In Kentucky, may a lawyer sell insurance to clients and take a commission, prospect for insurance customers, or accept referral fees from other insurance agents?

Plain-English summary

A law firm member asked nine questions about selling life insurance in connection with estate and employee-benefit planning. The Committee noted that Kentucky had not adopted ABA Rule 5.7 on ancillary or "law-related" services and declined to enter that policy debate, framing its answers under the existing rules. It concluded that the Kentucky rules permit a lawyer to sell life insurance to clients, whether or not the sale relates to the legal matter, provided the rules are followed; questions 1 through 4 were answered yes, subject to the lawyer's duties of loyalty, independent judgment, and confidentiality, and the requirement that all fees and commissions be disclosed in writing with the client's consent (Rules 1.7 and 1.8(a)).

On prospecting (question 5), the Committee gave a qualified no: a lawyer may not personally or by telephone solicit insurance business from those who are not also current or former clients, and "prospecting" from the law office invites violations of the advertising rules, though a sufficiently separate insurance business may advertise like any other agency without circumventing lawyer-advertising rules. On the fee-discount question (6) and the partnership-income question (7), the Committee declined to answer because those present questions of law (including insurance statutes) outside its role, noting only that Rule 1.5 sets no minimum fees. On question 8, the Committee concluded a lawyer should not accept referral fees for referring clients to other insurance agents, finding no justification where the lawyer provides no substantial additional service and citing Rules 1.7, 1.8(a), and 7.20(2). Question 9 (low-load products) did not change the analysis. The opinion stressed that a lawyer should keep an insurance business separate from the law practice unless its volume is so small that separate quarters are not economically feasible (citing E-103 and E-74).

Currency note

This opinion was issued in 1995, before Kentucky's adoption of the 2002 Ethics 2000 revisions to the Rules of Professional Conduct (SCR 3.130). The opinion discusses an ABA Rule 5.7 that Kentucky had not adopted at the time. The Kentucky Bar Association notes the rules are amended periodically and that lawyers should consult the current version before relying on this opinion. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Could a lawyer sell insurance to a client and take a commission?

A: Yes, conditionally. The opinion answered questions 1 through 4 yes, requiring written disclosure of all fees and commissions and the client's consent under Rules 1.7 and 1.8(a).

Q: Could a lawyer prospect for insurance clients from the law office?

A: Qualified no. The opinion barred personal or telephone solicitation of non-clients and warned against prospecting from the office, though a sufficiently separate insurance business could advertise like any other agency.

Q: Could a lawyer accept a referral fee from another insurance agent?

A: No. The opinion concluded the lawyer should not accept such fees, finding no justification where no substantial additional service is provided and citing Rules 1.7, 1.8(a), and 7.20(2).

Q: Did the opinion answer the questions about fee discounts and partnership income?

A: No. The Committee declined questions 6 and 7 as questions of law (including insurance statutes) outside its role, noting only that Rule 1.5 sets no minimum fees.

Background and rules framework

The opinion interprets KRPC 1.7 (conflicts of interest), KRPC 1.8(a) (business transactions with a client), and KRPC 7.20(2) (giving value to a non-lawyer for recommendations), corresponding to Model Rules 1.7, 1.8, and 7.2. It discusses but does not apply ABA Rule 5.7 (law-related services; Model Rule 5.7), which Kentucky had not adopted.

Citations and references

Rules of Professional Conduct:

• MR 1.7 / KRPC 1.7 (conflicts of interest)
• MR 1.8(a) / KRPC 1.8(a) (business transactions with a client)
• MR 7.2 / KRPC 7.20(2) (giving value for recommending the lawyer's services)
• MR 5.7 (law-related services; not adopted in Kentucky at the time)

Other opinions cited:

• KBA E-103 (1975) and E-74 (1973): keeping ancillary businesses separate from law practice
• Michigan Op. RI-135 (1992): selling insurance to clients

See also

• KBA Ethics Op. E-390: Sharing an Investment Advisor's Referral Fee
• KBA Ethics Op. E-408: Lawyer Acting as a Real Estate Agent

Source

• Landing page: https://kybar.org/For-Members/Rules-Ethics-Information/Ethics-Opinions
• Original PDF: https://kybar.org/Portals/0/Admin/Ethics%20Opinions/KBA_E-376.pdf

Original opinion text

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

KENTUCKY BAR ASSOCIATION
Ethics Opinion KBA E-376
Issued: March 1995

The Rules of Professional Conduct are amended periodically. Lawyers should consult the
current version of the rules and comments, SCR 3.130 (available at
http://www.kybar.org), before relying on this opinion.

