On the petition of St. Paul Fire & Marine Insurance Company (hereinafter “St. Paul F & M”), we review the decision of the court of appeals affirming judgment in the amount of $1 million against St. Paul F & M, the garnishee in proceedings based on a judgment entered in an accounting malpractice action against a St. Paul F & M insured.
The main action arose out of the insolvency of Ghent Grain & Feed, Inc. Eighty-two of Ghent’s creditors and Ghent’s trustee in bankruptcy sued Baumann-Furrie & Company, alleging that Baumann-Furrie, which had performed accounting services for Ghent from the mid-1970’s until March 1983, had negligently prepared Ghent’s financial statements and negligently failed to notify plaintiffs after discovery that such financial statements were inaccurate. St. Paul F & M, Baumann-Furrie’s public accountants’ errors and omissions insurer, acknowledged that the claims were within the coverage afforded by its policy and engaged counsel to defend the actions against Baumann-Furrie. In defending *867 the claims of the several plaintiffs, St. Paul F & M took the position that its limit of liability was $500,000, the “each error limit” set out in the policy:
The each error limit is the most we’ll pay for all claims resulting from a single error or series of related errors, no matter how many protected persons, injured parties or claims are involved.
Baumann-Furrie, on the other hand, contended that its liability, if any, resulted from multiple unrelated errors, thus invoking the $1 million total policy limit of coverage:
The total limit, which is twice the each error limit, is the most we’ll pay for all claims reported in a policy year.
After trial of the main action had begun, Baumann-Furrie and the 83 plaintiffs entered into a stipulation of settlement which the parties characterize as a “Miller-Shugart” settlement.
1
See Miller v. Shugart,
Thereafter, the judgment creditors served a garnishment summons and a supplemental summons and complaint on the St. Paul Companies, St. Paul F & M’s parent company. St. Paul Companies denied that it was indebted to or insured Bau-mann-Furrie, alleged that its affiliated corporation, St. Paul F & M, insured Bau-mann-Furrie, and alleged breach of the insured’s contractual obligations and that the creditor’s judgment was both defective and unreasonable.
The judgment creditors then moved to substitute St. Paul F & M for the St. Paul Companies as garnishee and for an order summarily determining that the Stipulation for Entry of Judgment dated January 28, 1987 was in all respects reasonable and binding on the garnishee as well as the judgment debtor. The judgment creditors also sought summary judgment against the garnishee in the amount of $500,000, plus interest, reserving for future disposition only the issue of the extent of the policy limits. At the same time the St. Paul Companies moved for summary dismissal of the garnishment action and for disqualification of Gislason, Dosland, Hunter & Malecki from acting as counsel for the judgment creditors. The district court denied the St. Paul Companies' motions; ordered St. Paul F & M substituted as garnishee in place of St. Paul Companies; ordered the judgment creditors to serve on St. Paul F & M and file an amended supplemental summons and complaint, which would relate back to the date of the original pleadings, and prohibited St. Paul F & M from filing a response thereto; and awarded summary judgment against St. Paul F & M in the amount of $500,000 with costs and disbursements.
The judgment creditors served an amended supplemental summons and complaint *868 on St. Paul F & M. On motion the district court permitted St. Paul F & M to file its tendered response after striking all jurisdictional defenses.
Subsequently the judgment creditors notified St. Paul F & M of the association of John C. Hottinger with the Gislason firm to represent the judgment creditors regarding the amount of insurance available pursuant to the St. Paul F & M policy for satisfaction of the judgment creditors’ claims against Baumann-Furrie. Then they moved for summary judgment that St. Paul F & M’s “insurance coverage limit as applied to this action is One Million Dollars ($1,000,000).” Reasserting its jurisdictional defenses, St. Paul F & M also moved for summary judgment. On December 22, 1987 the trial court awarded the judgment creditors a second summary judgment in the amount of $500,000 and ordered entry of all judgments previously granted. Judgment was entered pursuant to that order, and St. Paul F & M appealed. The court of appeals affirmed in all respects. This court granted further review.
Before addressing the merits of the case it seems desirable to decide whether the law firm of Gislason, Dosland, Hunter & Malecki, counsel for the judgment creditors, should be disqualified from any further participation in the lawsuit. St. Paul F & M asserts that it has regularly engaged the Gislason firm over the last 20 years and that the firm has advised or represented St. Paul F & M in more than 15 matters in the last three; years, and it contends that the Gislason firm’s representation of the judgment creditors in the garnishment proceeding violates Rule 1.7, Minnesota Rules of Professional Conduct:
(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:
(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and
(2) each client consents after consultation.
