Professional Negligence - Watch your step.

(From Post Magazine)

Solicitors in insurance litigation are required to understand the scope and nature of the tri-partite relationship that emerges in acting for both the insurer and the insured. This applies not only at the outset of accepting instructions, but throughout the term of the retainer. Any potential conflict of interest can, therefore, be identified and managed appropriately.

It is common for the solicitor to have received his initial instructions from the insurer, and if from a panel firm the solicitor may have a strong working relationship with the insurer, which introduces a risk that the solicitor may be inclined to take the insurer's side where a conflict arises.

However, this ignores the usual position - that the solicitor is jointly instructed by the insurer and the insured - and the fact that in most cases the litigation will be carried out in the insured's name. This may have greater repercussions for the insured than simply the outcome of the particular case.

New rules regulating conflicts of interest, introduced last April by the Law Society, permit solicitors to act for more than one client where the clients have a common objective and the areas of conflict are substantially less important to all the clients than the common interest. The agreement of all clients must be in writing, which in the context of insurer/insured clients, may be recorded in the insurance policy.

Make the facts clear

Solicitors should send the insured a retainer letter, which sets out clearly the nature of their acting on behalf of the insured, to enable them to continue to act for both. If the solicitors are instructed to advise on policy response and coverage, or if a reservation of rights is in place, the retainer letter should make this clear. The insured should then be kept informed of the instructions received from insurers throughout the retainer.