Can an insurance company use its own salaried in-house lawyers to defend its insureds in litigation?

Plain-English summary

The Committee considered whether an insurance company could employ in-house, salaried lawyer-employees to represent its insureds in litigation before Alaska courts, an arrangement insurers had adopted as a cost-control measure. The opinion framed the question within the tripartite relationship among the insurer, the insured, and defense counsel, and concluded the arrangement was permissible only under stated conditions.

The opinion concluded that an insurer's attorney-employee may provide defense services to an insured so long as there is full disclosure of the attorney's relationship with the insurer, the client consents after consultation, the lawyer reasonably believes the representation will not be adversely affected by the employment, and there is no conflict of interest between the insurer and the insured. The Committee analyzed the concern that a staff lawyer's employment by the insurer could compromise the independent professional judgment owed to the insured under Rule 1.7(b), drawing on the Alaska Supreme Court's discussion in CHI of Alaska v. Employers Reinsurance, 844 P.2d 1113 (Alaska 1993), of conflicts inherent in the relationship (including a token defense where the insurer may later assert non-coverage, steering the defense toward an uninsured theory, and the insurer's access to confidential information usable in later coverage litigation).

The opinion explained that where such a conflict exists, in particular where coverage is disputed, the staff lawyer could not reasonably believe the representation would not be adversely affected, so representation by salaried staff counsel was prohibited under Rule 1.7(b)(1). Absent such a conflict, and with disclosure and consent, the arrangement was permitted.

Currency note

This opinion was issued in 1999, before Alaska's adoption of the 2009 revisions to the Alaska Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Could an insurer use its own salaried lawyers to defend insureds?

A: The opinion concluded it could, but only with full disclosure of the lawyer's relationship to the insurer, the insured's consent after consultation, the lawyer's reasonable belief the representation would not be adversely affected, and no insurer-insured conflict.

Q: What happened when coverage was in dispute?

A: Per the opinion, where a conflict existed, such as a coverage dispute, the staff lawyer could not reasonably believe the representation would be unaffected, so representation by salaried staff counsel was prohibited under Rule 1.7(b)(1).

Q: What conflicts did the Committee identify in the insurer-insured relationship?

A: Citing CHI of Alaska, the opinion noted the risks of a token defense where non-coverage may later be asserted, steering the defense toward an uninsured theory, and the insurer's later use of confidential information gained during the defense.

Background and rules framework

The opinion interpreted Alaska Rule of Professional Conduct 1.7 (conflicts of interest, particularly the Rule 1.7(b) limit on representation materially limited by the lawyer's other responsibilities or interests; Model Rule 1.7) in the insurance-defense context, alongside Rule 5.4 principles on professional independence (Model Rule 5.4). It relied on CHI of Alaska v. Employers Reinsurance, 844 P.2d 1113 (Alaska 1993), and the earlier Ethics Opinion 89-3.

Citations and references

Rules of Professional Conduct:

• Alaska RPC 1.7(b) (conflicts; materially limited representation)
• Alaska RPC 5.4 (professional independence of a lawyer)

Cases:

• CHI of Alaska v. Employers Reinsurance, 844 P.2d 1113 (Alaska 1993)
• Continental Ins. Co. v. Bayless & Roberts, Inc., 608 P.2d 281 (Alaska 1980)

Other opinions cited:

• Alaska Ethics Opinion 89-3

See also

• ABA Formal Op. 03-430: Insurance Staff Counsel
• ABA Formal Op. 01-421: Insurer Litigation Guidelines
• AK Bar Ethics Op. 99-1: Billings to Insurer's Auditor

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/99-3.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

