Can a lawyer run an estate-planning arrangement with an insurance agency where the agent sends customer data, the lawyer writes a memo, and the agent sometimes pays?

Plain-English summary

A law firm and a local life-insurance agency had an arrangement in which the company's agents could confer with a firm lawyer about estate planning for the agent's customers. The lawyer reviewed financial and personal information gathered by the agent and wrote a memorandum recommending steps the customer could take to reduce estate taxes. If the customer did not pursue further consultation, the firm billed the agent at the lawyer's hourly rate; if the customer did contact the lawyer for further services, the customer was billed for all work from the start and the agent was not. The lawyer disclosed the fee arrangement to the customer at their first meeting. The inquiry asked whether this violated the Rules of Professional Conduct.

The committee identified several ethical issues for the lawyer to manage. First, because the memorandum was prepared for a customer with whom the lawyer had no prior relationship, it could be a direct solicitation; whether it was might depend on whether the customer requested it through the agent, and if it was solicitation the lawyer had to comply with Rules 7.1 and 7.3. Second, insofar as the memorandum contained specific legal advice, the customer might be the lawyer's client (citing Rule 2.3), triggering the conflict provisions of Rule 1.7: a potential conflict arose between giving the customer appropriate estate-planning advice and the lawyer's relationship with the agent, whose objective is selling insurance and who may pay the lawyer, so the lawyer could represent the customer only if he reasonably believed the representation would not be adversely affected and the client consented after consultation. The committee observed the facts gave no opportunity to advise the customer of the conflict and obtain consent when the initial advice was given in the memorandum, so the lawyer had to arrange to notify the customer and obtain consent at the outset. Third, because the agent might pay the fees, Rules 1.8(f) and 5.4(c) required the lawyer to maintain independence and not let the insurer interfere with or control the representation. Fourth, providing the memorandum to the insurance company revealed information protected by Rule 1.6, which could be disclosed only with the client's express or implied consent. Finally, the lawyer could not assist any agency employee or agent in the unauthorized practice of law; while Rule 5.5 allows a lawyer to advise nonlawyers whose work requires legal knowledge (which might cover insurance agents), the committee noted specific advice was being rendered to the customer through the agent, and where the line falls between practicing law and the agent's work was beyond its authority and should be referred to the Unauthorized Practice of Law Committee.

Currency note

This opinion was issued in 1990, before the South Carolina Bar's adoption of the 2005 revisions to the Rules of Professional Conduct. 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, deadline, or requirement mentioned here.

Common questions

Q: Was the lawyer's memorandum to the customer a solicitation?

A: The committee said it could be, since the customer had no prior relationship with the lawyer. Whether it was might turn on whether the customer requested it; if it was solicitation, Rules 7.1 and 7.3 applied.

Q: What conflict did the arrangement create?

A: Under Rule 1.7, a conflict between giving the customer sound estate-planning advice and the lawyer's relationship with the insurance agent (who sells insurance and may pay the lawyer). The lawyer needed the client's consent after consultation, obtained at the outset.

Q: What did the agent paying the fees require?

A: Under Rules 1.8(f) and 5.4(c), the lawyer had to keep professional independence and not let the insurer interfere with or control the representation.

Q: Could the lawyer share the memorandum with the insurance company?

A: Only with the client's express or implied consent, because the memorandum revealed information protected by Rule 1.6.

Background and rules framework

The opinion applied Rule 7.1 and Rule 7.3 (advertising and solicitation), Rule 1.7 (conflicts) with a reference to Rule 2.3 (evaluation for use by third persons), Rules 1.8(f) and 5.4(c) (third-party payment and independence), Rule 1.6 (confidentiality), and Rule 5.5 (unauthorized practice), corresponding to Model Rules 7.1, 7.3, 1.7, 1.8, 5.4, 1.6, and 5.5.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 7.1, 7.3 / Model Rules 7.1, 7.3: false or misleading communications and solicitation.
• South Carolina RPC 1.7 / Model Rule 1.7; RPC 2.3 / Model Rule 2.3: conflicts and evaluations for third persons.
• South Carolina RPC 1.8(f), 5.4(c) / Model Rules 1.8, 5.4: third-party payment and professional independence.
• South Carolina RPC 1.6 / Model Rule 1.6; RPC 5.5 / Model Rule 5.5: confidentiality and unauthorized practice.

