Persichette v. Owners Insurance Co., 462 P.3d 581 (2020)

Facts

  • Levy Law, P.C. represented Owners Insurance Company (“Owners”) in bad-faith and coverage litigation for about 13 years.
  • During that period, Levy Law routinely defended Owners against bad-faith suits and also assisted Owners with claims-handling policies and procedures.
  • Levy Law trained multiple Owners employees on those policies and procedures, including adjuster Geoffrey Page.
  • William Persichette, an Owners insured, brought suit against Owners asserting underinsured-motorist (UIM) and bad-faith claims based on Owners’ handling of his UIM claim.
  • Persichette’s allegations resembled allegations made in prior bad-faith cases that Levy Law had handled for Owners.
  • Page—the employee Levy Law had trained—served as the adjuster on Persichette’s claim.
  • Persichette was initially represented by Franklin D. Azar & Associates, P.C., and later retained Levy Law as co-counsel after Levy Law’s attorney-client relationship with Owners ended.
  • Owners did not give informed consent confirmed in writing for Levy Law to appear against it.
  • Owners moved to disqualify Levy Law under Colorado Rule of Professional Conduct 1.9(a) (former-client conflicts).
  • The trial court found Levy Law had knowledge of Owners’ claims-handling policies and procedures and that Levy Law’s role could place it in the position of attacking work it helped create.
  • Even so, the trial court denied disqualification, reasoning that the prior and current matters were “substantially similar” but not “substantially related.”
  • Owners sought relief in an original proceeding in the Colorado Supreme Court under C.A.R. 21.

Issues

  1. Whether Levy Law’s prior representation of Owners and its later representation of Persichette against Owners involved “the same or a substantially related matter” under Colo. RPC 1.9(a).
  2. Whether the relationship between the matters created a substantial risk that confidential information from Levy Law’s work for Owners would materially advance Persichette’s case, requiring disqualification absent Owners’ informed written consent.

Decision

  • The Colorado Supreme Court accepted original jurisdiction under C.A.R. 21 to review the trial court’s denial of Owners’ disqualification motion.
  • The Court held that Levy Law’s work for Owners was substantially related to Persichette’s bad-faith UIM suit because Levy Law’s prior role would normally involve obtaining confidential information about Owners’ claims-handling practices and employee training connected to the dispute.
  • The Court determined the trial court applied an overly narrow view of “substantially related,” treating it too much like “the same matter.”
  • The Court concluded that, because Persichette’s position was materially adverse to Owners and Owners had not provided informed consent confirmed in writing, Colo. RPC 1.9(a) barred Levy Law from representing Persichette.
  • The Court made the rule to show cause absolute and ordered Levy Law’s disqualification.

Legal Principles

  • Under Colo. RPC 1.9(a), a lawyer who formerly represented a client may not later represent another person in the same or a substantially related matter when the new client’s interests are materially adverse to the former client, unless the former client gives informed consent confirmed in writing.
  • Matters are “substantially related” when there is a substantial risk that confidential factual information that would normally have been obtained in the prior representation would materially advance the new client’s position in the later matter.
  • The test is not limited to factually identical disputes; overlap involving a former client’s internal policies, procedures, training, and personnel tied to the later litigation can satisfy the substantial-relationship requirement.
  • When a firm helped create or implement a former client’s policies and trained employees who later become key actors in the dispute, the risk of using protected information against the former client can warrant disqualification.
  • A lawyer’s assurances about limiting claims or trial strategy do not eliminate a former-client conflict where the substantial-relationship standard is met; the rule addresses risk, not only proven misuse.

Conclusion

In Persichette v. Owners Insurance Co., the Colorado Supreme Court ordered disqualification of a law firm that had served for years as Owners’ outside bad-faith counsel and later appeared for an insured in a bad-faith UIM case against Owners, holding that the matters were substantially related and posed an unacceptable risk that confidential information about Owners’ claims-handling practices and trained personnel would be used to Owners’ disadvantage without Owners’ written consent.