Civil claim settlement talks involving third parties and insurance company adjusters: When should lawyer conduct standards apply?

St. John's Law Review, Summer 2003 by Parness, Jeffrey A

IV. SETTLEMENT TALKS DURING PENDING LAWSUITS

In Novak, insurance company adjusters' participation in post-lawsuit settlement talks with third parties during judge-requested pretrial conferences in pending civil cases was found to create an obligation to follow the civil procedure standards that guide lawyers.85 Are there other settings where civil procedure standards should not guide the post-lawsuit settlement conduct of adjusters since all such conduct is left to lawyers and comparable acts by nonlawyers would constitute the unauthorized practice of law? Assuming no unauthorized practice barriers, should civil procedure standards always apply, and apply similarly, to lawyers and third-party adjusters? Finally, regardless of whether the standards on comparable conduct differ, should at least certain standards for adjusters come from sources other than civil procedure lawmakers, such as state insurance department officials, especially where the settlement activity by insurance company adjusters occurs outside courthouses and beyond trial court direction?

A. Unauthorized Practice of Law

Definitions of legal practice usually include post-lawsuit civil claim settlement initiatives undertaken on behalf of others.86 Yet as implied in Jones and as expressly recognized in professional legal services standards defining the practice of law in Washington,87 not all legal practice is exclusively left to lawyers, even when there is litigation pending. In post-lawsuit settings in Washington88 and across the United States,89 nonlawyers have long advocated on behalf of clients during administrative agency adjudications. In Novak, an insurance company adjuster was required to act as a negotiator when representing an insured who was a civil case defendant.90 Are there limits on third party adjusting during civil litigation?

Consider, for example, the authority of an insurance company adjuster to settle civil claims against an insured that will be paid, in part, by both the insurer and by the insured. Settlements involving payments only by insurers seemingly involve no lawyer conduct standards, as adjusters act as agents of insurers. Do civil procedure standards, however, that presume lawyers possess settlement authority on behalf of their clients during in-court proceedings, including judicially supervised settlement talks occurring in courthouses,91 apply to insurance adjusters who speak about the insureds? There is good reason to say no, including ultra vires concerns and difficulty imagining the insured actually delegating settlement authority regarding personal assets to the adjuster.

B. Application of Civil Procedure Standards

1. Confidentiality

Assuming no unauthorized legal practice barriers, can civil procedure standards for lawyers be applied to third-party adjusters for acts beyond the compelled appearances at pretrial conferences found in Novak? For example, consider whether an adjuster such as Christy Klein would be obligated at a deposition to reveal information about the accident that she received from Jeremy France and other France family members. Would any obligation hinge on differences between information within documents in Klein's possession and information about conversations or observations floating about in Klein's head?92 If Klein did maintain documents, would they be in the Frances' control?93 Would any applicable lawyer-client communications privileges or work-product immunities recognized under civil procedure standards treat differently Klein's pre-lawsuit and post-lawsuit information gathering aimed at facilitating settlements?