Can salaried insurance-company lawyers collect insureds' deductibles and operate under an in-house law firm name?
Ohio BPC Opinion 1994-009: Insurance Staff Counsel: Subrogation, Deductible Collection, and an In-House Law Firm
Short answer: The opinion concluded that salaried attorneys employed by an insurance company may pursue subrogation claims against a tortfeasor on behalf of the insurer, but may not also attempt to collect deductibles on behalf of insureds, and may not participate in an insurance-company 'in-house law firm' that uses a firm name made up of the attorneys' names.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the Ohio Board of Professional Conduct's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. The opinion text is reproduced at the bottom; the official source (linked) controls.
Plain-English summary
The Board addressed salaried attorneys employed by an insurance company who would work within an 'in-house law firm' to pursue subrogation claims against tortfeasors and to collect insureds' deductibles. It divided the inquiry into the proper scope of representation and the use of an in-house firm name.
On scope, the Board concluded that the attorneys may pursue subrogation claims against a tortfeasor on behalf of the insurer, which has a derivative right to stand in the place of an insured, but that it is improper under DR 5-101, DR 5-105, and Canon 9 for them to also attempt collection of deductibles on behalf of insureds. Representing both the insurer's subrogation interest and the insured's deductible interest presents a conflict and an appearance of impropriety, given that the salaried lawyers' employer is the insurer.
On the firm-name question, the Board concluded that it is improper under DR 1-102(A)(4), DR 3-101(A), and DR 3-102(A) for the salaried attorneys to participate in an 'in-house law firm' established by the insurance company using a firm name consisting of one or more of the attorneys' names, because that structure misleads as to the nature of the practice and implicates the unauthorized practice of law and sharing arrangements with the corporate employer.
Currency note
The Ohio Board reports that this opinion was withdrawn by Opinion 95-14 issued December 1, 1995. Because it has been withdrawn, it is indexed here as research only and is not current guidance.
This opinion issued in 1994, before Ohio's adoption of the Ohio Rules of Professional Conduct, which superseded the former Code of Professional Responsibility effective February 1, 2007. The treatment of insurer staff counsel has since developed under later opinions and the current rules. Treat this page as historical context, not current guidance. Verify against the current Ohio Rules of Professional Conduct before relying on any specific rule mentioned here.
Common questions
Q: Could insurance staff counsel pursue subrogation claims?
A: Under the opinion, yes. The Board concluded salaried insurance-company attorneys may pursue subrogation claims against a tortfeasor on behalf of the insurer, which has a derivative right to stand in the place of the insured.
Q: Could they also collect insureds' deductibles?
A: No. The Board concluded it was improper under DR 5-101, DR 5-105, and Canon 9 for the salaried attorneys to attempt collection of deductibles on behalf of insureds, given the conflict with their insurer-employer.
Q: Could the insurer set up an 'in-house law firm' using the attorneys' names?
A: No. The Board concluded it was improper under DR 1-102(A)(4), DR 3-101(A), and DR 3-102(A) for the salaried attorneys to participate in an insurance-company in-house law firm using a firm name made up of the attorneys' names.
Background and rules framework
The opinion interprets former Ohio Code of Professional Responsibility DR 5-101 and DR 5-105 (personal-interest and multiple-client conflicts), Canon 9 (appearance of impropriety), DR 1-102(A)(4) (conduct involving dishonesty or misrepresentation), DR 3-101(A) (unauthorized practice), and DR 3-102(A) (sharing legal fees with a non-lawyer), as applied to insurer staff counsel.
Citations and references
Rules of Professional Conduct:
- Former Ohio Code of Professional Responsibility DR 5-101, DR 5-105, Canon 9, DR 1-102(A)(4), DR 3-101(A), DR 3-102(A)
Other opinions cited:
- Superseded by Ohio Bd. of Comm'rs on Grievances and Discipline, Op. 95-14 (1995)
See also
- Ohio BPC Op. 1994-007: Lawyers Owning an Ancillary Law-Related Business
- Ohio BPC Op. 1992-006: Attorney Ownership in a House-Arrest Monitoring Company
- Ohio BPC Op. 1994-008: Splitting a Contingency Fee With a Non-Lawyer Investigator
Source
- Landing page: https://ohioadvop.org/advisory-opinion-index/
- Original PDF: https://www.ohioadvop.org/wp-content/uploads/2017/04/Op-94-009.pdf
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
The Supreme Court of Ohio
BOARD OF COMMISSIONERS ON GRIEVANCES AND DISCIPLINE
41 SOUTH HIGH STREET-SUITE 3370, COLUMBUS, OH 43215-6105
(614) 644-5800 FAX: (614) 644-5804
OFFICE OF SECRETARY
OPINION 94-9
Issued August 12, 1994
[Withdrawn- by Opinion 95-14 issued December 1, 1995]
SYLLABUS: It is improper under DR 5-101, DR 5-105, and Canon 9 of the Ohio Code of
Professional Responsibility for salaried attorneys employed by an insurance company to attempt
collection of deductibles on behalf of insureds. Salaried attorneys employed by an insurance
company may pursue subrogation claims against a tortfeasor on behalf of an insurer who has a
derivative right to stand in the place of an insured.
