Nevada Yellow Cab Corp. v. Eighth Judicial District Court
152 P.3d 737, 123 Nev. 44 (2007)
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Rule of Law:
When an insurance company retains counsel to defend an insured, an attorney-client relationship is formed with both the insurer and the insured. This relationship precludes the attorney or their firm from later representing the insured in an adverse action against the insurer if the subsequent matter is substantially related to the initial representation.
Facts:
- Insurance Company of the West (ICW) retained the law firm VCCRR to defend its insured, Nevada Yellow Cab Corporation, in a personal injury lawsuit brought by Heather Nash.
- Michael Rubino, a partner, and Denise Cooper Osmond, an associate at VCCRR, defended Yellow Cab for nearly three years, regularly updating ICW on the litigation.
- ICW terminated VCCRR and retained a new law firm to represent Yellow Cab.
- Shortly before trial, ICW instructed the new firm to reject a settlement offer for the policy limits.
- The case settled mid-trial for $1.3 million, which was $800,000 over Yellow Cab's policy limit, requiring Yellow Cab to contribute $500,000.
- The VCCRR firm dissolved, and partner Robert Vannah and associate Denise Osmond formed a new firm, VCVG.
- Yellow Cab retained Vannah and his new firm, VCVG, to sue ICW for bad faith for its failure to settle the Nash lawsuit.
Procedural Posture:
- Nevada Yellow Cab Corporation retained VCVG and filed a bad faith action against Insurance Company of the West (ICW) in Nevada state district court.
- ICW filed a motion to disqualify Vannah and his firm, VCVG, from representing Yellow Cab, alleging a conflict of interest.
- The district court granted ICW's motion to disqualify.
- Nevada Yellow Cab Corporation, as petitioner, filed an original petition for a writ of mandamus in the Supreme Court of Nevada, challenging the district court's disqualification order.
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Issue:
Does a law firm have a disqualifying conflict of interest when it represents an insured in a bad faith action against an insurer, if an attorney at the firm previously defended the insured in the underlying tort action on behalf of that same insurer?
Opinions:
Majority - Per Curiam
Yes, a disqualifying conflict of interest exists. Counsel retained by an insurer to represent its insured has a dual attorney-client relationship with both the insurer and the insured. Because associate Osmond previously represented ICW's interests in the underlying tort action, an attorney-client relationship existed between her and ICW. The current bad faith lawsuit is substantially related to that prior representation because it concerns the handling of the same claim. Since Osmond's conflict is imputed to her entire new firm, VCVG, the district court did not manifestly abuse its discretion in granting the disqualification.
Concurring - Maupin, C. J.
Yes. While this is a close case, particularly due to ICW's two-year delay in seeking disqualification, the district court's decision should stand. It was reasonable for the district court to conclude that the firm's prior work for ICW could have provided it with some general knowledge of ICW's internal claims policies. Therefore, the decision to disqualify the firm was not a manifest abuse of discretion.
Analysis:
This decision formally adopts the majority rule in Nevada that insurance defense counsel represents both the insurer and the insured, creating a dual-client relationship. This solidifies the ethical obligations of attorneys in this common arrangement and clarifies the basis for future disqualification motions. The ruling establishes that a law firm cannot simply switch sides from defending a claim on behalf of an insurer to prosecuting a bad faith action against that same insurer regarding the identical claim, as the matters are deemed 'substantially related,' creating an irrebuttable conflict of interest.
