(1) The attorney hired by the insurance company to defend in an action against the insured owes fiduciary duties to two clients: the insurer and the insured. ( Lysick v. Walcom (1968) 258 Cal.App.2d 136, 146 [ 65 Cal.Rptr. 406, 28 A.L.R.3d 368]; Purdy v. Pacific Automobile Ins. Co. (1984) 157 Cal.App.3d 59, 76 [ 203 Cal.Rptr. 524].) It is a well accepted and oft repeated principle that the attorney retained by the insurance company for the purpose of defending the insured under the insurance policy owes the same duties to the insured as if the insured had hired the attorney him or herself.
his theory, see Smith v State Farm Mutual Automobile Ins Co, 278 F. Supp. 405 (ED Tenn, 1968); Davis v Nat'l Grange Ins Co, 281 F. Supp. 998 (ED Va, 1968); Shapiro v Allstate Ins Co, 44 FRD 429 (ED Pa, 1968); Herges v Western Casualty Surety Co, 408 F.2d 1157 (CA 8, 1969) (bad faith); Liberty Mutual Ins Co v Davis, 412 F.2d 475 (CA 5, 1969) (failure to exercise good faith); Bush v Allstate Ins Co, 425 F.2d 393 (CA 5, 1970), cert den 400 U.S. 833 (1970), reh den 400 U.S. 985 (1970); Luke v American Family Mutual Ins Co, 325 F. Supp. 1330 (D SD, 1971), judgment aff'd in part and rev'd in part 476 F.2d 1015 (CA 8, 1972) (under South Dakota law, an insurance company may conduct itself in such a manner as to be held liable for damages in excess of the policy limits); United Services Automobile Ass'n v Glens Falls Ins Co, 350 F. Supp. 869 (D Conn, 1972) (damages may extend to the entire amount of the judgment entered against insured, even if it is in excess of policy limits). The court in Purdy v Pacific Automobile Ins Co, 157 Cal.App.3d 59, 74; 203 Cal.Rptr. 524 (1984), expressed the deterioration of the minority viewpoint: The "prepayment rule" has in fact been relegated to the past in a majority of American jurisdictions, due primarily to the perceived inequity of an insurer's being permitted to capitalize on the weakened financial condition of the insured.
This includes "all claims that could reasonably be regarded as having roots in the prebankruptcy past. [Citations.]" ( Purdy v. Pacific Automobile Ins. Co. (1984) 157 Cal.App.3d 59, 72 [ 203 Cal.Rptr. 524].) Because Jouvenat's claim for fraud and conspiracy to breach fiduciary duty against SCPIE arose before his petition was filed, Mosier properly prosecuted this action on his behalf.
See id. That is, generally “damages in the amount of the excess judgment are, without further demonstration, the measure of recovery for bad faith failure to settle,” and prepayment of the excess award by the insured is not required. Purdy v. Pacific Auto. Ins. Co., 157 Cal.App.3d 59, 74, 203 Cal.Rptr. 524 (1984). As discussed above, Shapero recognizes an exception to this rule when the insured is a decedent's estate and the estate has no assets.
"It has long been the law in this state that when a conflict develops, the insurer cannot compel the insured to surrender control of the litigation, and must, if necessary, secure independent counsel for the insured, and, as was explained in Previews, Inc. v. California Union Ins. Co. (9th Cir. 1981) 640 F.2d 1026, 1028, the insurer's obligation [to defend, after the appearance of a conflict] `extends to paying the reasonable value of legal services and costs performed by independent counsel selected by the insured.'"Cumis, 162 Cal.App.3d at 364 n. 3, 208 Cal.Rptr. 494 (quoting Purdy v. Pacific Automobile Ins. Co., 157 Cal.App.3d 59, 76, 203 Cal.Rptr. 524 (1984)) (citations omitted) (brackets in original). The parties have not disputed the applicability of the statute, which came into legal force on January 1, 1988, pursuant to Cal. Const. art. IV, § 8.
"Champerty" is defined in Black's Law Dictionary (5th ed. 1979) as: "A bargain by a stranger with a party to a suit, by which such third person undertakes to carry on the litigation at his own cost and risk, in consideration of receiving, if successful, a part of the proceeds or subject sought to be recovered." In Purdy v. Pacific Automobile Ins. Co. (1984) 157 Cal.App.3d 59, 78-79 [ 203 Cal.Rptr. 524], the question arose whether a legal malpractice cause of action could properly be assigned by a debtor in bankruptcy to his trustee. Finding the cause of action was defective in other respects (i.e., a lack of proximate causation pled where the client contended the attorneys had failed to advise him to act in a particular manner), the court declined to reach the assignment question or to state its opinion whether Goodley was correctly decided.
Each time one of them must be made, the lawyer is placed in the dilemma of helping one of his clients concerning insurance coverage and harming the other. See Purdy v. Pacific Automobile Ins. Co. (1984) 157 Cal.App.3d 59, 76 [ 203 Cal.Rptr. 524], which states in part: "[T]he `triangular' aspect of the representation afforded the insured by the insurer's lawyers is described as a coalition for a common purpose, a favorable disposition of the claim — with the attorney owing duties to both clients. As a practical matter, however, there has been recognition that, in reality, the insurer's attorneys may have closer ties with the insurer and a more compelling interest in protecting the insurer's position, whether or not it coincides with what is best for the insured.
His first professional and ethical obligation is to see that both their interests are protected insofar as he can do so, and that he does nothing to harm either. The insured and the carrier are both clients: Lieberman v. Employers Ins. of Wausau, supra; American Mut. Liability Ins. Co. v. Superior Court, 38 Cal.App.3d 579, 591-92, 113 Cal.Rptr. 561, 571 (1974); Purdy v. Pacific Auto. Ins. Co., 157 Cal.App.3d 59, 203 Cal.Rptr. 524 (1984). Thus, the first thing he should do is to attempt to halt trial proceedings so that no trial development will harm either until a decision on the settlement offer has been made by his clients.
See Exec. Recruitment, Inc. v. Guste, Barnett & Shushan, 533 So.2d 129, 131 (La.App. 4th Cir.1988), writ denied, 535 So.2d 742 (La.1989). In Teague, 06–1266 at p. 47, 10 So.3d at 836, we cited the following language from Purdy v. Pacific Auto. Ins. Co., 157 Cal.App.3d 59, 203 Cal.Rptr. 524 (Cal.App.1984), which is relevant to the issue of causation in a legal malpractice case predicated upon alleged bad advice: A lawyer cannot properly compel a client to take his or her advice; a lawyer can strongly advise action by a client, action highly beneficial to the client or others, action clearly indicated by known facts, but there is no duty on the part of the client to follow the lawyer's lead—that is not the nature of the relationship, assuming that the client is legally capable of acting on his own behalf.
In analyzing these situations, the courts have described counsel's representation as "triangular." ( Purdy v. Pacific Automobile Ins. Co. (1984) 157 Cal.App.3d 59, 76.) In other words, the attorney represents two clients, the insured and the insurer.