When an insurance company's salaried staff lawyer defends an insured, who is the client, and can a non-lawyer claims supervisor direct the lawyer's work?

Plain-English summary

An insurance company employed Illinois-licensed lawyers on salary to act as attorneys of record for insureds named as defendants in litigation. The lawyers' immediate supervisor was a non-lawyer claims person who set their salaries and decided when clerical or paralegal support would be provided. The inquiry asked whether the company was practicing law unlawfully, whether lawyer-supervision would be more appropriate, and whether a home-office lawyer in the General Claims Department could review active files and consult on ethical matters with the staff attorneys.

On the unauthorized-practice question the committee declined to opine, finding the facts insufficient; it noted only the general rule that a corporation may not practice law (Ill. Rev. Stat. ch. 32, par. 411 et seq.; People ex rel. ISBA v. Peoples Stock Yards Bank). On the supervision questions the committee applied former Rule 5-107, which directs that a lawyer avoid influence by anyone other than the client and bars a person who pays the lawyer from directing or regulating the lawyer's professional judgment. The committee stressed that despite the "house counsel" label, the staff lawyer's client is the insured, not the company; the lawyer, not the claims supervisor, must decide the level of clerical and paralegal support and every other aspect of the representation.

The committee added that if the interests of the insurer and the insured conflict, the lawyer for the insured must continue to represent the insured and the company must obtain separate counsel, and that former Rule 5-105 may require separate outside counsel for both (citing Rogers v. Robson). A home-office lawyer in the General Claims Department has the company as his client; with the company's consent he may review files and consult with the insureds' lawyers, but he is not entitled to the insured's confidential information when interests conflict, and the insured's lawyer must protect that information under former Rule 4-101 and must not let the company direct his judgment under Rule 5-107(c).

Currency note

This opinion was issued in May 1990, under the former Illinois Code of Professional Responsibility and before Illinois adopted the 1990 (and later 2010) Rules of Professional Conduct. The ISBA Board of Governors affirmed the opinion in May 2010 as generally consistent with the 2010 Rules (Rules 1.2, 2.1, 1.6, 1.7, and 5.4(c)), while cautioning that the specific standards referenced may differ from the 2010 Rules. 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 or requirement mentioned here.

Common questions

Q: When insurance-company staff counsel defends an insured, who is the client?

A: The opinion concluded the insured is the client, not the insurance company, even though the company pays the lawyer's salary. It distinguished this from a typical house-counsel arrangement, where the corporation itself is the client.

Q: Can a non-lawyer claims supervisor decide how much paralegal or clerical support a defense lawyer gets?

A: Per the opinion, the lawyer must determine the level of clerical and paralegal support and all other aspects of the representation himself; former Rule 5-107(c) bars a person who pays the lawyer from directing or regulating his professional judgment.

Q: What happens if the insurer's and the insured's interests conflict?

A: The opinion concluded the lawyer for the insured must continue to represent the insured, the company must get separate counsel, and the insured's lawyer must protect the insured's confidential information and not share it with the company's lawyer.

Q: Did the committee decide whether the insurance company was engaged in the unauthorized practice of law?

A: No. The committee found the facts insufficient to opine on that question and addressed only the general principle that a corporation may not practice law.

Background and rules framework

The opinion applied the former Illinois Code of Professional Responsibility: Rule 5-107 (avoiding influence by others than the client, including subsection (c) barring a payor from directing the lawyer's judgment), Rule 5-105 (conflicts requiring separate representation), and Rule 4-101 (preservation of client confidences). The Board's 2010 affirmation maps these to current Illinois Rules of Professional Conduct 1.2, 2.1, 1.6, 1.7, and 5.4(c), which correspond to ABA Model Rules of the same numbers.

Citations and references

Rules of Professional Conduct:

• Illinois Code of Professional Responsibility Rules 4-101, 5-105, 5-107 (former Code, applied in the opinion)
• Illinois RPC 1.2, 2.1, 1.6, 1.7, 5.4(c) (2010 equivalents per the Board's affirmation)
• MR 1.6 (confidentiality), MR 1.7 (conflicts of interest), MR 5.4(c) (professional independence)

Statutes:

• Ill. Rev. Stat. ch. 32, par. 411 et seq. (corporate practice of law)

Cases:

• Rogers v. Robson, Masters, Ryan, Brumund & Belom, 81 Ill. 2d 201, 407 N.E.2d 47 (Ill. 1980), insurer-insured conflict requiring separate counsel
• People ex rel. Illinois State Bar Assn. v. Peoples Stock Yards Bank, 344 Ill. 462, 176 N.E. 901 (Ill. 1931), corporate practice of law

See also

• ISBA Ethics Op. 89-18: University Instructor Defending a Terminated Employee
• ISBA Ethics Op. 89-14: Lawyer Who Is Also an Insurance Agent

Source

• Landing page: https://www.isba.org/ethics/opinions/8917