Friday, August 19, 2011

Is There a Conflict of Interest When a CD Defense Attorney Becomes Coverage Counsel Post-Litigation?


In Weitz Co., LLC v. Ohio Cas. Ins. Co., the U.S. District Court for the District of Colorado was asked to rule on a motion to disqualify counsel in an insurance coverage action. 11-CV-00694-REB-BNB, 2011 WL 2535040 (D. Colo. June 27, 2011). Motions to disqualify counsel are viewed with suspicion, as courts “must guard against the possibility that disqualification is sought to ‘secure a tactical advantage in the proceedings.’” Id. at *2 (citing Religious Technology Center v. F.A.C.T. Net, Inc., 945 F. Supp. 1470, 1473 (D. Colo. 1996).

Weitz Company, LLC (“Weitz”) is a general contractor and defendant in an underlying construction defect suit which had concluded before the action bringing rise to this order. In the underlying action, Weitz made third-party claims against subcontractors, including NPW Contracting (“NPW”). Weitz was listed as an additional insured under NPW’s policies with both Ohio Casualty Insurance Company and Mountain States Mutual Casualty Company (collectively “the Carriers”). The Carriers accepted Weitz’s tender of defense under a reservation of rights. However, neither insurance carrier actually contributed to Weitz’s defense costs in the underlying action. At the conclusion of the construction defect action, the parties unsuccessfully attempted to apportion the attorney’s fees and costs. Eventually, Weitz brought suit against the recalcitrant carriers. The Lottner firm, which had previously represented Weitz in the underlying construction defect action, continued to represent Weitz in this coverage action. The Carriers moved to disqualify the Lottner firm, alleging the firm had a conflict of interest and that the attorneys were necessary witnesses.

Conflict of Interest Claim

As the basis for its conflict of interest claims, the Carriers claimed that the Lottner firm had violated Rule 1.7 of the Colorado Rules of Professional Conduct (“RPC”). Rule 1.7 addresses concurrent conflicts of interest. The Carriers first argued that the Lottner firm had an attorney-client relationship not only with the Weitz, but also with the Carriers. The court was not persuaded. Citing Colorado Ethics Opinions 91 and 43, and other Colorado courts’ interpretations of them, the Weitz Court held that there is no attorney-client relationship with the insurance carrier, only the insured.

The Carriers also argued that the Lottner firm could not represent Weitz in both the underlying construction defect action and this coverage action because of Colorado Ethics Opinion 91 states:

One area where significant problems may arise is when a lawyer is asked to both render a coverage opinion and to defend an insured in the tort case. The lawyer cannot ethically perform both services at the same time, since the insured’s representation may be materially limited by the lawyer’s responsibility to the carrier.

Again, the court was not persuaded. Whether a coverage question creates a conflict of interest creates a conflict of interest depends on an assessment of the facts of each particular case.” Id. at *5 (citing Colorado Ethics Opinion 91). The court explained that although it is not permissible for a lawyer to analyze coverage and simultaneously or later defend an insured in a tort case; that is not the same situation here. Because the Lottner firm had defended the construction defect action before analyzing coverage, and had not acted to “exploit the attorney-client privilege in order to build a case for non-coverage,” the firm had no conflict of interest. Id.

Necessary Witness Claim

The Carriers’ last argument for disqualification of the Lottner firm was that the lawyers of the firm were necessary witnesses at trial. Colorado Rule of Professional Conduct 3.7 (“Rule 3.7) prohibits a lawyer from serving as both advocate and witness. To be called at trial, the calling party has the burden to prove that the proposed attorney testimony is “necessary” at trial. “A lawyer is likely to be necessary where the proposed testimony is relevant, material, not merely cumulative, and unobtainable elsewhere.” Id. at *6 (quoting World Youth Day, Inc. v. Famous Artists Merchandising Exchange, Inc., 866 F. Supp. 1297, 1302 (D. Colo. 1994). The Carriers argued that all lawyers at the Lottner firm were necessary because they “are the only fact witnesses who can testify regarding [Weitz’s] demands for coverage, their pursuit of coverage, and Mountain States’ and Ohio Casualty’s response to such demands and pursuit.”

The court was not persuaded that other fact witnesses could not testify regarding the proposed testimony. The court found that the Lottner firm’s associate counsel, the Carriers, and the Carriers’ coverage counsel could testify to Weitz’s demands. Therefore, at the time of the order, the attorneys at the Lottner firm were not necessary witnesses. The court then added:

Of course, the continued participation of the Lottner firm in this action as trial counsel precludes its later participation as witnesses. Thus, although I find the Lottner firm lawyers are not necessary witnesses, if there is any possibility that Weitz will call them to testify, they must step aside now as trial counsel.

Although not an issue here, unfortunately, several Colorado attorneys have sought to improperly call themselves as factual or expert witnesses for which they are also acting trial counsel in recent years. The underlying reasons that gave rise to Rule 3.7’s bar on this type of testimony are numerous and beyond the scope of this blog post.[1] Hopefully this recent case further clarifies this issue.

The attorney who drafted this entry is no longer with the firm. For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com
 

[1] See Williams v. Dist. Court, El Paso County., 700 P.2d 549, 553 (Colo. 1985); Merrill Lynch Bus. Fin. Services, Inc. v. Nudell, 239 F. Supp. 2d 1170, 1173 (D. Colo. 2003); Fed. Deposit Ins. Corp. v. Sierra Res., Inc., 682 F. Supp. 1167, 1170 (D. Colo. 1987).

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