ALASKA BAR ASSOCIATION
ETHICS OPINION NO. 99-3
May In-House Staff Counsel For An
Insurance Company Represent Insureds?
INTRODUCTION
A three-way relationship amongst a liability insurer, its insured, and
defense counsel retained by the insurer to represent the insured, gives rise to
numerous ethical considerations for defense counsel.1 Insurers have
attempted to institute a number of measures to control costs in recent years,
including the provision of defense services directly through salaried lawyer
employees. The Ethics Committee has been asked to consider the ethical
propriety of this arrangement. May an insurance company employ in-house
counsel (salaried employees) to represent their insured in litigation before
Alaska courts?
The Committee concludes that the attorney/employee of an insurer may
provide defense services to an insured so long as: (1) there is full disclosure of
the attorney's relationship with the insurer; (2) the client consents after
consultation; (3) the lawyer reasonably believes the representation will not be
adversely affected by his employment; and (4) there is no conflict of interest
between the insurer and insured.
ANALYSIS
1.

The Tripartite Relationship
An analysis of the issues involved in this opinion requires a brief
discussion of the different aspects of the relationship between the insurer, its
insured, and the defense attorney retained by the insurer to represent the
insured. First, the insured has contracted with the insurer for insurance. As
part of this insurance, the insurer typically agrees to provide a defense,
including legal representation, for the insured. Often times, the insurer has a
contractual duty to provide the insured with legal representation. In exchange,
1

See, e.g., Ethics Opinion Nos. 89-3 (Duty of Defense Attorney Where Insured Objects to
Insurer's Selection of Defense Counsel); 90-2 (Duty of Defense Attorney Where Insurer Directs
Offer of Judgment); 99-1 (Disclosure of Detailed Information to Outside Billing Auditors). See
also CHI of Alaska, Inc. v. Employers' Reins. Corp., 844 P.2d 1113 (Alaska 1993); A.S.
21.89.100.

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the insurer typically receives the right to control the defense (and often the
settlement) of the underlying claim against the insured. When the insurer
retains an attorney to represent the insured, the insured becomes the
attorney's client. Even though the insurer is paying for the attorney's legal
services (by fee or salary), professional responsibilities of the attorney,
including the duties of confidentiality and loyalty, run to the insured.2
2.

The Alaska Rules
The Alaska Rules of Professional Conduct expressly recognize that an
attorney may ethically represent a client, where another pays the legal fees or
salary. Rule 1.8(f) provides:
A lawyer shall not accept compensation for
representing a client from one other than the client
unless:
(1)

the client consents after consultation;

(2)
there is no interference with the lawyer's
independence of professional judgment or with
the client-lawyer relationship; and
(3)
information relating to representation of a
client is protected as required by Rule 1.6.
Rule 1.7 is also implicated:
(b)
A lawyer shall not represent a client if the
representation of that client may be materially limited
by the lawyer's responsibilities to another client or to a
2

Much has been written about the tripartite relationship between insured, insurer, and defense
counsel. It is a triangular relationship because each of the three parties owe, in some respect,
either contractual, statutory, or common law duties to the other. It is unresolved in Alaska as to
whether both the insurer and the insured are clients of the defense counsel. Some would argue
that the only attorney-client relationship that exists is between the defense counsel and the
insured, while others have taken the position that the insurer and insured are co-clients of the
defense counsel. See CHI of Alaska, 844 P.2d at 1116 (noting the different authorities that take
the view that appointed counsel represents both the insurer and the insured); Home Indem. Co. v.
Lane, Powell, Moss & Miller, 43 F.3d 1322, 1331 (9th Cir. 1995) (holding the Alaska Supreme
Court would find an attorney-client relationship between the insurer and the counsel it retains for
the insured). The Ethics Committee takes no position on this debate, and notes that there is no
debate that the insured is a client.

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third person, or by the lawyer's own interests, unless;
(1)
the lawyer reasonably believes the
representation will not be adversely affected; and
(2)
the client consents after consultation.
When representation of multiple clients in a
single matter is undertaken, the consultation
shall include explanation of the implications of
the common representation and the advantages
and risks involved.
(Emphasis added.)
3.

