1E9Ct5D

that a conflict of interest existed as between insurer and insured once the insureradvised the insured that it would not be responsible for any punitive damage award. 32The Nandorf court recognized that an attorney hired by an insurance company todefend in an action against its insured owes fiduciary duties to two clients, the insurerand the insured. The attorney-client relationship between the insured and the attorneyhired by his or her insurer imposes upon the attorney the same professional obligationsthat would exist had the attorney been personally retained by the insured. Courts haverecognized, however, that in reality, the insurer's attorneys may have closer ties with theinsurer that is paying counsel’s bills, and a more compelling interest in protecting theinsurer's position, whether or not it coincides with what is best for the insured. Thisreality frequently gives rise to conflicts of interest between insurer and insured. Thus, inIllinois, when conflicts arise, the Illinois Supreme Court has recognized a "limitedexception" to the general rule that an insurer controls the defense of its insured. Theinsured is entitled to assume control of his or her own defense in the underlying action.The conflict confronting the attorney employed by the insurer may be resolved by fulldisclosure and consent from the parties. However, the ethical problem is not solved bythe insurer's electing to defend under a reservation of rights. In a conflict situation wherethe insured rejects the insurer's offer to defend under a reservation of rights, theinsurer's obligation to defend is satisfied by reimbursing the insured for the costs ofindependent counsel 33 .32 Nandorf, Inc, 479 N.E.2d at 972.33 Id. at 990-92.25