It is improper under DR 1-102 (A) (4), DR 3-101 (A), and DR 3-102 (A) of the Ohio Code of
Professional Responsibility for an attorney who is a salaried employee of an insurance company to
participate in an "in-house law firm" established by the insurance company using a "firm name"
consisting of one or more of the names of the attorneys.
OPINION: The question presented is whether salaried attorneys employed by an insurance
company may participate in an "in-house law firm" established by the insurance company for
purposes of pursuing subrogation claims against tortfeasors and collecting deductibles incurred by
the insureds.
The inquiry raises two issues -- the more traditional issue of the proper scope of representation by
an attorney employed by an insurance company and the more novel issue of an attorney-employee's
participation in an "in-house law firm" established by an insurance company-employer. For
purposes of analysis, the Board separates the inquiry into two questions.
-
Is it proper for salaried attorneys employed by an insurance company to pursue
subrogation claims against tortfeasors and also to attempt collection of deductibles
on behalf of insureds with their consent? -
Is it proper for salaried attorneys employed by an insurance company to
participate in an "in-house law firm" established by the insurance company using a
"firm name" consisting of one or more of the names of the attorneys?
This opinion responds to the following scenario. Attorneys employed by an insurance
company would function within an "in-house law firm" to pursue subrogation claims for the
insurer and also to attempt collection of deductibles on behalf of insureds. These duties
would be in addition to the
attorneys' other duties assigned to them as employees of the insurance company. For example,
most attorneys employed by the insurance company are employed as claims attorneys to coordinate
litigation handled by outside counsel. In performing duties within the "in-house law firm" the
attorneys would correspond on letterhead using a "firm name" consisting of the names or names of
one or more of the attorneys. There would be no indication on the letterhead that the attorneys are
employees of the insurance company. The attorneys would be licensed in Ohio. It is asserted that
the insurance company would neither control the manner in which the attorneys practice law, nor
direct that a manner be handled in a specific way.
As edification, subrogation is "[t]he lawful substitution of a third party in place of a party having a
claim against another party. Insurance companies, guarantors and bonding companies generally
have the right to step into the shoes of the party whom they compensate and sue any party whom
the compensated party could have sued." Black's Law Dictionary 1279 (5th ed. 1979). For
clarification, an insurance company's salaried employee attorneys are often referred to as "in-house
counsel." Attorneys retained by insurance companies to represent insureds are commonly referred
to as "outside counsel." These terms are used within this opinion.
Question 1
Is it proper for salaried attorneys employed by an insurance company to pursue
subrogation claims against tortfeasors and also to attempt collection of deductibles
on behalf of insureds with their consent?
In Ohio, the scope of representation by an insurance company's in-house counsel has never been
expressly determined by ethics committees or by court decision. Generally speaking, it has been
the custom in Ohio for insurance companies to retain outside counsel to represent insureds in
litigation.
Outside Ohio, there is guidance, but no consensus as to the proper scope of representation by an
insurance company's in-house counsel. See, e.g., Philadelphia Bar Ass'n, Op. 86-108 (undated)
(may represent an insured if all foreseeable issues of conflict have been resolved or do not exist and
may pursue subrogation claims), Virginia State Bar, Op. 598 (1985) (may represent insured); ABA
Standing Comm. on Ethics and Professional Responsibility, Informal Op. 1370 (1976) (may
represent subrogated interests of the carrier arising from settlement of claims of insureds and may
represent insured's interest arising from the deductible feature of the policy).
See also, e.g., Gardner v. North Carolina State Bar, 316 N.C. 285, 341 S.E. 2d 517 (1986) (may not
represent one of the company's insureds as counsel of record in an action brought by a third party
for a claim covered by the terms of the insurance policy or appear as counsel of record for the
insured in the prosecution of a subrogation claim for property damage); North Carolina Bar Ass'n,
Op. CPR 326 (1982) (may not appear as counsel of record in an action brought against an insured
by a third party for a claim covered by the insurance policy and may not appear in the prosecution
of subrogation claims for property damage unless the actions are defended or prosecuted only in the
name of the insurance company and the insurance company assumes or is subrogated to the
complete legal liability and pecuniary interest of the claim); North Carolina State Bar Ass'n, Op.