The Lawyer Must Maintain Independent Professional Judgment
In all cases, the lawyer for the insured must maintain his or her
professional independence, and exercise professional judgment for the sole
benefit of the client. A lawyer may accept compensation from someone other
than the client only if there is no interference with his independence and
professional judgment. In CHI of Alaska, Inc. v. Employers' Reins. Corp., 844
P.2d 1113 (Alaska 1993), the supreme court noted that appointed defense
counsel owes "an absolute duty of fidelity to the insured over the interests of
the insurer." Id. at 1116. The court further quoted with approval from a
decision of the Arizona Supreme Court:
We emphasize that the attorney who represents the
insured owes him an undeviating allegiance whether
compensated by the insurer or the insured and cannot
act as an agent of the insurance company by
supplying information detrimental to the insured.
Id. (quoting Farmers' Ins. Co. of Ariz. v. Vagnozzi, 138 Ariz. 443, 448, 675 P.2d
703, 708 (Ariz. 1983)). Thus, regardless of who pays the lawyer's bill (or
salary), the insurance defense attorney owes a duty of unfettered loyalty to the
client insured.
In some states, the use of salaried staff counsel to defend the insured
has been criticized on legal and ethical grounds. However, the majority of
states which have considered the use of staff counsel to defend insureds have
approved of the arrangement.
The early decisions uniformly approved the insurer's use of salaried
lawyers to defend their insureds. The American Bar Association Committee on
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Ethics and Professional Responsibility has opined that ethics rules apply
uniformly to all attorneys, regardless of how they are paid. In a 1950 opinion,
the ABA Committee stated that a lawyer employed and compensated by an
insurance company, which holds a standard contract of insurance with its
insured, "may with propriety defend the insured in an action brought by a third
party." ABA Comm. on Professional Ethics, Formal Op. 282 (1950). The ABA
noted the "essential point of ethics" raised by the use of salaried staff counsel
to defend insureds is the question of conflict of interest. The ABA opinion
concludes that conflicts will not arise as long as staff counsel "represent[s] the
insured as his client with undivided fidelity as the rule requires." Id. This
position is consistent with Alaska law on defense counsel's duty of loyalty. See
CHI of Alaska, Inc., 844 P.2d at 1116.
Critics have sought to prohibit the use of salaried counsel on two basic
grounds. First, they charge that the use of in-house counsel engages the
insurance company in the unauthorized practice of law. Second, the practice
is claimed to result in actual or potential conflicts of interest.
4.

The Insurer and the Unauthorized Practice of Law
The majority of courts which have looked at the unauthorized practice of
law issue have concluded the attorney-employee is not aiding a non-attorney in
the practice of law. In fact, until 1986, every court and ethics group that had
carefully studied the salaried counsel issue found the practice permissible. See
Jackson, Defending the Insured with Salaried Counsel: Legal and Ethical
Considerations, Vol. 27, No. 2 The Brief 38, 40 (Winter 1998). In Gardner v.
North Carolina State Bar, 341 S.E.2d 517 (N.C. 1986), the North Carolina
Supreme Court held that state's unauthorized practice statute precluded the
use of salaried house counsel. The court initially observed that by making an
appearance, the lawyer was in effect appearing for his corporate employer. If
the lawyer appeared for an insured, the insurer would be appearing for
someone else, in violation of North Carolina's practice of law statute. The court
reasoned that the insurance company itself could not be a party to the action.3
The Gardner decision has been severely criticized. The Missouri
Supreme Court refused to adopt the reasoning of the Gardner case, and instead
chose to follow what it described as the weight of authority. In re Allstate, 722
S.W.2d 947 (Mo. 1987). The Missouri court noted the unauthorized practice
3

The Gardner court noted the substantial contrary authority from other jurisdictions, but
distinguished its own unauthorized practice statute. Gardner, 341 S.E.2d at 522. The North
Carolina statute provided: "It shall be unlawful for any corporation to practice law or appear as
an attorney for any person in any court in this state . . . ." Id. at 520. Alaska's unauthorized
practice laws do not contain the same prohibitions.