A member of a law firm asks the following questions:
Question 1:

May I sell insurance to a client, and receive a commission for it, when the sale of
insurance is related to my representation of the client, and the legal representation
involves estate and employee benefit planning?

Answer:

Yes.

Question 2:

Is disclosure to my client of my receipt of a commission necessary?

Answer:

Yes.

Question 3:

May I make the sale if there is-no relationship between the insurance and the legal
representation?

Answer:

Yes.

Question 4:

Is disclosure to my client of my receipt of a commission necessary?

Answer:

Yes.

Question 5:

May I prospect for insurance clients who are not now legal clients? What if they
desire to become legal clients in the future?

Answer:

Qualified no.

Question 6:

Can I adjust my legal fees (discount) or would that be considered a rebate of
commissions in violation of insurance statutes?

Answer:

See Opinion.

Question 7:

Can insurance commissions be considered partnership income, even if the
commission is paid directly to me as an individual?

Answer:

See Opinion.

Question 8:

May I receive a referral fee from another insurance agent if I refer a client to
him/her in connection with a legal matter? What disclosures are necessary to the
client and to the insurance agent?

Answer:

No.

Question 9:

Are the answers to the above questions altered by using a low-load insurance
product?

Answer:

See Opinion.

References:

ABA Rule 5.7. KBA Rules 1.7, 1.8(a), and 7.20(2); KBA Ops. E-103 (1975) and
E-74 (1973); Michigan Op. RI-135 (1992).
OPINION