Robert Halverson, a member of the Gis-lason firm and lead counsel in the representation of the judgment creditors, avers that he works in the firm’s New Ulm office and that representation of St. Paul F & M is handled by the firm’s Minneapolis office, that he has never represented St. Paul F & M and has never participated in any “internal discussions of the affairs of St. Paul” F & M, and that he has never had access to any file in which a member of the Gislason firm represented St. Paul F & M. In addition, the Gislason firm and Mr. Halverson agreed to withdraw from representation of the judgment creditors if summary judgment were granted with respect to the reasonableness of the Miller-Shugart settlement. Thereafter independent counsel was associated with the firm to represent the judgment creditors in the determination of the coverage question.
The district court ruled that the agreement to withdraw rendered the question moot, a position which neither the court of appeals nor this court regard as an abuse of discretion. In the light, however, of the subsequent course of this litigation some further comment is in order.
Disqualification of counsel is a part of a court’s duty to protect the attorney-client relationship, an obligation necessary to the maintenance of public confidence in the legal profession and the protection of the integrity of the judicial process.
Panduit Corp. v. All States Plastic Mfg. Co.,
(a) Considering the facts and the issues involved, is there a substantial, relevant relationship or overlap between the subject matters of the two representations?
(b) If so, then certain presumptions apply: First, it is presumed, irrebuttably, that the attorney received confidences from the former client and he or she will not be heard to claim otherwise. Second, *869 it is also presumed, but subject to rebuttal, that these confidences were conveyed to the attorney’s affiliates.
(e) Finally, at this stage, if reached, the court weighs the competing equities.
Jenson v. Touche Ross & Co.,
Although the Gislason firm withdrew following the order for summary judgment with respect to the reasonableness of the Miller-Shugart settlement, that withdrawal and the engagement of independent counsel was limited to representation of the judgment creditors in the determination of the coverage question. On appeal, however, the Gislason firm and the Hottinger law offices (the independent counsel) filed a joint brief in which there is no discernible line of demarcation between insurance coverage issues and other issues involved in this litigation. Although we assume that the lawyers in question confined their activities on appeal to their respective spheres of representation, we are constrained to remark that separate briefs would have been a more fitting way to carry out the undertaking to separate representation on the coverage issues from representation on all other issues.
The fact that a law firm engaged in insurance defense work for a particular insurance carrier represents the plaintiff in an action against an insured of that carrier does not necessarily signify a disqualifying relationship or overlap in representation of the insurance carrier. Furthermore, even if there were a substantial, relevant relationship or overlap between representation of the St. Paul F & M in other matters regarding the applicability or extent of insurance coverage and representation of the judgment creditors with respect to issues other than coverage questions, Mr. Halver-son’s representation that he was not privy to any aspect of the representation of St. Paul F & M is uncontroverted. Therefore, we are required to weigh the competing equities.
Halverson and the Gislason firm began representing the judgment creditors long before the question of the applicable insurance limits surfaced. The action, with its very complex procedural history, had been pending for almost two years when, during settlement negotiations carried on while the trial was in progress, the question of the insurance limits applicable to the claim was first raised. Surely the St. Paul F & M was aware all during the pendency of the action that the aggregate claims of the plaintiffs, including an action pending in another judicial district, exceeded the limit of coverage St. Paul F & M regarded as available for the payment of those claims. Even though it was not a party to the main action, it was in a position to anticipate the potential conflict of which it now complains and to voice its objection informally. At this late date it would, we believe, work a severe hardship on the judgment creditors to deny them their chosen counsel in the prosecution of the questions of liability and damages in the main action, and we conclude that in balancing the equities the trial court did not exceed the bounds of proper discretion in denying St. Paul F & M’s motion to disqualify plaintiffs’ counsel.
St. Paul F & M directs its initial attack upon the district court’s jurisdiction over either the subject matter of the garnishment or the person of the St. Paul F & M. It complains that the judgment entered in the main action is not a final judgment and, therefore, will not support the issuance of a garnishment summons because the judgment does not specify the portion payable to each judgment creditor. The judgment is, of course, the product of agreement between the defendant and the 83 plaintiffs in these consolidated cases. It resolves all disputes between defendant and all plaintiffs. This is not a class action; despite the large number of plaintiffs, they are all named plaintiffs, and there is no necessity for court ordered disposition of unclaimed funds or court approval of attorney fees.