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statutes were designed to preclude a corporation with non-professional
shareholders from obtaining a proprietary interest in the practice of law. In
1993, a Connecticut court also reviewed the unauthorized practice claim. King
v. Guiliani, 1993 WL 284462 (Conn. Super. Ct. 1993). It found the Gardner
decision unpersuasive, and chose to follow Allstate. The Connecticut court
concluded the overwhelming weight of authority permitted the use of salaried
attorney employees to represent the interests of the insured and the insurer
provided there was no conflict of interest.
In 1995, the Tennessee Supreme Court overturned an ethics opinion
prohibiting liability insurers' use of salaried lawyers to defend their insureds.
One of the original reasons for the ethics opinion was the conclusion that the
use of salaried lawyers violated Tennessee's unauthorized practice statute.
Once again, the Tennessee Supreme Court rejected a per se rule that the use of
salaried attorney employees aided non-attorneys in the practice of law.
However, the mere fact that the lawyers are employees
of [an] insurance company does not necessarily
compromise the attorney's independent professional
judgment.
As stated with regard to the conflict of interest
issue, the specific facts of each situation must be
examined to determine if the attorney is aiding a nonattorney in the practice of law. The mere showing of
the relationship of employer/employee, without a
definition of the duties, loyalties, prerogatives, and
interests of the parties, is not a sufficient basis on
which to conclude that the attorney employee is aiding
a non-attorney in the practice of law.
Petition of Youngblood, 895 S.W.2d 322, 331 (Tenn. 1995).
Like most states, Alaska has statutes and rules prohibiting the
unauthorized practice of law. Alaska Rule of Professional Conduct 5.5
prohibits a lawyer from assisting a person who is not a member of the bar in
their performance of activity that constitutes the unauthorized practice of law.
In addition, under Alaska Rule of Professional Conduct 5.4, a lawyer is
prohibited from sharing legal fees with a non-lawyer, except under defined
circumstances. Finally, and most importantly,
a lawyer shall not permit a person who recommends,
employs, or pays the lawyer to render legal services for
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another to direct or regulate the lawyer's professional
judgment in rendering such legal services.
Alaska R. Professional Conduct 5.4(c).
In the Committee's view, the Alaska Rules clearly provide for the
professional independence of a lawyer, even though he or she may be employed
by a non-lawyer. A staff lawyer who represents the insured using the best of
his or her independent professional judgment, is not aiding the insurer in the
unauthorized practice of law. The Committee fails to see a distinction between
the lawyer employee of an insurance company, and any other lawyer employee
of a corporation, association or public entity.4
5.

Potential Conflicts of Interest
The second reason usually given by critics of salaried staff counsel for
objecting to the relationship is the potential for conflicts of interest. Some
courts, like Kentucky, have concluded the potential for conflict is so great that
a per se rule is required. In American Ins. Ass'n v. Kentucky Bar Ass'n., 917
S.W.2d 568 (Ky. 1996), the court acknowledged the trends of other
jurisdictions, but concluded, without analysis, that staff counsel would be
incapable of providing undivided loyalty to the insured. Most other courts,
however, have concluded the relationship of staff counsel to the insured is no
different than any other potential conflict of interest situation. In the
Committee's view, a per se rule against the use of salaried staff counsel is
overly restrictive. The Rules of Professional Conduct recognize that certain
situations are fraught with potential conflicts. However, the potential for
conflict does not mean the lawyer must, in all cases, avoid the representation.
On the contrary, the Rules recognize that a potential for conflict does not
4

A contrary conclusion could lead to absurd results. Corporate entities of all kinds would be
prohibited from using their staff counsel in litigation matters. Banks or other lenders would be
unable to pursue collections actions through their staff lawyers. Corporations of all kinds would
be prohibited from using their own in-house lawyers in litigation matters. Unions and other
professional organizations would be unable to use staff lawyers in litigation for and against their
membership. Government and quasi-governmental bodies would similarly be prohibited from
using lawyer employees. For example, employees of the Attorney General's Office who are
appointed to represent individual State employees, could be aiding the unauthorized practice of
law by the State. Lawyer employees of the Municipality could be aiding the Municipality in the
unauthorized practice of law when they represent Municipal officers or other City employees.
School District lawyers could be aiding the unauthorized practice of law by the School District
when they represent teachers. Thus, the Committee fails to see a distinction if the lawyer is
employed by an insurance company.