RPR 151 (1993) (may not pursue a subrogation claim on behalf of the insurer with the insured as
co-plaintiff); and SupCt of Tennessee, Bd of Professional Responsibility, Formal Op. 93-F-132
(may not represent insureds in legal matters arising under the insurance company's policy).
Advice regarding the proper scope of representation by in-house counsel employed by insurance
companies generally evolves around two major issues -- whether the activities of the in-house
counsel constitute the unauthorized practice of law by a corporation and whether multiple
representation of both the insurer and the insured creates unresolvable conflicts of interest. The
analysis is usually both legal and ethical, depending upon the particular state's statutes and rules of
professional responsibility.
This Board will not answer the question raised from the perspective of whether the activities would
constitute the unauthorized practice of law, since the determination of what constitutes the practice
of law is a judicial determination. See Gov.Bar R. VII §8 (B). Nevertheless, the Board notes that it
is well established in Ohio that corporations may not practice law. See, e.g., Palmer v. Westmeyer,
48 Ohio App. 3d (1988) (a corporate officer, who is not an attorney, may not maintain pro se
litigation on behalf of the corporation) and Ohio Revised Code Ann. §4705.01 (Baldwin 1991)
(practice of law; prohibitions). One exception is that legal professional associations and legal
clinics may be organized to practice law pursuant to the provisions of Chapter 1785 of the Ohio
Revised Code and Rule III of the Supreme Court Rules for the Government of the Bar of Ohio.
This Board will address the question raised only from the perspective of whether such activities
create an unresolvable conflict of interest under the Ohio Code of Professional Responsibility.
Three rules with the Code of Professional Responsibility apply in resolving the conflict issue- DR
5-101, DR 5-105, and Canon 9.
DR 5-101 REFUSING EMPLOYMENT WHEN THE INTERESTS OF THE
LAWYER MAY IMPAIR HIS [HER] INDEPENDENT PROFESSIONAL
JUDGMENT
(A) Except with the consent of his [her] client after full disclosure, a
lawyer shall not accept employment if the exercise of his [her]
professional judgment on behalf of his [her] client will be or
reasonably may be affected by his [her] own financial, business,
property, or personal interests.
DR 5-105 REFUSING TO ACCEPT OR CONTINUE EMPLOYMENT IF THE
INTERESTS OF ANOTHER CLIENT MAY IMPAIR THE INDEPENDENT
PROFESSIONAL JUDGMENT OF THE LAWYER
(A) A lawyer shall decline proffered employment if the exercise of
his [her] independent professional judgment in behalf of a client will
be or is likely to be adversely affected by the acceptance of the
proffered employment, except to the extent permitted under DR 5-
105 (C).
(B) A lawyer shall not continue multiple employment if the exercise
of his [her] independent professional judgment in behalf of a client
will be or is likely to be adversely affected by his [her] representation
of another client, except to the extent permitted under DR 5-105(C).
(C) In the situations covered by DR 5-105 (A) and (B), a lawyer may
represent multiple clients if it is obvious that he [she] can adequately
represent the interest of each and if each consents to the
representation after full disclosure of the possible effect of such
representation on the exercise of his [her] independent professional
judgment on behalf of each.
(D) If a lawyer is required to decline employment or to withdraw
from employment under DR 5-105, no partner or associate of his
[her] or his [her] firm may accept or continue such employment.
Canon 9 A Lawyer Should Avoid Even the Appearance of Professional
Impropriety.
The above cited rules safeguard the attorney-client relationship. The conflict of interest rules, DR
5-101 and 5-105, promote and protect the duty of loyalty that must exist in each attorney-client
relationship. The appearance of impropriety rule, Canon 9, prohibits conduct that casts doubt upon
the integrity of the attorney-client relationship.
It is the Board's view that the above cited rules prohibit an in-house attorney for an insurance
company from representing an insured. Such representation creates an appearance of impropriety
and causes potential and actual conflicts of interest. The employee-attorney works for the good of
the company and has a fiduciary duty to the company. The employee attorney also has a personal
interest in maintaining employment with the company. Thus, there is an appearance of impropriety
that the employee-attorney would place the welfare of the employer, or even his or her own
interest, above the best interest of the policyholder. Further, there are potential and actual conflicts
of interest that are well known, including disputes surrounding coverage, policy limits, liability,
negligence, and settlement issues. Disclosure and consent are not recommended as a cure for these
conflicts, since the Board is not convinced that it is obvious that the in-house attorney can
adequately represent the interests of both the insurer and the insured. The Board acknowledges that
appearances of impropriety and potential and actual conflicts of interest may not be entirely
eliminated by retaining outside independent counsel who are paid by an insurer to represent an
insured. Nevertheless, the perceptions of impropriety are more speculative and occurrences of
conflicts of interest are more remote when the employer-employee relationship is eliminated.