Compare Parks v. Pavkovic,
St. Paul F & M also argues that the court lacks personal jurisdiction over it because a garnishment summons was not served upon it. The judgment creditors initiated the garnishment proceedings by serving a garnishment summons and disclosure form pursuant to Minn.Stat. § 571.471 (1988) on the St. Paul Companies. Following the garnishee’s denial of liability, the judgment creditors, by leave of court, served a supplemental complaint making the St. Paul Companies a party to the action and setting forth the facts on which the judgment creditors claimed to charge the St. Paul Companies. Minn.Stat. § 571.51 (1988). When the St. Paul Companies averred in its answer that its “affiliated” company, St. Paul F & M, had issued the liability policy insuring Baumann-Fur-rie, the district court granted the judgment creditors’ motion for leave to amend their pleadings. Ruling that the requirements of Rule 15, Minn.R.Civ.P., had been met, 2 the court ordered substitution of St. Paul F & M as garnishee in place of the St. Paul Companies and ordered the judgment creditors to serve and file an amended supplemental summons and complaint which should relate back to the original date of the pleadings. While ordering substitution of St. Paul F & M as garnishee, however, the district court ordered neither amendment of the garnishee summons nor service on St. Paul F & M.
Garnishment is not an independent action but is a proceeding ancillary to the main action, initiated by service of a garnishee summons and continued by supplemental complaint.
Roinestad v. McCathy,
*871 Because garnishment is commenced by service of the garnishment summons, it seems to us that a motion to substitute a different garnishee necessarily contemplates amendment of the garnishment summons as well as the supplemental summons and complaint if the proceeding is to continue as a garnishment proceeding. Accordingly, we are of the opinion that implicit in the order substituting St. Paul F & M as garnishee is a direction to amend the garnishment summons as well as an amended supplemental summons.
St. Paul F & M complains, however, that the garnishee summons was not served upon it. Although the general rule for substitution of defendants is that service is required unless the substitution or amendment is done merely to correct a technicality, C. Wright & A. Miller,
Federal Practice and Procedure
§ 1085, at 21 (5th ed. 1982), we have held that if service of a summons and complaint results in an intended defendant being fully informed of the pendency and nature of the action, the court has acquired jurisdiction over that defendant even despite a misnomer.
Lange v. Johnson,
Although the tenor of the memorandum which is a part of the district court’s order suggests that the court determined that St. Paul F & M was fully informed of the pendency and nature of the proceeding despite the misnomer, the order requires service of the amended supplemental summons and complaint. Inasmuch as the amended supplemental summons and complaint were actually served on St. Paul F & M, we have no doubt that the court thereby acquired jurisdiction over St. Paul F & M. This court has long been committed to the principle that technical or formal defects which do not affect substantial rights and which could not have misled or prejudiced the adverse party should be disregarded.
E.g., Hanna v. Russell,
The central issue in this ease is the force and effect of the judgment entered on the stipulation for settlement into which Baumann-Furrie and the plaintiffs entered. That the judgment is binding on the stipulating parties is undisputed. The district court ruled, however, that St. Paul F & M, though not a party to the stipulation was bound by it. The ruling was premised on the determination that one of the signers of the stipulation, counsel engaged by St. Paul F & M to conduct Baumann-Furrie’s defense, had apparent authority to bind St. Paul F & M. It is clear, however, from the language of the stipulation itself that St. Paul F & M declined to enter into the stipulation and that counsel was not acting on its behalf in entering into the stipulation. The stipulation recites that the St. Paul F & M had been requested several times to enter into negotiations directed to a settlement in excess of $500,000, that St. Paul F & M had been notified that the parties intended to enter into a stipulation for entry of judgment against Baumann-Furrie in the amount of $1 million, and that *872 St. Paul F & M “again declined to consider paying any settlement above $500,000.” That language forecloses any contention that St. Paul F & M caused the judgment creditors to believe that it authorized counsel to bind it to the stipulation or that the judgment creditors believed that counsel was authorized to enter into the agreement on its behalf. 3 Indeed, it must have been apparent to the judgment creditors that counsel engaged to defend the insured was acting contrary to the insurer’s instructions. There is, therefore, no basis for concluding counsel had “apparent authority” to bind St. Paul F & M to the stipulation.