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preclude employment. See Alaska R. Professional Conduct 1.7 cmt.5
Finally, the New Jersey Supreme Court Committee on Unauthorized
Practice recently addressed whether the use of salaried staff counsel was
prohibited by the rules of ethics. The New Jersey Committee concluded that an
insured's representation by a salaried attorney was permissible. The
Committee noted the ethical issues confronting in-house counsel were no
different than those confronting appointed counsel in most insurance defense
contexts. Consequently, whether the insured was represented by a salaried
attorney or outside counsel was merely a "distinction without a difference."
See New Jersey Supreme Court Comm. on Unauthorized Practice, Op. 23
(1996).
In the Committee's view, a per se rule prohibiting staff counsel would
presume unethical conduct on the part of the lawyer. The Committee refuses
to condone such a presumption. All lawyers practicing in this state must abide
by the Alaska Rules of Professional Conduct. To presume that any lawyer will
ignore his or her professional responsibilities when it would be in their
employer's, but not their client's interest, would stand the ethical rules on their
head.
6.

Real Conflicts of Interest
Where an actual conflict of interest exists between the insurer and the
insured, the use of salaried staff counsel should be avoided. For example,
where the insurer wishes to defend under a reservation of its right to later
contest coverage, the Alaska Supreme Court has recognized the existence of
various conflicts of interest between the insured and insurer. See CHI of
Alaska, Inc. vs. Employers Reinsurance Corp., 844 P2d. 1113, 1116 (Alaska
1993). Because of these conflicts, the insured is entitled to reject appointed
defense counsel and select independent counsel of his or her own choosing. Id.
at 1118. In such a case, the Committee believes it would be inappropriate for
salaried staff counsel to defend the insured. Another commonly recurring
situation which may give rise to a conflict of interest is a settlement offer at or
within policy limits where there is a substantial likelihood of an excess
judgment.6 In such situations, where an actual conflict is identified, the
5

A possible conflict does not itself preclude the representation. The critical questions are the
likelihood that a conflict will eventuate and, if it does, whether it will materially interfere with
the lawyer's independent professional judgment in considering alternatives or foreclose courses
of action that reasonably should be pursued on behalf of the client. Alaska R. Professional
Conduct 1.7 cmt.

6

In CHI, the Alaska Supreme Court noted three conflicts which had previously been identified.
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Committee believes representation by salaried staff counsel is prohibited since
counsel could not reasonably believe the representation would both be
adversely affected. See Alaska R. Professional Conduct 1.7(b)(1).
CONCLUSION
In summary, the Committee believes the use of salaried staff counsel to
represent an insured is permissible so long as the following conditions are met:
(1) the lawyer reasonably believes the representation will not be adversely
affected by the lawyer's responsibilities to his employer/insurer, or his own
interests; (2) the client consents after consultation; and (3) there is no conflict
of interest between the insured and the insurer.
Approved by the Alaska Bar Association Ethics Committee on
September 2, 1999.
Adopted by the Board of Governors on October 22, 1999.

G:\DS\COMM\EC&OPS\OPINIONS\99-3.doc

First, the insurer may offer only a token defense if it knows it may later assert non-coverage.
Second, the insurer may be tempted to steer the defense toward an "uninsured theory" where
there are several theories of recovery, but only some are covered under the policy. Third, the
insurer may gain access to confidential information in the process of the defense which it may
later use to its advantage in coverage litigation. CHI, 844 P2d. At 1116; see also Continental
Ins. Co. vs. Bayless & Roberts, Inc., 608 P2d 281, 291 (Alaska 1980).

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