92 N.J.L.J. 843
                                        December 25, 1969

OPINION 166

Use at Trial of Statements Given
by Policyholder to Insurance Companies

    Several judges have called to the attention of this Committee a problem which is occurring with increasing frequency in the trial of automobile negligence cases. It arises when both the plaintiff and the defendant have policies with the same insurance company and each has given a statement to the company setting forth his version of the accident. Then a suit is brought by one of the parties involved and in the defense of that suit the insurance company, which engages a lawyer to defend the suit, furnishes the latter with its file, containing the statement given by the plaintiff and, in cases where there also is medical examination, a copy of the medical report. At the trial of the case, the attorney uses these statements in an effort either to completely defeat the plaintiffs claim or to mitigate the damages.
    The question to be resolved is whether the attorney, who ostensibly is representing the defendant but actually is representing the insurance company, under such circumstances should be precluded on ethical grounds from using the statements.
    Canon 37 of the Canons of Professional Ethics requires that a lawyer preserve his client's confidences and provides that this duty outlasts his employment. Ordinarily, this would present no problem because it would be considered that the plaintiff was not the client of the defense attorney. However, our Supreme Court, in State v. Kociolek, 23 N.J. 400, 416 (1957), said, with respect to this, as follows:
            The annotation to the case in 22 A.L.R. 2d 660 shows it to be the general rule that a report or other communication made by an insured to his liability insurance company, concerning an occurrence that may give rise to a claim against him under the policy, is privileged as one between attorney and client, if the policy obliges the insurer to defend him through its own attorney and the communication is intended for the information or assistance of the attorney in making such defense.

Thus, it would appear that the privilege rule between attorney and client is applicable with respect to the statement given by the plaintiff to his insurance company and subsequently given by it to its attorney. This also includes the report of the medical examination which plaintiff undertook presumably at the request of the company. The views of the various trial lawyers associations of this state have been solicited, and there is no agreement among them on this subject.
    Under the new Code of Professional Responsibility recently adopted by the American Bar Association, but not as yet approved by our Supreme Court, there appear in the July 1, 1969 final draft with respect to new Canon 4 - which refers to the requirement that a lawyer must preserve the confidences and secrets of a client -
numerous citations of American Bar Association opinions to the effect that a client must be free from fear that his statements to his attorney will be revealed. A.B.A. Committee on Professional Ethics and Grievances, Opinions 268 (1945), 274 (1946) and 314 (1965).
    If, as stated in the Kociolek case, the giving of the statement to the insurance company is in effect giving it to any attorney who represents the company, then no client could be free from the fear that the statement could be used against him if litigation ensued and it developed that the other party to the accident was insured with the same company.
    In State Farm Mutual Automobile Insurance Co. v. Walker, 382 F. 2d 548, 552 (7th Cir. 1967), the court was critical of the action of a lawyer who represented a defendant through an insurance company to which the defendant had given a statement under the cooperation clause of his policy. It developed during the course of the case that the lawyer discovered that the statement given by the defendant (his client of record) to the insurance company (his real
client) was not true. The lawyer, however, went on to take a sworn statement from the defendant and a deposition, all of which he forwarded to the insurance company. It then brought the suit which was before the Court of Appeals to be relieved of its obligations under the policy. The court said that the lawyer should have refused to participate in the case after the false statement was revealed, stating
            This action appears to contravene an Indiana attorney's duty "at every peril to himself, to preserve the secrets of his client" [Richard Walker] (Section 4-3608 Fifth Burns Indiana Statutes). This statement was hardly in Walker's best interest, for as State Farm's brief acknowledges, it revealed "an essential element to ... Dorothy Walker's action under the Indiana Guest Statute... .

    In the situation here present, the lawyer finds himself confronted by the interests of multiple clients, i.e., both the plaintiff and the defendant through the insurance company. This makes it impossible for him to exercise independent professional judgment on behalf of either client, contrary to the provisions of Canon 5, of the new Code of Professional Responsibility. In the discussion of that canon (pp. 60-62), it is made plain that where a lawyer finds that he is representing multiple clients having potentially differing interests, which may impair his judgment or divide his loyalty, he must resolve all doubts against the propriety of such representation.
    We conclude that, if a lawyer is to appear for a defendant in a situation as hereinabove described, it would be unethical for him to use the plaintiff's statement against him in the suit. In such case the attorney must withdraw from the suit.