June 2007

All too often lawyers in general practice who occasionally handle a car wreck case — and for that matter lawyers who handle car wreck cases all the time — think they can handle a motor carrier crash because "it’s just a big car wreck."  Until they have spent a year or two screwing up the case, they may fail to appreciate the complexities of Federal Motor Carrier Safety Regulations, the customs and technology in trucking, the methods for uncovering the rampant spoliation, destruction and falsification of evidence that we see in nearly every trucking case, the effect of rapid response teams swooping in on crash teams to control the evidence before the victim gets to the hospital, or the intransigent litigation conduct of trucking companies and their insurers.  Only then do many lawyers begin to appreciate the advantages of calling a trucking litigation specialist in the beginning.

Two decades ago Alabama adopted the Federal Motor Carrier Safety Regulations for intrastate trucking operations. Last week, the Alabama legislature voted to exempt most farm trucks from the regulations. My friend and co-counsel who is a member of the Alabama legislature voted for it.  It’s hardly a shock.  Georgia already did that.  However, if you are driving through Alabama and see a big farm truck coming, take care.

Insurance defense lawyers have a tough job when the value of a plaintiff’s case exceeds the amount of liability insurance coverage.

The tripartite relationship between insurer, insured and defense counsel is unique in the legal profession, variously described as “deeply and unavoidably vexing” and presenting an ethical dilemma that would “tax Socrates.”  See Charles Silver, Does Insurance Defense Counsel Represent the Company or the Insured?, 72 Tex. L. Rev. 1583, 1587 (1994);  Hartford Acc. & Indem. Co. v. Foster, 528 So.2d 255, 273 (Miss. 1988).  The insurance defense lawyer serves two masters – the insurer that hires him and controls the defense, and upon whose continuing good will he may depend for future business, and the insured client who did not choose him, will not pay him, and may never be in the position to refer him future business.  This presents inevitable ethical conflicts.  Nancy J. Moore, The Ethical Duties of Insurance Defense Lawyers: Are Special Solutions Required?, 4 Conn. Ins. L. J. 259 (1997-1998).

Generally, in the “tripartite relationship” of insurer, insured and defense attorney, insurance defense counsel may not subordinate the interest of either insurer or insured to the other.  If their interests come into conflict, defense counsel cannot ethically continue to represent either without making disclosure to both and refraining from taking sides with either against the other.  If there is a coverage dispute between the insurer and insured, defense counsel must not take either side.  See generally, Restatement (Third) of the Law Governing Lawyers § 215 (2000); Susan Randall, Managed Litigation and the Professional Obligations of Insurance Defense Lawyers, 51 Syracuse L. Rev. 1 (2001); Thomas D. Morgan, Whose Lawyer Are You Anyway?, 23 Wm. Mitchell L.Rev. 11 (1997); Douglas R. Richmond, Lost in the Eternal Triangle of Insurance Defense Ethics, 9 Geo. J. Legal Ethics 475 (1996); Charles Silver & Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L. J. 255 (1995); J. Kevin Owens, Wrestling with the Tar Baby: Ethical Obligations of Mississippi Insurance Defense Lawyers, 17 Miss. C. L. Rev. 359 (1997); Leo J. Jordan & Hilde E. Kahn, Ethical Issues Relating to Staff Counsel Representation of Insureds, 30 Tort & Ins. L. J. 25 (1994); Robert E. O’Malley, Ethics Principles for the Insurer, the Insured, and Defense Counsel: The Eternal Triangle Reformed, 66 Tul. L. Rev. 511 (1991).

Rule of Professional Conduct 1.2(4) provides that “[w]hen a lawyer has been retained by an insurer to represent an insured, the representation may be limited to matters covered by the insurance policy.”  However, the terms of an insurance policy may not limit the obligations owed by insurance company lawyers to insured clients, including the duty to inform the insured defendant of settlement offers and of the opportunity to settle within policy limits. See, e.g., Hartford Acc. & Indem. Co. v. Foster, 528 So.2d 255 (Miss. 1988).

