After almost 30 years, California’s first substantial revision of its Rules of Professional Responsibility for lawyers took effect on November 1. While the new rules are largely based on the ABA model rules, they also highlight case law and statutes specific to California. This is particularly notable in the area of attorney disqualifications, where California law has been largely developed in the context of the relationship between insurance carriers and their coverage counsel.
Soon-to-be-former Rule 3-310(E) provides that a “member shall not, without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment.” (Emphasis added.) The scope of the rule in practice was examined in the case of Jessen v. Hartford Cas. Ins. Co., 111 Cal. App. 4th 690 (2003), when James H. Wilkins, Esq. left his 13-year practice of representing insurance carriers in coverage and bad faith matters to open his own firm specializing in representing policyholders in the very same types of cases, at times against his former clients.
When Hartford moved to disqualify him, Wilkins argued that Rule 3-310 did not apply because the facts of the Jessen claim were distinct from those of the claims in which he represented Hartford and he had obtained no confidential information from Hartford material to the current representation. The court of appeal ultimately disagreed, stating that when a direct relationship between the attorney and client is established, the communication of confidential information is presumed, and the attorney is disqualified from subsequent representation when the “subject” of the representation is “substantially related” to the prior representation. The court adopted a broad definition of “subject,” holding that “successive representations will be ‘substantially related’ when the evidence before the trial court supports a rational conclusion that information material to the evaluation, prosecution, settlement or accomplishment of the former representation given its factual and legal issues is also material to the evaluation, prosecution, settlement or accomplishment of the current representation given its factual and legal issues.”1
While the court remanded Jessen to the trial court to determine whether a “substantial relationship” existed between the two representations, the question quickly returned to the court’s docket2 in the matter of Farris v. Fireman’s Fund Ins. Co., 119 Cal. App. 4th 671 (2004), when another of Wilkins’ former clients sought his disqualification. In making short shrift of Wilkins’ repeated argument that he received no material confidential information during his representation of Fireman’s Fund, the court highlighted the nature of the relationship between an insurer and its coverage counsel:
Wilkins advised and assisted FFIC in making coverage decisions when he acted as FFIC’s California coverage counsel. An insurer’s acceptance or denial of coverage necessarily raises legal issues about whether the insurer conducted an adequate investigation, whether the insurer gave sufficient consideration to the interests and expectations of the insured, whether the insurer reasonably construed and applied the relevant policy language, and whether the insurer’s construction and application of the relevant policy language was consistent with its treatment of other similarly situated insureds. A coverage attorney’s responsibility to his client includes advising the client on these subjects. Coverage disputes are substantially related to bad faith actions for the purpose of attorney disqualification because they both turn on the same issue—whether or not there is coverage under the terms of the policy.3
The Farris court ruled that “Wilkins’s pervasive participation, and indeed his personal role in shaping, FFIC’s practices and procedures in handling California coverage claims,”4 disqualified him from litigating against his former client.
The new rule, Rule 1.9(a), clearly broadens the bases for attorney disqualification, compared with Rule 3-310(a), by incorporating Jessen and Farris and assuming the transfer of confidential information when the substantial relationship test is met: “A lawyer who has formerly represented a client in a matter shall not thereafter represent another person* in the same or a substantially related matter in which that person’s* interests are materially adverse to the interests of the former client unless the former client gives informed written consent.*” Additionally, the Comments to Rule 1.9 potentially further expand the substantial relationship test by adding the attorney’s duty of loyalty to the definition: “[t]wo matters are ‘the same or substantially related’ . . . if they involve a substantial* risk of a violation” of the duties of loyalty or confidentiality. Since the scope of the attorney’s duty of loyalty has not yet been addressed in the attorney disqualification context, the extent to which the duty of loyalty will serve as an independent basis for disqualification remains to be seen.5 But Rule 1.9(a), together with Jessen and Farris, should give former coverage counsel pause prior to undertaking the representation of policyholders against former clients.