance-defense cases is a contractual question. The opinion does not indicate what type of documentation attorneys need or what a lawyer’s best choice is when deciding who should qualify as the client. Here are some matters insurance-defense lawyers should address in contracts and engagement letters to avoid malpractice and ethical problems.
To whom the insurance-defense lawyer owes duties varies by state. In a majority of states the insurer and insured are the clients in typical insurance-defense matters where the insurance company has a contractual duty and right to choose defense counsel. The most extreme manifestation of this position, seen in California law, requires the insurer to hire one lawyer to represent the insurer and the insured and to hire another to represent the insured just on coverage issues. Other states have declared that only the insured can be the client, noting the high likelihood of conflicts of interest in the tripartite relationship. But in Texas, who is the client is a matter of contract.
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