The insurance company owes the insured a duty to use ordinary care and good faith in handling a claim against its insured.  See Smoot v. State Farm Mutual Automobile Insurance Co., 299 F.2d 525, 533 (5th Cir. 1962).  As Clarendon is well aware, it has a duty to give "at least equal consideration to the interests of the insured" and the "same faithful consideration it gives its own interest."  Southern General Insurance Company v. Holt, 200 Ga. App. 759, 409 S.E.2d 852 (1991);  Jones v. Southern Home Insurance Company, 135 Ga. App. 385, 217 S.E.2d 620 (1975); Great American Insurance Company v. Exum, 123, Ga. App. 515, 181 S.E.2d 704 (1971).  Even a negligent failure to compromise a claim may give rise to tort liability to the insured.  Delancy v. St. Paul Fire & Marine Ins. Co., 947 F.2d 1536 (11th Cir. 1991); Home Insurance Co. v. North River Insurance Co., 192 Ga. App. 551, 385 S.E.2d 736 (1989).  Failure to comply with a reasonable time limit for such settlement may also give rise to liability of a liability insurer for the full amount of a jury verdict in the underlying case.  Southern General Insurance Company v. Holt, 200 Ga. App. 759, 409 S.E.2d 852 (1991).  Here the only time limit was the return of the jury’s verdict.  See also, Kingsley v. State Farm Mut. Auto. Ins. Co., 353 F.Supp.2d 1242 (N.D.Ga. 2005); Ogle v. Nationwide Ins. Co. of America, 2006 WL 418148, *3+ (N.D.Ga. Feb 21, 2006) (NO. 1:04 CV 2802 GET).

Where the insurance company has refused to take advantage of opportunities to settle a claim within policy limits, the plaintiff wins a judgment for some multiple of the policy limits, and the insured is on the hook for the excess, the insurance defense lawyer should exercise great caution.  If the plaintiff’s attorney asks for contact information to communicate directly with the insured defendant’s corporate or coverage counsel regarding the insured’s interests vis-a-vis the insurance company, the insurance defense lawyer should either facilitate that communication or report a potential malpractice claim to his own legal malpractice insurance company.

Here’s another Georgia Rule of Professional Conduct that make need some revision.  Our Rule 4.3 differs from the ABA Model Rule 4.3 in ways that are well-intended but have unintended consequences.

ABA Model Rule 4.3 provides:

In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer’s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding. The lawyer shall not give legal advice to an unrepresented person, other than the advice to secure counsel, if the lawyer knows or reasonably should know that the interests of such a person are or have a reasonable possibility of being in conflict with the interests of the client.

In 2002, the ABA added the last sentence ("The lawyer shall not give legal advice…") to the rule. Before the 2002 amendments a similar prohibition had been part of the comment rather than the rule itself, and it had been absolute. In the amended version of the rule, advice-giving is prohibited only if the unrepresented person’s interests may conflict with the client’s interests.

Georgia Rule of Professional Conduct  4.3 adds a paragraph that, according to my cursory research, has not been adopted in any other states:

In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not:
(a) state or imply that the lawyer is disinterested; when the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer’s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding;
(b) give advice other than the advice to secure counsel; and
(c) initiate any contact with a potentially adverse party in a matter concerning personal injury or wrongful death or otherwise related to an accident or disaster involving the person to whom the contact is addressed or a relative of that person, unless the accident or disaster occurred more than 30 days prior to the contact.
The maximum penalty for a violation of this Rule is disbarment.

Paragraph (c) was probably intended to protect injury victims from overreaching by lawyers on the defense side.  However, it does not protect injury victims from non-lawyer adjusters and investigators working for insurance companies and risk management offices of corporations, who are the people most likely to contact them for an adverse party. As a practical matter, it is only attorneys retained by (or for) injury victims and their families who are restrained by this rule. This rule prohibits the victims’ lawyers from contacting an adverse party within 30 days to request insurance coverage information, put the putative defendant on notice  to preserve evidence, or to take a statement.

Rule 4.3 should be amended to provide a level playing field.  Perhaps that can be done by making the 30-day waiting period more even-handed in light of the practical realities.  A simpler approach would be to just adopt the 2002 version of the Model Rule.

The Fulton County Daily Report today reports on a rule change to allow assignment of cases to the Business Case Division without consent of all parties.  Having had a small role in this, I can’t resist the temptation to write about it.

The "Business Court" idea developed several years ago when the big banks took their major business litigation among themselves to North Carolina, which already had a statewide Business Court.  The idea was that a specialized court without the burden of routine criminal, domestic, tort and small business litigation could more efficiently handle larger business cases.  My friend Ray Fortin, general counsel at Suntrust, spearheaded the effort and educated me about it in the back of the room at Boy Scout meetings while our sons (both of whom made Eagle this year) were otherwise engaged.

