Can a law firm pay an insurance company a per-case referral fee and represent the clients the insurer sends?

Plain-English summary

Opinion 253 (adopted November 15, 1994) addressed a law firm that proposed to pay an insurance company a per-case referral fee (on a sliding scale by volume), sublease a satellite office on the insurer's premises, and take a line of credit from the insurer's principals. The insurer would tell policyholders of the firm's availability, and each referred client would get written disclosure of the referral fee, the sublease, and the line of credit, with a statement that the referral fee (paid from the firm's contingency fee) would not change the client's total fee.

The committee concluded that D.C. Rule 7.1(b)(5), which permits paying an intermediary for referrals if the client is told of the consideration paid and its effect on the total fee, is a narrow exception to Rule 5.4's general ban on sharing fees with nonlawyers (the District departed from Model Rule 7.2(c), which bars paying for recommendations). It found the firm's planned disclosures would satisfy Rule 7.1(b)(5). But the committee held the analysis did not stop there, because Rule 7.1 does not address a business relationship between the lawyer and the intermediary that could create a conflict with the referred client.

Turning to Rule 1.7(b)(4), the committee concluded that the arrangement created a long-term, mutually beneficial relationship that gave the firm business incentives to please the insurer, which reasonably could adversely affect the firm's judgment for a referred client even though the insurer would not be the firm's client. It described concrete ways a direct conflict could arise: a referred policyholder's matter might present a coverage or duty-to-defend question against the insurer, or a counterclaim triggering the insurer's coverage. The committee found that satisfying Rule 7.1's cursory disclosure would not meet Rule 1.7(c)'s requirement of full disclosure (a detailed explanation of the risks, including the share of the firm's income from the insurer's referrals).

Finally, under Rule 1.3, the committee concluded that even full disclosure and consent could not cure the problem in cases of direct conflict, because the duty of zealous and diligent representation cannot be waived by consent, and the firm's stake in the insurer relationship raised a serious obstacle to zealous representation of the referred client.

Currency note

The D.C. Bar flags Opinion 253 as having been substantively affected by the amendments to the D.C. Rules of Professional Conduct that became effective February 1, 2007.

This opinion was issued in 1994, before the District of Columbia's adoption of the 2007 revisions to the 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: Can a D.C. firm pay an insurance company for client referrals?

A: The committee concluded that D.C. Rule 7.1(b)(5) allows paying an intermediary for referrals, as a narrow exception to Rule 5.4, if the client is told of the consideration paid and its effect on the total fee.

Q: Is disclosing the referral fee enough?

A: Not for the conflict. The committee concluded that satisfying Rule 7.1 does not satisfy Rule 1.7, which requires fuller disclosure of the existence and nature of the conflict and its possible adverse consequences.

Q: Why couldn't client consent fix the problem?

A: Because of Rule 1.3. The committee concluded that the duty of zealous and diligent representation cannot be waived by consent, so even a consenting client could not authorize representation the firm's insurer relationship would compromise in a direct conflict.

Q: When would there be no direct conflict?

A: Rarely. The committee gave the example of an art insurer referring a customer for an unrelated medical malpractice claim, but said such referrals would be uncommon because insurers usually lack expertise to refer matters unconnected to their coverage.

Background and rules framework

The opinion interpreted D.C. Rule 7.1 (communications about a lawyer's services, including the Rule 7.1(b)(5) disclosure conditions for paying intermediaries; the District departed from Model Rule 7.2(c)), Rule 5.4 (sharing fees with nonlawyers), Rule 1.7(b)-(c) (conflicts and the consent requirements), and Rule 1.3 (zealous and diligent representation, which the committee treated as non-waivable).

Citations and references

Rules of Professional Conduct:

• D.C. RPC 7.1(b)(5) / Model Rule 7.1 (disclosure when paying an intermediary; compare Model Rule 7.2)
• D.C. RPC 5.4 / Model Rule 5.4 (sharing fees with nonlawyers)
• D.C. RPC 1.7(b), (c) / Model Rule 1.7 (conflicts; disclosure and consent)
• D.C. RPC 1.3 / Model Rule 1.3 (zealous and diligent representation)

Cases:

• In re James, 452 A.2d 163 (D.C. 1982), full disclosure requires a detailed explanation of the risks to the client

Other opinions cited:

• D.C. Bar Op. 226 (1992): representation is improper where the lawyer cannot zealously represent the party even with consent
• D.C. Bar Op. 210 (1990): adequate, zealous representation is an independent requirement beyond consent

See also

• DC Ethics Op. 361: Referral Fees From Nonlawyer Service Providers
• DC Ethics Op. 342: Internet-Based Lawyer Referral Service Fees
• DC Ethics Op. 307: Government Referral Program Percentage Fee

Source

• Landing page: https://www.dcbar.org/for-lawyers/legal-ethics/ethics-opinions-210-present/ethics-opinion-253