Can a lawyer sit on a reinsurer's board while representing the primary insurers whose policies it reinsures?

Plain-English summary

A lawyer advised primary insurance companies, which were his clients, on property coverage; those companies reinsured their policies with other carriers. One reinsurer asked the lawyer to join its board, and he asked whether a conflict would arise when the reinsurer reinsured a policy issued by a company he represented. The Committee analyzed this as an own-interest/third-party conflict under Rule 1.7(b): representing the primary insurer on a claim could require advising that exposure exceeded the insurer's retained liability and that the reinsurer should participate, while as a director the lawyer owed duties to the reinsurer to keep the claim within the primary insurer's limits.

The Committee concluded a conflict existed under Rule 1.7(b) on reinsured claims, consistent with opinions from Oregon, Iowa, Vermont, and California. On whether consent could cure it, the Committee agreed with the majority view that there is no per se bar: in most instances, depending on circumstances that must be continually reviewed, the conflict is waivable by consent after disclosure, provided the lawyer also reasonably believes the representation will not be adversely affected.

On the second question, the Committee concluded that a lawyer's presence on the board of a client's competitor is significant enough to require communication under Rule 1.4(b) and, under prior opinions (88-05 and 870), the client's consent under Rule 1.7(b). It noted that two clients merely being in the same business does not itself require consent, but a lawyer serving on a competitor's board rises to a higher level.

Currency note

This opinion was issued in 2002, before Illinois adopted its current Rules of Professional Conduct, effective January 1, 2010. The Illinois Rules cited here use the pre-2010 numbering. The ISBA notes the opinion was affirmed by its Board of Governors in January 2010 as generally consistent with the 2010 Rules (it points to current Rule 1.4(b) and Rule 1.7 with Comment [35]), though the specific standards may differ. Verify against current rules before relying on any specific rule cited here.

In practice

Under the Illinois rules as they stood at the time, the opinion holds that a lawyer who both represents a primary insurer and sits on the board of a reinsurer faces a Rule 1.7(b) conflict on claims the reinsurer reinsures, because the lawyer's duty to the reinsurer to contain the claim collides with the duty to advise the primary insurer to seek the reinsurer's participation. The opinion identifies the conflict as waivable in most instances by the client's consent after disclosure plus the lawyer's reasonable belief that the representation will not be adversely affected, a judgment that must be continually reviewed; and it treats a board seat on a client's competitor as itself requiring disclosure under Rule 1.4(b) and consent under Rule 1.7(b).

Common questions

Q: Is there a conflict in representing an insurer while sitting on its reinsurer's board?

A: The Committee concluded that on a claim the reinsurer reinsures, a Rule 1.7(b) conflict exists, because the lawyer's duties to the reinsurer as a director collide with the duty owed to the primary-insurer client.

Q: Can the client consent to the conflict?

A: Yes, usually. The opinion concludes there is no per se bar and that, in most instances and subject to continual review, the conflict is waivable by the client's consent after disclosure plus the lawyer's reasonable belief that the representation will not be adversely affected.

Q: Must the lawyer tell client insurers who compete with the reinsurer about the board seat?

A: Yes. The Committee concluded that serving on the board of a client's competitor is significant enough to require communication under Rule 1.4(b) and the client's consent under Rule 1.7(b).

Background and rules framework

The opinion applied Illinois Rule 1.7(b) (conflicts arising from the lawyer's duties to a third person or own interest) and Rule 1.4(b) (communication sufficient for informed decisions), corresponding to ABA Model Rules 1.7 and 1.4, and surveyed opinions from Oregon, Iowa, Vermont, and California on lawyer-directors of insurers.

Citations and references

Rules of Professional Conduct:

• Illinois Rules 1.4(b), 1.7(b) (Model Rules 1.4, 1.7)

Other opinions cited:

• ISBA Advisory Opinion Nos. 95-01, 92-04, 88-05, 870, 483
• Oregon Opinion No. 91-116 (1991); Iowa Opinion No. 94-4 (1994); Vermont Opinion No. 91-8 (1991); California Opinion No. 1993-132 (1993)

See also

• ABA Ethics Op. 00-418: Acquiring an Ownership Interest in a Client
• ISBA Ethics Op. 01-07: One Firm Representing Two Government Units

Source

• Landing page: https://www.isba.org/ethics/opinions/0201