Counsel Provided By Insurer Does Not Create an Inherent Conflict of Interest

By Thomas Paschos, Esq.

  In Eckman v. Erie Ins. Exchange, --- A.3d ----, 2011 WL 1535267 (Pa. Super. April 25, 2011), Appellant, Colleen Eckman was sued by Solid Waste Services, Inc. d/b/a/ J.P. Mascaro & Sons for one count of defamation (libel per se), alleging willful, malicious and false statements purportedly made during a local election campaign (the Mascaro litigation).

 

A representative of Erie Insurance, Appellee, acknowledged receipt of the complaint by letter to Appellants. The letter committed to providing a defense with a lawyer chosen by Appellee if an insured was sued for a covered personal injury. However, noting policy exclusions for intentional acts and punitive or exemplary damages, the letter included a reservation of rights, and concluded by advising Appellants of their right to retain an attorney at their own expense to represent their interests.

 

Appellants then retained the law firm of Hamburg, Rubin, Mullin, Maxwell & Lupin, which notified Appellee of its representation by letter. Claiming a conflict of interest in any counsel retained by Appellee, the firm requested permission to defend Mrs. Eckman in the Mascaro litigation, “with legal services paid for by Erie.” Appellee rejected the request, but engaged the law firm of McCormick & Priore to represent Mrs. Eckman.

 

Appellants filed a complaint for declaratory judgment and a motion for preliminary injunction against Appellee, asking the trial court to order Appellee to provide Mrs. Eckman with counsel of her choice at Appellee's expense to defend her in the Mascaro litigation. After a hearing the trial court denied the motion, concluding that Appellants failed to establish the prerequisites for injunctive relief. Appellants appealed.

 

On appeal, Appellants argue their position is supported by Pennsylvania Rule of Professional Conduct 1.7, conflict of interest, which provides in pertinent part that:

 

[a] concurrent conflict of interest exists if: * * *

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer. Pa.R.P.C. 1.7 (a)(2).

 

However, the Court found that the Appellants offered no evidence of a breach of ethical obligations by Appellants' designated counsel. Rather, they suggested that any attorney selected by Appellee to represent insureds under a reservation of rights has a conflict, suggesting, without foundation, that any or all attorneys paid by an insurer would breach their ethical obligations to the insured/client, by methods not specified, to frame claims as excluded from coverage. The Court disagreed and held that Appellants claim that their right to relief is clear is contradicted by controlling law and does not merit relief. Appellants' position on the necessity of post-trial motions centered on the particular procedural posture of the case. They asserted that the “proceeding on remand” did not permit, much less require, post-trial motions. Appellants did not dispute that this matter, as a whole, obviously included a trial, however, they focused on the events following remand, insisting that those proceedings did not “constitute a trial” for the purposes of Rule 227.1, thus post-trial motions were unnecessary. In support of their argument, appellants asserted that following remand, no new evidence was introduced (other than an accounting of costs, attorneys' fees and interest), therefore, the decision Appellants challenged was based solely on legal arguments and the factual record developed prior to the first appeal. Appellants further argued that “proceedings that do not involve the introduction of evidence do not count as trials for purposes of triggering the post-trial motion requirement.”

 

Appellants also claimed that without injunctive relief irreparable harm will result. Appellants asserted that irreparable harm to a client is inherent in a conflict of interest situation. The Court found that this argument consisted of nothing more than a variation on the earlier unsupported speculation that selected counsel would engage in “subtle, behind the scenes” improper conduct to establish that Mrs. Eckman's alleged actions were excluded from coverage under the policy. As such, the Court found Appellants failed to develop their argument that irreparable harm is “inherent” and held that Appellant's second argument would not merit relief.

 

Based on the above, the Pennsylvania Superior Court held that Appellants failed to show that they were entitled to a preliminary injunction.

 

Copies of the full text of any of the cases discussed in this Newsletter may be obtained by calling our office. The articles contained in this Newsletter are for informational purposes only and do not constitute legal advice. Contact Thomas Paschos, Esq., tpaschos@paschoslaw.com (215) 636-0555.

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