Civil Claim Settlement Talks Involving Third Parties and Insurance Company Adjusters: When Should Lawyer Conduct Standards Apply?
Parness, Jeffrey A., St. John's Law Review
Operating on behalf of insurance companies, adjusters have long been active in facilitating settlements of civil claims. Adjusters work both before and during lawsuits to help resolve differences between the companies and company insureds, thus engaging in first-party adjusting. Adjusters also facilitate pre-lawsuit and post-lawsuit civil claim settlements between their companies and those harmed by company insureds. Such third-party adjusting and first-party adjusting are quite distinct. For example, they raise very different issues regarding the possible application of professional services or civil procedure standards governing lawyers to nonlawyer adjusters.
Some important issues on applying lawyer conduct standards to adjusters in third-party settings have been resolved. Resolutions have been made in areas such as the unauthorized practice of law and the mandatory attendance of adjusters at settlement conferences in pending civil actions.1 To date these resolutions demonstrate serious conflicts over the applicability of lawyer conduct standards. Similar and related resolutions will likely continue in coming years, prompting the need for a more comprehensive study of the application of lawyer conduct standards to third-party adjusting.
In such an examination, a central question should emerge: When should insurance company employees undertaking third-party adjustments be governed by the same or similar professional legal services and civil procedure standards that govern lawyers who facilitate civil claim settlements for their clients? Those who find the question bizarre need only consider the Washington Supreme Court's decision in Jones v. Allstate Insurance Co.,2 where the court found that some insurance company adjusters dealing with unrepresented third parties must abide by certain professional legal services standards on truthful representations usually applicable to lawyers.3 They can also look to the Court of Appeals for the Eleventh Circuit's decision in In re Novak, where the court found that a nonparty insurance company adjuster, as well as the lawyer for the insured, could be compelled to attend a pretrial conference to discuss possible settlement of a third-party claim against an insured/client.4 These decisions accompany other singular discussions of the central question. Unfortunately, there has never been a comprehensive examination of when lawyer conduct standards should apply to third-party adjusting.
In approaching this central question, distinctions seem necessary between authorized and unauthorized legal practice acts by adjusters; between pre-lawsuit and post-lawsuit adjuster conduct; between adjuster conduct before and after attorneys have been retained; between the regulatory authority of legislatures, courts, and administrative agencies; and between post-lawsuit adjuster activities that occur within and outside of courthouses.
After briefly reviewing the Jones and Novak decisions, this Article explores other settings involving the interplay between lawyer conduct standards and third-party adjusting. Other settings explored include ex parte communications, privileged conversations, work product material, settlement authority, and good faith negotiation. This Article urges that courts, as rule makers; legislatures; and administrative agencies should have some voice in determining how adjusters act and in whether adjusters should abide by lawyer conduct standards. Finally, this Article concludes that, at times, laws should treat differently comparable third-party settlement actions by insurance company adjusters and by lawyers. It concludes with a call for more comprehensive inquiries into lawyer conduct standards and third-party adjusting.
I. JONES V. ALLSTATE INSURANCE COMPANY
Janet and Terry Jones sued Allstate Insurance Company in a Washington state court asserting negligent legal practice, bad faith, civil fraud, and consumer protection claims based upon the acts of its employee Christy Klein. …