While the Fulton County Superior Court proceeded with its pilot project Business Case Division, cases could be assigned only with consent of the parties.  If one party suggested transfer to that division, all too often the other party was suspicious and resisted. Last year, the judges proposed a rule change to allow assignment of business cases without consent of all parties, but did not touch base with some of the bar sections that could have been concerned.  The Supreme Court wanted the rule change to go before the State Bar Board of Governors before acting upon the proposal.  When it came up in January, the stuff hit the fan because the rule, as worded, could have allowed assignment of some products liability and consumer cases to the Business Case Division.

When we got to Savannah for the January meeting of the Board of Governors, the Superior Court was under time pressure to get the rule change in a hurry due to a deadline on renewal of a grant to pay staff.  My friends in the plaintiffs’ bar were up in arms about the potential for the Business Court to become a graveyard for products and consumer cases.  I quickly cobbled together a proposed amendment to exclude non-consensual assignment of cases involving claims for personal injury, wrongful death, employment discrimination and consumer claims under $1 million.  

It was a strange day as I huddled with the corporate counsel of a major corporation and a business litigator from one of the megafirms, and stood up to argue the opposite side of the debate from my good friends in the plaintiffs’ bar.  The motion was tabled that day because board members did not like the fact that the proposal had not been submitted in advance to any bar sections other than the corporate folks.

Soon thereafter, the chief judge met with the president of Georgia Trial Lawyers Association and me to iron out the glitches.  At our suggestion, the court submitted the rule change for comment by every bar section and bar-related organization that could possibly have had any interest in it.  The rule change was approved at the April meeting of the Board of Governors, which I was unable to attend due to a family medical situation out of state, and now has been approved by the Supreme Court.

The final rule includes the language I drafted in Savannah on a Friday night  in January, with just a little polishing of the "consumer claims" provision, as follows:

(b) Notwithstanding anything contained herein to the contrary, cases that include the following claims shall not be classified as a Business Case without the consent of all parties:

(i) Personal injury;

(ii) Wrongful death;

(iii) Employment discrimination; and

(iv) Consumer claims in which each individual plaintiff’s claims are in the aggregate less than $1,000,000.

A rash of recent news stories about dangerously defective products from China points to the need to amend a tort reform law that was passed in Georgia twenty years ago. In 1987, long before so much manufacturing was outsourced to China, the Georgia General Assembly passed OCGA 51-1-11.1, which provides:

(a) As used in this Code section, the term "product seller" means a person who, in the course of a business conducted for the purpose leases or sells and distributes; installs; prepares; blends; packages; labels; markets; or assembles pursuant to a manufacturer’s plan, intention, design, specifications, or formulation; or repairs; maintains; or otherwise is involved in placing a product in the stream of commerce. This definition does not include a manufacturer which, because of certain activities, may additionally be included within all or a portion of the definition of a product seller.

(b) For purposes of a product liability action based in whole or in part on the doctrine of strict liability in tort, a product seller is not a manufacturer as provided in Code Section 51-1-11 and is not liable as such.

(c) Nothing contained in this Code section shall be construed to grant a cause of action in strict liability in tort or any other legal theory or to affect the right of any person to seek and obtain indemnity or contribution.

The legislators back in 1987 were probably thinking about protecting "mom and pop" retailers from liability due to defects in products as to which they had no influence or control.  It is extremely unlikely that they had in mind a gargantuan retail chain with the power to dictate product specifications and outsource the bulk of American manufacturing to China.

Before passage of this statute, Georgia law recognized the doctrine of "ostensible manufacturer" whereby a company that puts its label on a product manufactured by another company was held responsible for the product as if it were the actual manufacturer.   Courts later determined that this statute abolished the "ostensible manufacturer" doctrine in Georgia.

The situation now is that a huge percentage of manufacturing has been outsourced to China. While it is theoretically possible to sue a Chinese manufacturer, as a practical matter it enormously difficult, expensive and unrewarding to seek to hold a Chinese manufacturer fully accountable. With no feasible opportunity to seek compensation from the "ostensible manufacturer" that puts its label on a product imported from China, or to sue a "product seller"  such as Wal-Mart that dictates specifications and imports vast quantities of cheap products from China, Georgians have no practical recourse for injury or death caused by defective Chinese products.

At minimum, OCGA 51-1-11.1 should be amended to provide an exception where the product seller puts its own label on a product manufactured by another company, or sells imports that were manufactured upon its order.  If there are unreasonable risks associated with products manufactured in China, all that risk should not fall upon the American consumer.  I haven’t worked out the wording of such an amendment, and of course the devil is in the details.