Does tying an insurance staff lawyer's bonus to a minimum number of jury trials create UPL or a conflict of interest, and must the lawyer tell the insured?

Plain-English summary

The inquiry posed three questions about an insurance company's program that requires staff counsel to meet a minimum number of jury trials before becoming eligible for increased compensation (salary or bonus). The opinion is limited to staff counsel employed by an insurer to represent its insureds in civil litigation.

On the first question, the committee answered no: the compensation plan does not constitute the unauthorized practice of law. The insurer is a third-party payor compensating the staff attorney for representing the insured, and under Rule 1.8(f) a lawyer may accept compensation from someone other than the client if the client gives informed consent, there is no interference with the lawyer's independent professional judgment or the client-lawyer relationship, and confidentiality is protected under Rule 1.6. Because Rules 1.2 and the comment to Rule 1.7 require the lawyer to consider only the client's best interests and to abide by the client's decision whether to settle, the compensation plan must by law be ignored by the staff attorney when advising the insured; the committee reasoned that because the plan must be ignored, it does not amount to the insurer practicing law.

On the second question, the committee answered yes: a staff attorney who takes a matter to trial for the sole purpose of qualifying for increased compensation when settlement is in the client's best interest has an impermissible conflict of interest. Rules 1.1 (competence), 1.7 (conflicts, including from the lawyer's own interests), and 2.1 (independent judgment and candid advice) require the lawyer to render advice untainted by personal interest. On the third question, the committee answered yes: under Rule 1.4 the lawyer should communicate the insurer's stated trial goals to the insured, assure the client the plan is not a factor in the advice, and explain that it would be against the law for the attorney to let it be.

In practice

The committee held that, under the Oklahoma rules as they stood at the time of the opinion, an insurer's program that conditions a staff attorney's higher compensation on meeting a minimum number of jury trials is not the unauthorized practice of law, provided the lawyer disregards the plan when representing the insured. It also held that trying a case solely to qualify for that compensation, when settlement is in the client's interest, is an impermissible conflict under Rules 1.1, 1.7, and 2.1, and that Rule 1.4 requires the lawyer to disclose the plan to the insured and confirm that it plays no role in the advice or representation. The committee added that the lawyer must abide by the client's decision whether to settle or try a case, and that following the client's choice (where the lawyer's advice rests only on the client's best interests) does not itself create a conflict.

Common questions

Q: Is an insurer's plan that ties staff-counsel bonuses to a minimum number of jury trials the unauthorized practice of law?

A: No. The committee concluded the insurer is a third-party payor under Rule 1.8(f), and because the lawyer must by law disregard the plan when advising the insured, the plan does not constitute the insurer practicing law.

Q: Can a staff lawyer take a case to trial to hit the trial quota?

A: No, when settlement is in the client's best interest. The committee concluded that trying a case solely to qualify for increased compensation is an impermissible conflict under Rules 1.1, 1.7, and 2.1.

Q: Must the staff lawyer tell the insured about the compensation plan?

A: Yes. The committee concluded Rule 1.4 requires the lawyer to communicate the insurer's stated trial goals to the insured, assure the client the plan is not a factor in the advice, and explain that letting it be a factor would be against the law.

Q: Does following the client's choice to try the case create a conflict?

A: No. The committee concluded that where the lawyer's advice is based only on the client's best interests, abiding by the client's decision to settle or to try the case does not create an impermissible conflict.

Background and rules framework

The opinion interprets Oklahoma RPC 1.8(f) (compensation from a third party), 1.2 (scope of representation and the client's decision whether to settle), 1.7 (conflicts arising from the lawyer's own interests, citing Comment [10]), 1.1 (competence), 2.1 (independent professional judgment and candid advice), 1.4 (communication), and 1.6 (confidentiality). These track the like-numbered Model Rules.

Citations and references

Rules of Professional Conduct:

• Oklahoma RPC 1.8(f) / Model Rule 1.8(f): accepting compensation from a third party.
• Oklahoma RPC 1.7 / Model Rule 1.7: conflicts of interest, including from the lawyer's own interests.
• Oklahoma RPC 1.2, 1.1, 2.1, 1.4, 1.6 / Model Rules 1.2, 1.1, 2.1, 1.4, 1.6: scope and settlement decision; competence; independent judgment; communication; confidentiality.

See also

• ABA Formal Op. 03-430: Insurance staff counsel representation and naming
• ABA Formal Op. 01-421: Lawyer under insurance company guidelines
• ABA Formal Op. 96-403: Insured objecting to settlement

Source

• Landing page: https://www.okbar.org/ethics/ethics-opinion-no-327/

Original opinion text

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

March 31, 2009

This Opinion is provided in response to an inquiry containing three separate questions.