In contrast, the Board does not find the above cited rules to prohibit in-house counsel from
pursuing subrogation claims. Subrogation is a derivative right of the insurer, recognized by
contract, statute, and case law. See, e.g., McDonald v. Republic-Franklin Insurance Co., 45 Ohio
St. 3d 27 (1989), Bogan v. Progressive Casualty Insurance Co., 36 Ohio St. 3d (1988), overruled in
part by McDonald v. Republic-Franklin Insurance Co., 45 Ohio St. 3d 27 (1989), and Ohio Rev.
Code Ann. §3937.18(E). In pursing subrogation claims the attorney is representing the insurer.
"[Tlhe loss is, in the first instance, that of the insured, after reimbursement or compensation, it
becomes the loss of the insurer." Bogan v. Progressive Casualty Insurance Co., 36 Ohio St. 3d 22,
29 (1988), [quoting Newcomb v. Cincinnati Insurance Co., 22 Ohio St. 382, 387 (1872) relying on
the opinion of Lord Hardwick in Randal v. Cockran, 1 Ves. Sen. 98, 27 Eng. Rep. 916 (1748).]
In conclusion, it is this Board's view that in-house counsel employed by an insurance company
should not undertake representation of insureds. Thus, in answer to the question, the Board advises
that it is improper under DR 5-101, DR 5-105, and Canon 9 of the Ohio Code of Professional
Responsibility for salaried attorneys employed by an insurance company to attempt collection of
deductibles on behalf of insureds. Salaried attorneys employed by an insurance company may
pursue subrogation claims against a tortfeasor on behalf of an insurer who has a derivative right to
stand in the place of an insured.
Question 2
Is it proper under the Ohio Code of Professional Responsibility for salaried attorneys
employed by an insurance company to participate in an "in-house law firm"
established by the insurance company using a "firm name" consisting of one or more
of the names of the attorneys?
Several rules within the Ohio Code of Professional Responsibility apply.
DR 1-102(A) (4) A lawyer shall not: Engage in conduct involving dishonesty,
fraud, deceit, or misrepresentation.
DR 3-101(A) A lawyer shall not aid a non-lawyer in the unauthorized practice of
law.
DR 3-103(A) A lawyer shall not form a partnership with a non-lawyer if any of the
activities of the partnership consist of the practice of law.
All of the above cited rules would be violated by an attorney-employee of an insurance company
participating in an "in-house law firm" established by an insurance company under a "firm name"
consisting of one or more of the names of the attorneys. Such conduct is false and misleading
under DR 1-102(A)(4) since a firm name is being used when in fact no law firm exists and the
relationship between the attorney and the insurer is being disguised. Further, such conduct by a
lawyer may aid a non-lawyer in the unauthorized practice of law under DR 3-101(A) since the use
of a fictitious firm name allows the insurance company to hold itself out as a law firm. Finally,
such conduct creates an improper relationship between attorneys and non-attorneys under DR 3-
103(A) because the insurance company and the attorneys are improperly joined together as an "in-
house law firm" in the practice of law. The "in-house law
firm" would not be independent. The clients would be policyholders referred by the insurance
company. Although it is asserted that the insurance company would neither control the manner in
which the attorneys practice law, nor direct that a manner be handled in a specific way, the reality
is that the company as employer could exercise considerable control.
The Board's view is that attorneys employed by an insurance company may not represent
themselves to be outside counsel when they are actually in-house counsel. This view is in keeping
with the views of other ethics advisory committees. See e.g., Nassau County Bar Ass'n Op. 89-41
(1989) (attorney's professional corporation may not represent itself as "outside counsel" when it is
"house counsel"); Virginia State Bar, Op. 775 (1986) (improper for attorney employee of insurance
carrier to fail to disclose his or her status as an employee on name cards, letterhead, phone
answering method, and office door); New Jersey SupCt, Advisory Comm. on Professional Ethics,
Op. 593 (1986) (attorney employees of insurance carrier may not combine their names for an office
designation that implies a partnership).
In conclusion, for the reasons stated above, the Board advises that it is improper under DR 1-
102(A) (4), 3-101 (A), and 3-103 (A) of the Ohio Code of Professional Responsibility for an
attorney who is a salaried employee of an insurance company to participate in an "in-house law
firm" established by an insurance company using a "firm name" consisting of one or more of the
names of the attorneys.
Advisory Opinions of the Board of Commissioners on Grievances and Discipline are
informal, nonbinding opinions in response to prospective or hypothetical questions regarding
the application of the Supreme Court Rules for the Government of the Bar of Ohio, the
Supreme Court Rules for the Government of the Judiciary, the Code of Professional
Responsibility, the Code of Judicial Conduct, and the Attorney's Oath of Office.