The relationship among an insurer, its insured, and defense counsel retained by the insurer to defend the insured against third-party claims is commonly referred to as the “tripartite” relationship. This relationship can present actual or potential conflicts between the insurer and the insured, placing defense counsel in a difficult position. On one hand, the attorney’s relationship with the insurer is contractual, thus, defense counsel has an obligation to report fully and candidly about the progress of the case. On the other hand, the insured is the client for all intents and purposes. As a result, a situation fraught with potential problems occurs when defense counsel acquires information from the client that may affect the client’s insurance coverage. As discussed in more detail below, while an attorney may have previously felt comfortable, by virtue of the litigation privilege, divulging relevant but potentially detrimental information to the insurance carrier, a recent New Jersey Appellate Division decision has held that the litigation privilege may not serve as a bar in certain circumstances of a legal-malpractice case, and therefore may not protect an attorney from revealing potentially damaging information relevant to the client.
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