Court rules one lawyer is enough in insurer's fight over attorney fees

A Texas state district court was found to have erred in denying an insurer’s summary judgment motion in an attorney-fees dispute, where plaintiffs alleged more than one attorney was needed to avoid a “potential” conflict of interest.

The Ninth District Court of Appeals reversed a ruling of the Montgomery County 457th District Court in a case where a government entity and two elected officials depended on a directors and officers policy from Mid-Continent Casualty Co. to provide for their defense when a losing candidate filed suit alleging election irregularities.

Insurer right to control defense

The reversal hinged on Mid-Continent’s right under the policy to control the defense, and whether there was an actual conflict of interest that the insurer formally recognized.

In the underlying suit, third-place candidate Edgar Clayton sued Harris County Municipal Utility District No. 400 and the two candidates who placed ahead of him, Ann Marie Wright and Cheryl Smith.

The court ultimately dismissed the lawsuit with prejudice, but the parties disagreed about how many lawyers the insurer should provide the district.

James Stilwell of Stilwell, Earl & Apostolakis, based in The Woodlands, Texas, and acting for the district responded to Mid-Continent’s letter agreeing to defend but preserving its reservation of rights.

Stilwell told Mid-Continent that there was a “possibility of a conflict of interest in representation regarding Mid-Continent’s desire to have a single attorney represent all three defendants.”

Stilwell and the district were informed by a claims adjuster for Mid-Continent that it was the opinion of coverage attorney Brent Cooper of Cooper & Scully that Mid-Continent had the right to select defense counsel “because the facts to be adjudicated are not necessarily the same facts that control coverage,” and the Houston attorney Britt Harris had been retained by Mid-Continent as their counsel.

Instead, Stilwell’s subsequent correspondence informed Mid-Continent that the elected officials would be represented by Houston-area attorneys and Bruce Tough and Kenna Seiler, and the district by its general counsel, Chris Skinner of Schwartz, Page & Harding.

Conflict of interest?

Stilwell asserted the potential conflict had to do with Wright and Clayton having run on the same slate against Smith, as well as the district’s desire to defend the election through trial, whereas the individual directors possibly wanted a do-over or settlement.

Mid-Continent attorney Mark Lewis cut a check made out to the district for $4,290 in attorney fees, which covered the period up to Mid-Continent’s offer to assume the defense.

In a pre-suit demand letter, Stilwell asked for attorney fees of $151,750 for the Clayton suit defense, plus $5,600 attorney fees for defending the wrongful denial.

Referring to the Texas Disciplinary Rules of Professional Conduct, the Ninth District court noted a lawyer may only represent multiple clients if he reasonably believes each client will not be materially affected, and each client consents after full disclosure of possible adverse consequences of common representation.

The deposition testimony and affidavit generally averred that the defendants discussed material conflicts at a board meeting and would not waive those conflicts, and they requested separate counsel, the opinion stated.

Nevertheless, the Ninth District held that the district’s “arguments are without merit.”

“We note that the information on which appellees rely falls outside the eight corners of the pleadings and the insurance policy,” the court said.

In addition, the court said Stilwell’s responses to Mid-Continent referred only to “potential” conflicts, but never stipulated actual conflicts.

“We conclude that Clayton’s petition did not allege facts that would necessitate separate counsel. Clayton does not allege anything in his petition that would make the interests of Wright, Smith, or MUD 400 adverse to the interests of each other,” the court said.

Mid-Continent was represented on appeal by Levon G. Hovnatanian, Christopher W. Martin and Mark E. Lewis of Martin, Disiere, Jefferson & Wisdom.

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