See also

• SC Bar Ethics Op. 90-03: A Lawyer Co-Owning a Consulting Corporation
• SC Bar Ethics Op. 90-01: Announcing a Court-Certified Specialty

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-90-09/

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 90-09

A law firm and a local agency of a national life insurance company have an arrangement under which agents of the company may confer with a lawyer of the law firm regarding estate planning for the agent's customers or prospective customers. The lawyer reviews the financial and personal information collected by the agent and makes recommendations in a Memorandum to the agent about steps that the customer may take to reduce estate taxes.

After reviewing the Memorandum, the customer may contact the lawyer for further consultation. If the customer decides not to do so, the law firm will bill the agent based on the lawyer's hourly rate. However, if the customer does contact the lawyer and the lawyer performs any further services for the customer, the customer is billed for all work performed by the lawyer from the time the lawyer began to work for the agent, and the agent is not billed. The lawyer informs the customer of the fee arrangement at their first meeting.

Question:
Would the factual situation set forth above violate the Rules of Professional Conduct?

Summary:
The Memorandum prepared by the lawyer offers specific legal advice to a customer, may create an attorney-client relationship between the customer and the lawyer. The lawyer also has an interest in an ongoing relationship with the insurance company that wishes to sell its product to the customer. In this case, the lawyer must obtain proper consents to any potential conflict or disclosure of protected information at the outset of the representation. Since some fees may be paid by the insurance company, the lawyer also must be vigilant to maintain professional independence when representing the customer. If the customer has not requested the legal memorandum from the lawyer, the document may be treated as a solicitation, since the lawyer contemplates that the client may seek additional legal advice from the lawyer as a result of the Memorandum. Finally, the lawyer must ensure that the Memorandum is not used in connection with any unauthorized practice of law by the agent.

Opinion:
The described relationship between the lawyer, insurance company and insurance customer presents a number of potential ethical issues for the lawyer. First, the memorandum prepared by the lawyer for review by a customer with whom the lawyer has had no previous relationship may be characterized as direct solicitation of a client. This determination may depend upon whether the customer has requested preparation of the Memorandum through the insurance agent. If the Memorandum is prepared other than at the request of the customer and serves as a form of solicitation, the lawyer must be careful to comply with all applicable regulations under Rules 7.1 and 7.3.

Second, insofar as the Memorandum contains specific legal advice to the customer, the customer may be a client of the lawyer. (See Rule 2.3 & accompanying comment). The lawyer then must comply with the general conflict of interest provisions in Rule 1.7. A potential conflict arises between the lawyer's obligation to provide the customer with appropriate estate planning advice and the lawyer's relationship with the insurance agent whose primary objective is the sale of insurance. There is a risk that the advice given by the lawyer to the customer will be affected by the lawyer's on-going relationship with the agent who contacts the lawyer and who may pay the lawyer. In this situation, the lawyer may represent the customer only if the lawyer "reasonably believes the representation will not be adversely affected" and if the client consents after consultation. See Rule 1.7.

The facts as presented do not describe any opportunity for the lawyer to advise the client of the potential conflict and to obtain the client's consent at the time the initial legal advice is provided in the Memorandum. The absence of such opportunity creates a likelihood that the client customer will rely upon the advice in the Memorandum possibly without seeking additional advice and without gaining any adequate understanding of the conflicting interests. In order to comply with Rule 1.7 in this situation, the lawyer must make proper arrangements to notify the customer client of the conflict and obtain the client's consent at the outset of the representation.

Insofar as the insurance agent may pay the lawyer's fees if no further legal advice is sought by the client, the lawyer also must be aware of Rules 1.8 (f) and 5.4 (c). Those rules require that the lawyer maintain independence from any interference in or control of the representation by a third person who is paying the legal fees of a client. The lawyer, therefore, must take care not to allow professional judgment to be influenced or limited by the interests of the insurance company. Third, by providing the legal memorandum to the insurance company, a lawyer is revealing to a third party information protected under Rule 1.6. Such information regarding the representation may be revealed to the insurance company only with the expressed or implied consent of a client. Thus, the lawyer must ensure that either the customer has adequately consented or that such consent can properly be inferred from the circumstances of the customer's request for legal advice.

Finally, a lawyer may not assist any employee or agent or the insurance agency to engage in any part of the unauthorized practice of law. Rule 5.5 does not permit a lawyer to render professional advice to non-lawyers whose employment requires a knowledge of the law. This exception may apply to insurance agents, who must have a working knowledge of the law in order to perform their work. However, we note that specific advice is being rendered in this instance not only to the agent, but also directly to the customer through the insurance agent. Where the line is to be drawn between the practice of law and the work of an insurance agent is beyond the scope of this Committee's authority and should be referred to the Unauthorized Practice of Law Committee.