The questions as presented are:

1. Does an insurance company/corporation supervising an insurance staff counsel program that requires a minimum number of jury trials before that program’s lawyers would be eligible for increased compensation, be it in the form of salary or bonus, constitute the unauthorized practice of law by the insurance company/corporation?

2. If it is in the best interest of an insured to settle the case, would a lawyer taking the matter to trial in order to qualify for increased compensation referenced in question 1 above constitute an impermissible conflict of interest? and,

3. Does an insurance staff counsel have an obligation to communicate the organization’s stated goals of a minimum number of trials and bases therefore, to the client-insured?

This opinion is limited to the questions raised and pertains only to staff counsel employed by an insurance company/corporation for the purpose of representing those insured by the insurance company/corporation in civilly-litigated matters.

1. The Panel answers question number one in the negative. An insurance company’s program that requires a minimum number of jury trials before a staff attorney would be eligible for increased compensation does not constitute the unauthorized practice of law. In this situation, the insurance company is a third party payor who is compensating the staff attorney for representing the client insured.

Pursuant to Rule 1.8(f) of the ORPC, an attorney can only accept compensation for representing a client from one other than the client if:

(1) the client gives informed consent;

(2) there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship; and

(3) information relating to representation of a client is protected as required by Rule 1.6.

Furthermore, Rule 1.2 of the ORPC states that:

“a lawyer shall abide by a client’s decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued…A lawyer shall abide by a client’s decision whether to settle a matter.”

In addition, Comment [10] to Rule 1.7 requires that:

“[t]he lawyer’s own interests should not be permitted to have an adverse effect on representation of a client. For example, if the probity of a lawyer’s own conduct in a transaction is in serious question, it may be difficult or impossible for the lawyer to give a client detached advice.”

Accordingly, the staff attorney is required by law to consider only the best interests of the client insured in rendering advise as to whether the client should accept or decline a settlement offer and must abide by the client’s decision. The terms of the staff attorney’s compensation plan must not be considered or contemplated by the staff attorney when rendering advise to the client insured. Thus, as the compensation plan must by law be ignored by the staff attorney when representing the client insured, the compensation plan does not constitute the unauthorized practice of law by the insurance company.1

2. The Panel answers question two in the positive. A staff attorney who takes a matter to trial for the sole purpose of qualifying for increased compensation when it is in the best interest of the client to settle the case has an impermissible conflict of interest. As stated in question one above, the staff attorney must not consider her own compensation plan in any manner whatsoever when representing the client insured. A staff attorney who considers her own compensation plan when representing a client is violating the law.

Rule 1.1 of the ORPC states:

“A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation.”

Rule 1.7 provides in part:

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest;

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if…

(4) each affected client gives informed consent, confirmed in writing.

Comment [1] to Rule 1.7 explains that:

“[l]oyalty and independent judgment are essential elements in the lawyer’s relationship to a client. Concurrent conflicts of interest can arise from the lawyer’s…own interests.”

Rule 2.1 provides:

“In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors that may be relevant to the client’s situation.”

Consequently, at all times the staff attorney must provide competent representation, maintain independent professional judgment, and render candid advice untainted by any personal interest. Thus, if the staff attorney takes a case to trial solely in order to qualify for increased compensation, the Panel is of the opinion this would constitute an impermissible conflict of interest in violation of the ORPC.2

3. The Panel answers question 3 in the positive. Rule 1.4 of the ORPC states:

(a) A lawyer shall:

(1) promptly inform the client of any decision or circumstance with respect to which the client’s informed consent, as defined in Rule 1.0(e), is required by these Rules;

(2) reasonably consult with the client about the means by which the client’s objectives are to be accomplished;

(3) keep the client reasonably informed about the status of the matter;

(4) promptly comply with reasonable requests for information; and

(5) consult with the client about any relevant limitation on the lawyer’s conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional conduct or other law.

(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

Thus, an insurance company staff lawyer should communicate the insurance company’s compensation plan to the client insured and assure the client that the compensation plan is not a factor the attorney is considering in any fashion whatsoever in rendering advise and providing representation. Further, the insurance company staff attorney should explain to the client that it would be against the law for the attorney to do otherwise.

Questions answered.

Footnotes1 It is not the purpose of the Panel to comment on the wisdom of a compensation plan that might appear to tempt an unscrupulous attorney to violate the requirements of the ORPC and the Panel expresses no opinion in that regard.

2 The attorney must abide by the client’s decision to settle a case or to take a case to trial. In some cases, the client may decide to settle a case or take a case to trial against the attorney’s advise. The attorney must accommodate the client in this decision. Assuming the attorney’s advise is based only upon the best interests of the client, this situation does not create an impermissible conflict of interest.