Characterizing their agreement as a
Miller-Shugart
stipulation for settlement, Baumann-Furrie and the judgment creditors argue that Baumann-Furrie’s potential exposure to liability exceeded $1 million; that St. Paul F & M conceded the availability of policy limits of only $500,000; and that, therefore, Baumann-Furrie had the right to protect itself against personal liability in excess of $500,000 by entering into this agreement. While the argument is superficially appealing, on second glance it founders on the rock of reality lurking just below the surface: the same argument can be made whenever a claim exceeds the limits of the defendant’s insurance coverage. It is
always
in the best interest of the insured to enter into an agreement which completely eliminates the insured’s exposure to personal liability for damages and in many cases, by continued denial of fault, damage to the insured’s reputation as well. But that fact does not justify the insured’s concession of liability for damages equal to the maximum aggregate limits of its insurance coverage. Only the insurer's denial of the existence of
any
coverage for the claim and the resultant exposure of the insured to liability for the entire amount of any damage award provide a basis for requiring the insurer’s right to the insured’s cooperation to yield to the insured’s need to extricate himself or herself without the insurer’s agreement.
Miller v. Shugart,
Moreover, the determination in
Miller v. Shugart
that the insureds had not breached their duty to cooperate with the insurer did not depend simply on the denial of coverage. There was a certain distance in the relationship between the facts on which the coverage question depended and those governing the issues of liability and damages in the main action. Miller was injured while a passenger in an automobile owned by Lacoshonas and operated by Shugart. The owner’s' insured denied coverage to Shugart on the ground that he was not the owner’s agent. The insurer instituted a declaratory action and while the insurer’s appeal in that action was pending, Miller and the insureds entered into a settlement stipulation for an amount in excess of the owner’s policy, collectible only from any applicable insurance. Following this court’s affirmance of the independent determination in the declaratory action that. Shugart was an insured within the policy coverage, this court held that, “on the facts of this case” the insureds did not breach their duty to cooperate with the insurer by settling directly with Miller.
Miller v. Shugart,
*873 Clearly, the nature of a dispute over applicable limits of liability differs sharply from that of a dispute over the existence of coverage. In a sense the dispute here over liability limits more closely resembles a difference of opinion with respect to an evaluation of the probable outcome of the litigation, for the solution to the question depends on what is proved in the main action. 4 Because of this difference in the nature of the dispute, the impact of the insured’s conduct in the present ease is very different from the impact of conduct which results in an enforceable Miller-Shugart settlement. The initial basis for a Miller-Shugart settlement is the insurer’s denial of any coverage for the claim against the insured. Thus, before the insurer has any obligation to pay the judgment entered on the stipulation, it has the opportunity to test its policy defense; and if the insurer’s denial of coverage is upheld, that is the end of the matter. If, on the other hand, the insurer acknowledges that its policy covers the insured’s liability to the extent of a specified monetary limit, when the insured admits liability in excess of that limit, the insured would unilaterally obligate the insurer to pay its conceded limit of liability before it could assert any policy defense. 5
Moreover, the stipulation in the present case is unabashedly directed to the resolution of the coverage question by the insured’s concession not only that it was negligent but that it was guilty of various unrelated acts of negligence which caused damages in excess of $1 million. 6 This stipulation for settlement, executed by Baumann-Furrie over its insurer’s protest, is the coup d’etat by which the insured has wrested control of the lawsuit from the insurer, stripping it of its contractual right to defend and settle the action, and thus violating the insured’s covenants.
Good faith and fair dealing between insurer and insured are, of course, correlative obligations,
Larson v. Anchor Cas. Co.,
Where a claim is made against an insured which may exceed policy limits, and where the insured and insurer may each incur liability, then each assumes an obligation to act in good faith, to face the facts realistically, and to maintain a mutual respect for the interests of the other.
Sargent v. Johnson,
In this case, the insurer not only met its contractual obligation to defend the insured, but, unlike its counterpart in
Mil
*874
ler v. Shugart,
it also conceded that all of the conduct alleged by the various plaintiffs falls within the coverage afforded by its policy. The dispute between the insurer and the insured here is not whether the policy covers the insurer’s liability, if any, but rather the extent to which any liability is covered. Of course, an insurer which refuses in bad faith to settle within its policy limits, subverting the insured’s interest to its own, does so at its peril,
Short v. Dairyland Ins. Co.,
In
Sargent
the Court of Appeals went on to hold that by entering into a settlement agreement without the concurrence or consent of its insurance carrier an insured had not only breached the insurance policy but had also failed to deal with its insurer in good faith, thereby effectively severing the insurer-insured relationship.
