Can members of a law firm own a controlling interest in a title insurance company they refer clients to?

Plain-English summary

The inquiring attorney's firm intended to organize, with others, a for-profit corporation to act as title insurance agents issuing title insurance to real estate vendees and mortgagees, with the firm's members owning the majority of the stock. The title business would operate from a location substantially distant from the law office; firm members would be directors but take no part in day-to-day operations; and the firm would probably issue title opinions to the company on which policies would be written. The inquirer stated that title company employees would be instructed not to refer legal matters to the firm, that the firm would refer business to the company only on a client's or third party's solicitation and with full disclosure of the firm's financial interest, and that the company would not engage in the abstract business. He asked whether there was any ethical objection so long as the firm did not use the company as a "feeder" and did not mingle the company's business physically or functionally with the law practice.

The committee found that the inquirer and his firm were cognizant of the ethical considerations and were taking every precaution to avoid them. It found they were meeting the requirements of EC 2-21 by disclosing to clients the firm's financial interest in the title company, and were taking specific action to avoid the "feeder" problem. The committee concluded there was no ethical impropriety under these circumstances, citing its prior opinions 59-38, 63-12, 64-45, 70-16, and 72-26, and ABA Informal Opinions C731 and 883.

Currency note

This opinion was issued in 1973, before The Florida Bar's adoption of the 2006 revisions to the Rules of Professional Conduct. It applied the former Code of Professional Responsibility, which has since been replaced. The opinion's note also points to current Rule 4-1.8(a) on business transactions with clients. Treat this page as historical context, not current guidance. Verify against current Rules 4-1.8 and 4-5.7 before relying on any specific requirement mentioned here.

Common questions

Q: Could the firm's members own a title insurance company?

A: Under this opinion, yes. The committee found no ethical impropriety in the firm's members holding a substantial interest under the precautions described.

Q: What conditions did the committee rely on?

A: That referred clients are informed of the firm's financial interest, the company is not used as a "feeder" of legal business, and the company's business is not mingled with the law practice.

Q: Did the committee address business transactions with the clients themselves?

A: The opinion's note directs compliance with current Rule 4-1.8(a) when lawyers refer clients to a business in which the lawyer owns an interest.

Background and rules framework

The opinion applied EC 2-21 of the former Code of Professional Responsibility (disclosure of a lawyer's interest) to a law firm's ownership of a title insurance company. The opinion's note directs compliance with current Rule 4-1.8(a) (business transactions with clients). In current Florida practice the subject corresponds to Rule 4-1.8 (conflicts arising from a lawyer's interests and business transactions with clients) and Rule 4-5.7 (responsibilities regarding law-related services); the Model Rule analogues are 1.8 and 5.7.

Citations and references

Rules of Professional Conduct:

• CPR EC 2-21 (disclosure of a lawyer's interest); the opinion's note cites current Rule 4-1.8(a) (business transactions with clients)

Other opinions cited:

• Florida Opinions 59-38, 63-12 (since withdrawn), 64-45 (since withdrawn), 70-16 (since withdrawn), 72-26
• ABA Informal Opinions C731 and 883

See also

• FL Bar Ethics Op. 73-17: Owning Stock in a Legal-Fee Insurer
• FL Bar Ethics Op. 73-20: A Lawyer-Owned Jury-Investigation Service

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-73-1/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-73-1-1-1.pdf

Original opinion text

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

FLORIDA BAR ETHICS OPINION
OPINION 73-1
April 20, 1973
Advisory ethics opinions are not binding.
There is no ethical objection to members of a law firm having a substantial interest in a title insurance company so long as any client referred to the company is informed of that interest and the company is not used to feed legal business to the firm.
Note: Lawyers who refer clients to a business in which the lawyer owns an interest must comply with Rule 4-1.8(a), regarding business transactions with clients.
CPR: EC 2-21
Opinions: 59-38, 63-12, 64-45, 70-16, 72-26; ABA Informal C731, 883
Vice Chairman Zehmer stated the opinion of the committee:
The inquiring attorney's firm intends to organize, in conjunction with other parties, a corporation for profit to act as title insurance agents for the purpose of issuing title insurance to real estate vendees and mortgagees. The members of the inquirer's law firm will own the majority of the stock. Although the title insurance business will be conducted in cities where the law firm maintains offices, the title company will conduct its business from a location substantially distant from the location of the law office. The inquirer further states that members of his firm would be directors of the title company, but would take no part in its day to day operations. His firm would probably issue title opinions to the title company upon which various title policies would be written.
The inquirer also states that employees of the title company would be instructed not to refer legal matters to the inquirer's firm and the inquirer's firm would refer business to the title company only upon solicitation by a client or third party with full disclosure that members of the law firm have a financial interest in the title company. The title company would not engage in the abstract business.
The inquirer asks whether there is any ethical objection to the members of his firm having a substantial interest in the title company so long as his firm does not use the title company as a "feeder" for the law practice and the members of the law firm do not mingle title company business either physically or functionally with their law practice.
It appears that the inquirer and the members of his law firm are cognizant of the ethical considerations involved and are taking every precaution to avoid them. They are meeting the requirements of EC 2-21, Code of Professional Responsibility, by disclosing to clients that members of the law firm have a financial interest in the title company. They are taking specific action to avoid the "feeder" problem. In short, the Committee finds no ethical impropriety under these circumstances. See this Committee's opinions 59-38, 63-12 [since withdrawn], 64-45 [since withdrawn], 70-16 [since withdrawn], and 72-26. See also ABA Informal Opinions C731 and 883.