Who does the attorney work for, the insured or the insurer?

Insurance Law Lawyers all know that in many instances an insurance company hires the attorney who represents a person or entity being sued. The issue comes up, “who does the attorney work for, the insured or the insurer?” A 1973, Texas Supreme Court case discusses this issue and is still good law. The style of the case is, Employers Casualty Company v. Tilley.
This is a declaratory judgment action.
Prior to filing the instant suit, Employers, secured a standard non-waiver agreement from Tilley and engaged an attorney to represent Tilley as his attorney in the Starky personal injury suit. For a period of nearly 18 months, the attorney not only performed such services for Tilley in defending against Starky, but he also performed services for Employers which were adverse to Tilley on the question of coverage. Tilley claimed that he had no knowledge of the Starky accident which occurred on November 25, 1967, until he was sued on September 19, 1969. This was his excuse for not notifying Employers before the suit was filed.
Knowing of Tilley’s contention, the attorney did not advise him of the apparent conflict of interest between Tilley and Employers. Instead, he continued to act as Tilley’s attorney while actively working against him in developing evidence for Employers on the coverage question. Such evidence subsequently became the basis for this suit, filed by another attorney for Employers against Tilley, seeking to deny coverage on the grounds of late notice.
Starky was an employee of Prudential Drilling Company at the time of his injury on a Prudential well site on November 25, 1967. Tilley, as an independent contractor was furnishing tools and employees for the lifting of casing pipe off a Prudential platform. Starky had tied the ‘catline’ to a casing pipe immediately prior to the pipe slipping and falling upon him, causing injuries which subsequently resulted in the loss of his right arm. It was Tilley’s equipment and crew which were lifting the pipe after it had been supposedly secured to the catline by Starky. Grady Fore was Tilley’s foreman in charge of the Tilley crew and operating the lift at the time the pipe slipped. He said the accident was due to the manner in which Starky tied the catline to the pipe rather than to the manner in which he lifted the pipe. It is undisputed that Fore knew of the occurrence, but it is disputed as to whether he or anyone else told Tilley of the accident or whether Tilley had actual notice of it before Starky filed suit against Tilley on September 19, 1969.
Employers concedes its coverage and duty to defend Tilley, unless as now contended in this suit, Tilley had actual or imputed knowledge of the accident when or soon after it occurred. If so, Employers contends that Tilley has lost coverage for failure to comply with the following provision of the policy:
‘4. INSURED’S DUTIES IN THE EVENT OF OCCURRENCE, CLAIM OR SUIT: (a) In the event of an occurrence, written notice, containing particulars sufficient to identify the insured and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and of available witnesses, shall be given by or for the insured to the company or any of its authorized agents as soon as practicable.’
While Employers alleges that Tilley had actual notice of the ‘occurrence’ soon after the accident in 1967, its motion for summary judgment was based solely upon undisputed proof that Tilley’s foreman, Grady Fore, was present and had knowledge of the occurrence on November 25, 1967; its contention that this knowledge was imputed to Tilley; and that failure of Tilley to give notice for 20 months was, as a matter of law, a breach of the notice provisions of the policy. Tilley raised a disputed issue of fact concerning Fore’s responsibilities and authority as an employee of Tilley; proved that the attorney selected by Employers, while representing Tilley in the personal injury case, developed the adverse evidence about Fore’s knowledge; and asserted that this and other adverse conduct created a waiver and estoppel against Employers as a matter of law.
This Court discussed the case and underlying facts and the law in this area and ultimately ruled, saying, under the policy in question the insurance company’s obligation to defend the insurer provides that the attorney to represent the insured is to be selected, employed and paid by the insurance company. Nevertheless, such attorney becomes the attorney of record and the legal representative of the insured, and as such he owes the insured the same type of unqualified loyalty as if he had been originally employed by the insured. If a conflict arises between the interests of the insurer and the insured, the attorney owes a duty to the insured to immediately advise him of the conflict. Earlier Court decisions state the attorney’s duty as follows:
When counsel are employed by the company they became the insureds unqualified attorneys of record, and as such they owed him the duty to conscientiously represent him, and if the point was reached where his interests and those of the company conflicted, the insured should be so informed and given the opportunity to protect himself.
The Code of Professional Responsibility deals specifically with conduct of a lawyer representing multiple clients with conflicting or potentially conflicting interests. Representation of ‘an insurer and his insured’ is mentioned among typically recurring situations involving potentially differing interests. Ethical Considerations say, In those instances in which a lawyer is justified in representing two or more clients having differing interests, it is nevertheless essential that each client be given the opportunity to evaluate his need for representation free of any potential conflict and to obtain other counsel if he so desires. Thus before a lawyer may represent multiple clients, he should explain fully to each client the implications of the common representation and should accept or continue employment only if the clients consent. If there are present other circumstances that might cause any of the multiple clients to question the undivided loyalty of the lawyer, he should also advise all of the clients of those circumstances.
The American Bar Association National Conference of Lawyers and Liability Insurers made a careful study of this recurring problem and issued a list of ‘Guiding Principles’ for the guidance of liability insurers furnishing legal counsel for their insureds. Two of the principles which are relevant here read in part as follows:
IV. CONFLICTS OF INTEREST GENERALLY–DUTIES OF ATTORNEY. In any claim or in any suit where the attorney selected by the company to defend the claim or action becomes aware of facts or information which indicate to him a question of coverage in the matter being defended or any other conflict of interest between the company and the insured with respect to the defense of the matter, the attorney should promptly inform both the company and the insured, preferably in writing, of the nature and extent of the conflicting interest. . . .
V. CONTINUATION BY ATTORNEY EVEN THOUGH THERE IS A CONFLICT OF INTERESTS. Where there is a question of coverage or other conflict of interest, the company and the attorney selected by the company to defend the claim or suit should not thereafter continue to defend the insured in the matter in question unless, after a full explanation of the coverage question, the insured acquiesces in the continuation of such defense . . ..