We note that the requestor does not contemplate operating a business or partnership with
a non-lawyer. However, it is appropriate for us to note that this request raises issues relating to
the delivery of law-related services (sometimes referred to as "ancillary business"). Also, we
acknowledge that the American Bar Association has addressed the delivery of law-related
services by enacting a restrictive provision, Rule 5.7, "Provision of Ancillary Services," then
repealing this restrictive provision, and enacting a revised liberal version of the rule "in the short
span of just 30 months." See ABA/BNA Law.Man.Prof.Con. 91:405, 410-413.
This Committee is not in a position to adopt changes to Kentucky's Rules of Professional
Conduct, and it is, therefore, inappropriate for this Committee to engage in an extended policy
debate regarding these matters in order to answer the questions presented. We mention the
existence of the debate regarding "ancillary business" as a means of emphasizing the limited
nature of this opinion because at present the Kentucky Rules of Professional Conduct do not
include a provision relating to law-related services. Notwithstanding the absence of a rule in
Kentucky regarding "ancillary business" we note that the current version ABA Rule 5.7 provides
that:
(a)
A lawyer shall be subject to the Rules of Professional Conduct with
respect to the provision of law-related services, as defined in paragraph (b), if the
law-related services are provided:
(1)
by the lawyer in circumstances that are not distinct from the lawyer's
provision of legal services to clients; or
(2)
by a separate entity controlled by the lawyer individually or with others if
the lawyer fails to take reasonable measures to assure that a person obtaining the
law related services knows that the services of the entity are not legal services and
that the protections of the client-lawyer relationship do not exist.
(b)
The term "law related" services denotes services that might reasonably be
performed in conjunction with and in substance are related to the provision of
legal services and that are not prohibited, as unauthorized practice of law when
provided by a non-lawyer.
While the new ABA Rule allows for the delivery of "law-related services," the lawyer
must be mindful to conform all aspects of the lawyer's work (traditional or non-traditional/law
related/ancillary) to the requirements of the Professional Rules. ABA Rule 5.7(a)(1). The Rule
also suggests that the Rules will apply even if the "law-related business is kept entirely separate
(permissible dual practice) if there is a risk of client confusion or misunderstanding concerning
the Lawyer's role." See ABA Rule 5.7(b)(2).
Without further comment on law-related services generally, the Committee believes that
the Kentucky Rules of Professional Conduct permit the lawyer to sell life insurance products to
the lawyer's clients when the sale of such insurance is related to the legal matter being handled
by the lawyer, provided the applicable Rules of Professional Conduct are followed. The idea of
selling insurance is already allowed with respect to the title insurance, and it is apparent that the
client might benefit from such transactions. On the other hand we find that the sale of life
insurance products to clients constitutes a business transaction with a client, and that there is the
potential for conflicts of interest; for example, the client's needs to maintain confidentiality
regarding the client's health, and an insurer's need to have complete disclosure of all health
questions. Accordingly, the lawyer must be satisfied of compliance with Rules 1.7, 1.8(a). See
Michigan Op., RI-135 (1992). Further, all fees and commissions must be disclosed to the client,
and the client should consent to such arrangement in writing.
Further, to make our position as clear as possible, we emphasize that a lawyer has a duty
of loyalty to the client, and that advising a client about the disposition of the client's estate after
death, and the sale of life insurance raises inherent problems of conflicts of interest as the insurer
pays the agent (lawyer) to maximize insurance sales, and the lawyer's responsibility to maintain
independence may be compromised; accordingly, it is necessary for the lawyer to disclose all of
these matters in writing to the client, and to obtain the client's consent. The disclosure should
advise the client that it is appropriate to obtain independent advice, counsel, in these unique
circumstances.
As Kentucky has not yet adopted ABA Rule 5.7, the lawyer should not operate an
insurance agency or insurance business out of his or her law-firm, for the purpose of selling
insurance to non-clients. While we have no apparent reason to suggest that the lawyer should be
prohibited from selling insurance to a client when the sale is unrelated to the legal services being
provided, as long as there is compliance with the Rules of Professional Conduct, the rule in this
jurisdiction has been that such business should be kept separate from the lawyer's law practice
unless the volume of such business is so small that separate quarters are not economically
feasible. See, e.g. KBA E-103 (1975) and E-74 (1973).
For the reasons discussed above, questions 1 through 4 are answered "Yes," subject to
our stated concerns about the lawyer's responsibility to maintain the lawyer's loyalty to the
client, to assure that there is no interference with the lawyer's responsibility to maintain
independence of professional judgment, to protect the client's confidential information relating
to the representation, and to make the appropriate disclosures, in writing, as stated above.
We emphasize that the lawyer may not solicit legal business personally or by telephone
from current or former insurance customers unless they are also current or former clients.
Michigan Op. RI-135. "Prospecting" for insurance clients from the lawyer's law office is
inconsistent with our earlier opinions regarding the separation of other businesses from the
lawyer's law practice, and invites misunderstandings and possible violations of the advertising
rules. For this reason, Question 5 is answered with a "Qualified No." The answer is qualified
because if the insurance business is sufficiently separate from the lawyer's law practice then that
business may advertise for insurance customers purchasers like any other insurance agency.
However, the separate business may not be used to circumvent the rules governing lawyer
advertising.
From the standpoint of the Rules of Professional Conduct, a lawyer may discount the
lawyer's fees as there are no minimum fees under Rule 1.5, nor would it be permissible for the
Kentucky Bar Association to establish minimum fees. On the other hand, the Committee cannot
answer questions of law. Whether or not contemplated conduct might be in violation of
"insurance statutes" is a matter that may be better addressed by an Attorney General's opinion
and not an ethics opinion. Accordingly, we cannot answer Question 6. The same is true of
Question 7, which presents questions of law and not questions of Professional Conduct.
In the opinion of the Committee the lawyer should not accept referral fees for referring
clients to other insurance agents. There is no apparent justification for accepting such fees as the
lawyer is providing no substantial additional service to the client, and the suggested practice is
difficult to reconcile with Rules 1.7 and 1.8(a). We also fear that such arrangements might lead
to improper "feeding" of business. See Rule 7.20(2).
Question 9 does not change the relevant considerations.

Note to Reader
This ethics opinion has been formally adopted by the Board of Governors of the Kentucky
Bar Association under the provisions of Kentucky Supreme Court Rule 3.530 (or its predecessor
rule). The Rule provides that formal opinions are advisory only.