Id.
at 232.
8
Although we are disinclined to characterize Baumann-Furrie’s entry into the settlement stipulation as bad faith conduct, we do recognize that the insured’s conduct amounts to a breach of contract which voids coverage if it is material and prejudicial.
Juvland v. Plaisance,
Ordinarily, when an insurer has acknowledged the existence and applicability of coverage with respect to a pending action, the deprivation of the contractual right to defend and settle the lawsuit attendant upon the execution of a stipulation for settlement prejudices the insurer and voids the policy coverage. The tenor of the stipulation of settlement and the circumstances under which it was negotiated and presented to the trial judge, however, sug *875 gest to us that the stipulation may have been executed with the understanding, shared by the insurer, that whatever chances the parties took with respect to the disputed limits, entry into the stipulation would not jeopardize coverage to the extent of the conceded limit of $500,000. Because we cannot determine on the record before us whether the insurer joined in an agreement to recognize the continued vitality of the insurance coverage to the $500,000 limit, we remand to the trial court for determination of that fact issue.
Absent such an agreement, the policy is void. If it should be determined that the insurer agreed that its conceded limits of $500,000 should remain in force despite the stipulation of settlement, then, it seems to us, the trial court might, on the judgment creditors’ motion, set aside the stipulated judgment on such terms with respect to costs, fees and disbursements as may be appropriate and reopen the main action for trial on all issues.
Reversed and remanded for further proceedings in accordance with this opinion.
Notes
. The stipulation recites the pendency of a similar action commenced in Scott County by Kellogg Commission Company, its claim as creditor in the Ghent bankruptcy, and the inclusion of its claim in the damage claim of the Ghent bankruptcy trustee in the subject action. Kellogg Commission Company consented to the settlement stipulation and agreed to dismiss its action and release all claims against Baumann-Furrie.
. The district court declared that the substitution was timely; that St. Paul F & M had received notice of the garnishment action shortly after service of the garnishment summons on St. Paul Companies and would not be prejudiced in maintaining a defense on the merits; and that St. Paul F & M knew that a mistake had been made and that the garnishment summons should have been served on the St. Paul F & M because shortly after commencement of the garnishment by service of St. Paul Companies, St. Paul F & M notified counsel for the judgment creditors that St. Paul F & M was the insurer and the proper garnishee and that it was a wholly-owned subsidiary of St. Paul Companies. The district court noted also that the stipulation of settlement had named St. Paul F & M as the insurer. On these facts, dismissal of the garnishee and commencement of a new garnishment proceeding would have been a more appropriate disposition of the matter.
. We are not unmindful of our adjuration that counsel who undertakes to represent a policyholder owes to the policyholder the same "undeviating and single allegiance” that counsel would owe to the client if retained and paid by the insured rather than the insurer.
Newcomb v. Meiss,
. We have previously recognized that insurance coverage questions are not always amenable to resolution by declaratory actions.
Prahm v. Rupp Constr. Co.,
. If, as in the present case, the amount of the settlement stipulation is twice the conceded policy limit, acceptance of the reasonableness of the settlement — at least to the extent of the conceded policy limits — would seem rather likely-
.The St. Paul F & M has taken a two-pronged position with respect to limit of its liability in this matter: if the insured is liable to the plaintiffs, the liability arises out of an error or a series of related errors and is, therefore, insured only to the extent of |500,000; and if liability is based on two or more unrelated errors, the limit of the insurance coverage depends on the amount of damage caused by each error. In the latter event, the $500,000 limit for each error remains in place and the aggregate limits of liability for damages from all errors is $1 million. While the insured and the plaintiffs all have agreed that the insured’s liability arises out of several unrelated errors, the record does not disclose any attempt to tie damages to specific errors. It occurs to us, however, that the aggregate amount of the judgment creditors’ claims in the Ghent Grain bankruptcy proceeding remaining unpaid at the time of trial may not be an appropriate measure of damages.
. We reject the theory of anticipatory breach adopted in
Arizona Property & Casualty Ins. Guaranty Fund v. Helme,
. "[T]he insured not only breached its contract, but acted in bad faith. Counsel for the insured did not enter into a bargain to settle its liability claims for a fair price, but entered into a questionable collaboration by which the parties maneuvered through terms of a settlement agreement to impose an uncompromised full balance of a judgment upon the insurer, while the insured incurred no real detriment.”
Sargent,