Can in-house counsel agree that the employer will hold the lawyer harmless for malpractice instead of carrying malpractice insurance?

Plain-English summary

The opinion addresses whether a lawyer employed in-house by a corporation may enter an agreement under which the employer holds the lawyer harmless for malpractice committed in the course of employment. The Board concludes such agreements are ethical when the employer is exercising an informed business judgment in using the hold harmless agreement in lieu of malpractice insurance, does so on the advice of counsel, and the agreement is permitted by law.

The opinion begins with Georgia Rule of Professional Conduct 1.8(h), which bars a lawyer from making an agreement prospectively limiting the lawyer's liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement. The Board reads the rule's purpose as preventing lawyers from taking advantage of clients and from escaping the consequences of malpractice, and finds neither concern is served by prohibiting hold harmless agreements in the in-house setting.

The Board gives two reasons. First, the position of the client as employer, and the sophistication of those who employ in-house counsel, eliminates almost all overreaching concerns. Second, the in-house lawyer does not avoid the negative consequences of malpractice, because the lawyer remains subject to discharge by the employer, and the opinion observes that employers apparently prefer discharge to malpractice suits as a remedy for negligent performance. The Board also reads the rule's independent-representation requirement as satisfied by consultation with counsel other than the lawyer being employed.

The opinion sets two limits. It declines to decide whether such agreements are permitted by law, treating that as outside its scope, and it notes that the proposed agreement does not limit liability to third parties affected by in-house counsel's representation; the agreement shifts responsibility for employee conduct from an insurance carrier to the organization as a self-insurer.

In practice

The opinion holds that, under Georgia Rule 1.8(h) as it stood at the time of the opinion, a hold harmless agreement between an employer and its in-house lawyer is ethical where the employer makes an informed business judgment to use the agreement instead of malpractice insurance, acts on the advice of counsel other than the lawyer being employed, and the agreement is permitted by law. The opinion treats the employer's sophistication and the lawyer's continued exposure to discharge as answering the rule's anti-overreaching and accountability concerns.

The opinion expressly leaves open whether any particular agreement is permitted by law and notes that the agreement it describes does not limit the lawyer's liability to third parties.

Common questions

Q: Does Rule 1.8(h) flatly prohibit a lawyer from limiting malpractice liability to a client?

A: The opinion reads Rule 1.8(h) as barring a prospective limit on malpractice liability unless it is permitted by law and the client is independently represented. The Board concludes those conditions can be met in the in-house employment setting.

Q: How is the "independent representation" requirement satisfied for in-house counsel?

A: The opinion states that consultation with counsel other than the lawyer being employed satisfies the requirement; the employer must act on the advice of some counsel other than the in-house lawyer who would benefit from the agreement.

Q: Does a hold harmless agreement let in-house counsel escape accountability for malpractice?

A: The opinion concludes it does not, reasoning that the in-house lawyer remains subject to discharge by the employer, and that employers apparently prefer discharge to malpractice suits as the remedy for negligent performance.

Q: Does the agreement protect the lawyer against claims by third parties?

A: No. The opinion notes the agreement does not limit liability to third parties affected by the representation; it shifts responsibility for employee conduct from an insurance carrier to the organization acting as a self-insurer.

Background and rules framework

The opinion interprets Georgia Rule of Professional Conduct 1.8(h) (Model Rule 1.8(h)), which prohibits a lawyer from making an agreement prospectively limiting the lawyer's liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement. The opinion applies that rule to the relationship between a corporate employer (the client) and its in-house lawyer, and relies on D.C. Bar Opinion 193 (1989) for the purposes underlying the rule. This opinion replaced the earlier FAO 90-1.

Citations and references

Rules of Professional Conduct:

• Georgia RPC 1.8(h) (agreements prospectively limiting malpractice liability) / Model Rule 1.8(h)

Other opinions cited:

• D.C. Bar Opinion 193 (1989): purposes of the rule limiting prospective malpractice waivers

See also

• ABA Formal Op. 08-453: In-House Ethics Consulting
• ABA Formal Op. 02-425: Arbitration of Fee Disputes and Malpractice Claims

Source

• Landing page: https://www.gabar.org/handbook?rule=rule453

Original opinion text

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

Click here for an explanation regarding the history of this opinion.

FORMAL ADVISORY OPINION NO. 05-2
Approved And Issued On April 25, 2006 Pursuant To Bar Rule 4-403
By Order Of The Supreme Court Of Georgia Thereby Replacing FAO No. 90-1
Supreme Court Docket No. S06U0791

QUESTION PRESENTED:

"Hold Harmless "Agreements Between Employers and Their In-House Counsel.

Whether an attorney employed in-house by a corporation may enter into an agreement by which his or her employer shall hold the attorney harmless for malpractice committed in the course of his employment.

SUMMARY ANSWER:

"Hold harmless "agreements between employers and attorneys employed in-house are ethical if the employer is exercising an informed business judgment in utilizing the "hold harmless "agreement in lieu of malpractice insurance on the advice of counsel and the agreement is permitted by law.

OPINION:

Georgia Rule of Professional Conduct 1.8(h) offers the following direction:

"A lawyer shall not make an agreement prospectively limiting the lawyer's liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement . . . ."

This rule seeks to prevent attorneys from taking advantage of clients and avoiding the removal of negative consequences for malpractice. See, Opinion 193 (D.C. 1989). Neither of these policies would be well served by prohibiting the use of "hold harmless "agreements between employers and attorneys employed in house if the employer is exercising an informed business judgment in utilizing the "hold harmless "agreement in lieu of malpractice insurance and doing so on the advise of any counsel other than the counsel being employed. Consultation with in-house counsel satisfies the requirement of the rule. First, the position of the client as employer, and the sophistication of those who employ in house counsel, eliminates almost all overreaching concerns. Secondly, the lawyer as employee does not avoid the negative consequences of malpractice because he or she is subject to being discharged by the employer. Apparently, discharge is preferred by employers of in house counsel to malpractice suits as a remedy for negligent performance. See, Opinion 193 (D.C. 1989).

Accordingly, we conclude that "hold harmless "agreements are ethical when an employer of in house counsel makes an informed business judgment that such an agreement is preferable to employee malpractice insurance, is done on the advice of counsel, and is permitted by law. The determination of whether such agreements are permitted by law is not within the scope of this Opinion. Finally, we note that the proposed "hold harmless "agreement does not limit liability to third parties affected by in house counsel representation. Instead, the agreement shifts the responsibility for employee conduct from an insurance carrier to the organization as a self insurer.