The opinion of the court was written by Justice Doggett, but a five-judge concurrence written by Justice Hecht was also issued. Justice Doggett's opinion reasons that defense counsel hired by an insurance company for an insured owes the insured absolute loyalty, as if the insured had originally employed the attorney. Equitable subrogation by an excess carrier who did not hire the attorney serves only to reinforce the existing duties that the attorney owes to his client, the insured, Justice Doggett goes on to note that the interests of an insurer and the insured are the same with respect to the expectations of competent representation by counsel, so no new or additional burdens are imposed upon the attorney just because the excess carrier can bring suit against the attorney.
Justice Hecht's concurrence addresses several practical issues which could arise in litigation of the excess carrier's equitable subrogation claim. He makes clear that the extent of the subrogation is limited to the insured's rights against the attorney for negligent handling of the case. The attorney would have defenses available such as the excess carrier's unreasonable refusal to cooperate in defense and settlement of the case. Justice Hecht's opinion also makes clear that the court is not suggesting that a client's rights against his attorney may be assigned to a third-party.
Attorneys engaged in insurance defense work should take note of the American Centennial opinion. The opinion does not change an attorney's duties with respect to his client, the primary carrier, or an excess carrier, but the case does raise the question of what is proper attorney conduct toward an excess carrier who is not paying for defense.
Defense counsel now must be wary about passively accepting any limitation on defense strategy imposed by the primary carrier. For example, if the primary layer of insurance has a $100,000 limit and there is an excess insurance policy for $1 million, defense counsel should make defense recommendations as if there were $1.1 million coverage. If the primary carrier in such a situation instructs the attorney not to take depositions, not to hire an expert, or not do anything the attorney believes is necessary and reasonable to defend the case in light of the excess coverage available, the attorney should probably oppose such a restriction. It might be a good idea for the attorney to tell the excess carrier of the proposed restriction, and to request funding for an adequate defense from the excess carrier. Such actions will probably not endear a defense attorney to insurance carriers, but such actions may be required for the attorney to protect himself or herself from a later suit by the excess carrier.
As a general rule, if the attorney is aware of excess coverage, he should advise his client to notify the excess carrier. If the excess carrier requests reports, or if the excess policy requires reports, the attorney should provide them if the client/insured consents. If the attorney believes that the excess carrier's participation would facilitate appropriate resolution of a claim, it would be prudent for the attorney to request such participation in order to secure his client's rights under the excess policy. None of these suggestions, it should be noted, require the attorney to act as counsel for the excess carrier.
The attorney is still counsel for his client, the insured, only. The attorney's efforts should go into securing for the client whatever coverage is available under the excess policy.