Can a liability insurer's salaried staff lawyers represent both the insurer and its insureds, and what may that staff-counsel office call itself?

Plain-English summary

The opinion answers two questions about lawyers employed directly by a liability insurer (staff counsel) rather than retained from an outside firm. It expressly does not decide the state-law question of whether using staff counsel is the unauthorized practice of law, focusing only on the ethics.

On representation, the committee reaffirms its earlier opinions recognizing a community of interest between insurer and insured and concludes that "insurance staff counsel ethically may undertake such representations so long as the lawyers (1) inform all insureds whom they represent that the lawyers are employees of the insurance company, and (2) exercise independent professional judgment in advising or otherwise representing the insureds." Employee status does not itself create a conflict, because the Model Rules already contemplate one lawyer representing multiple clients; if a conflict does arise, the lawyer must obtain the insured's informed consent or withdraw from representing the insured. In a full-coverage case where the insurer's and insured's financial interests align, even substantial insurer control over its employees is, in the committee's words, "of no significance" because there is no temptation to favor the insurer. The committee grounds the disclosure duty in Rule 1.8(f) and the independence duty in Rule 5.4(c), which requires independent professional judgment "regardless of who may be paying for the lawyer's services."

On naming, the committee asks whether a staff-counsel association is a "firm" under Rule 1.0(c). It concludes such offices, with a supervising lawyer functioning like a managing partner, shared confidences, and collective work, fall within the definition and bear law-firm responsibilities. They may therefore use a firm, association, or trade name subject to Rule 7.5(a) and Rule 7.1's bar on false or misleading communications. A traditional firm name could mislead insureds unaware of the insurer affiliation, but that risk is dispelled by the required disclosure of employment status; explanatory letterhead is permitted but not required. The committee notes permissible forms (a supervising lawyer's name, two or more lawyers' names, or a trade name including the insurer's name) and cautions that Rule 7.5(d) requires that any implication of a partnership be accurate.

In practice

Under this opinion, and under the Model Rules as they stood at the time, two conditions govern the representation: disclosure to each insured that the lawyer is an insurer employee (Rule 1.8(f)) and the exercise of independent professional judgment (Rule 5.4(c)). The opinion treats the insurer-employee relationship as compatible with representing insureds in aligned-interest cases, and routes any actual conflict through informed consent or withdrawal. On office names, the opinion treats the staff-counsel office as a law firm subject to Rules 7.1 and 7.5, with disclosure of the insurer affiliation as the feature that keeps an otherwise traditional firm name from being misleading.

Common questions

Q: Can a lawyer on an insurance company's payroll represent the company's policyholder?

A: Yes, with conditions. The opinion permits it "so long as the lawyers (1) inform all insureds whom they represent that the lawyers are employees of the insurance company, and (2) exercise independent professional judgment."

Q: Does being the insurer's employee create a conflict by itself?

A: No. The opinion states the committee does "not view the employment status of insurance staff counsel as itself creating a conflict" when both insurer and insured are represented in a covered suit.

Q: What keeps the insurer from controlling the lawyer's judgment?

A: Rule 5.4(c). The opinion stresses staff counsel must be vigilant of the rule requiring independent professional judgment "regardless of who may be paying for the lawyer's services."

Q: What can the staff-counsel office call itself?

A: A firm, association, or trade name. The opinion concludes such offices may use the lawyers' names or a trade name, including the insurer's name, subject to Rule 7.5(a), provided the insurer affiliation is disclosed to insureds and the name is not misleading.

Background and rules framework

The opinion interprets Model Rule 1.8(f) (compensation from a third party; informed consent, independence, confidentiality), Rule 5.4(c) (no interference with independent judgment by the person paying), Rule 1.0(c) (definition of "firm," including a corporate legal department), Rule 7.5(a) and (d) (firm names and partnership implications), Rule 7.1 (false or misleading communications), and Rule 1.10 (imputation across offices that share confidences). It is based on the Model Rules as amended in August 2003.

Citations and references

Rules of Professional Conduct:

• ABA Model Rule 1.8(f) (third-party compensation; disclosure to insureds)
• ABA Model Rule 5.4(c) (independent professional judgment)
• ABA Model Rule 1.0(c) (definition of "firm")
• ABA Model Rule 7.5(a), (d) and 7.1 (firm names; false or misleading communications)
• ABA Model Rule 1.10 (imputation of conflicts)

Cases:

• Cincinnati Ins. Co. v. Wills, 717 N.E.2d 151 (Ind. 1999)
• American Ins. Ass'n v. Kentucky Bar Ass'n, 917 S.W.2d 568 (Ky. 1996)

Other opinions cited:

• ABA Formal Op. 96-403 (1996): obligations to an insured who objects to a settlement within policy limits
• ABA Formal Op. 01-421 (2001): lawyers working under insurance-company guidelines and restrictions
• ABA Formal Op. 282 (1950): community of interest between insurer and insured

See also

• ABA Formal Op. 05-435: Suing the Insured of a Client Insurer
• ABA Formal Op. 497: Conflicts Involving Materially Adverse Interests
• TX Ethics Op. 696: Insurance Staff Counsel Performance Surveys

Source

• Landing page: ABA Formal Ethics Opinions index
• Original PDF: 03-430.pdf