When an attorney engaged by an insurance carrier to defend the interests of an insured obtains information that could provide a basis for the insurance carrier to deny coverage, the attorney is ethically prohibited from disclosing that information to the insurance carrier. In such a situation, the attorney must withdraw from the representation.Up to the last sentence, the conclusion is not surprising and, as far as I know, the generally accepted view on this issue everywhere. But the last sentence (the duty to withdraw) only makes sense in jurisdictions that hold that an attorney hired by a person to represent another actually has two clients. In jurisdictions where the attorney in such circumstances only has one client (the insured, in this example), there should be no duty to withdraw.
Also, as pointed out by Faughnan on Ethics, what happens when the attorney in California withdraws and a new attorney is appointed to the representation of the insured. The same thing will happen again, and that new attorney will have to withdraw.
You can read the opinion here.