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June 16, 2013

Schaefer v. Elder (2013) 217 Cal.App.4th 1

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The Third District affirms the trial’s court decision to disqualify counsel who represented an insurer and its insured with conflicting interests regarding classification of workers. 

Steve Schaefer sued Elder Construction for construction defects.  After Elder tendered its defense to CastlePoint National Insurance Company, it retained Koeller, Nebeker, Carlson & Haluck, to represent Elder subject to a reservation of rights.  CastlePoint filed a separate declaratory relief action against Elder to determine coverage.  Through separate counsel, Elder sought to disqualify Koeller and determine its right to independent counsel. 

A provision in the insurance contract excluded work performed by independent contractors absent the independent contractors’ indemnity agreement and certificate of insurance.  CastlePoint alleged Elder violated this condition and nullified coverage.  Thus, the status of the workers as employees or independent contractors was dispositive of coverage. 

The Court of Appeal affirmed the trial court’s decision to disqualify Koeller and declare a right to independent counsel.  Schaefer’s claims required proof defects were caused by Elder’s employees or independent contractors.  Elder’s interest was to establish the work was done by employees; CastlePoint’s interest was to prove the work was done by independent contractors.  Therefore, there was a conflict of interest for the Koeller firm.  The firm had an ethical duty to Elder to establish the workers were employees and, at the same time, had an ethical duty to CastlePoint to establish the workers were independent contractors.   

Moreover, the trial court properly assumed the Koeller firm received confidential information from Elder in responding to discovery about the issue. 

Comment:  Although the duty to provide independent counsel belongs to an insurer, it is an attorney’s duty to identify conflicts between the parties and avoid representing conflicting interests.

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