Can a Tennessee lawyer accept employment from an insurer to represent an insured if the insurer imposes conditions limiting or directing the scope of pre-trial discovery?

Plain-English summary

The opinion addressed whether a lawyer may accept employment from an insurer to represent an insured subject to conditions limiting or directing the scope and extent of pre-trial discovery. It started from the settled premise that when an insurer retains an attorney to represent an insured, the insured is the attorney's client, the relationship between the insured-client and the attorney should be direct, and the attorney must devote complete loyalty to the insured-client without allowing the insurer or anyone else to regulate, direct, control, or interfere with the attorney's professional judgment, citing Tennessee Formal Ethics Opinions 85-F-100 and 83-F-52 and several ABA opinions.

The opinion grounded this principle in Canon 5 of the Code of Professional Responsibility (a lawyer should exercise independent professional judgment on behalf of a client) and its Ethical Considerations: EC 5-1 (professional judgment exercised solely for the client's benefit, free of compromising influences), EC 5-21 (a lawyer must disregard the desires of others that might impair free judgment, particularly where a third person can exert strong economic, political, or social pressure), and EC 5-22 and EC 5-23 (a lawyer compensated by someone other than the client may feel a sense of responsibility to that third party, and an employer who pays for legal services to another possesses the potential power to pressure the lawyer's independent judgment). These aspirational principles become mandatory under DR 5-107(B), which bars a lawyer from permitting a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering those services. DR 5-105(A) and (B) separately bar an engagement where the lawyer's independent professional judgment will be adversely affected or where representing differing interests, defined broadly as any interest adversely affecting either the lawyer's judgment or loyalty to a client, is likely.

The opinion cited its own Formal Ethics Opinion 85-F-100 for examples of when an insured and insurer may have differing interests, most readily where a claim against the insured exceeds the policy's coverage, putting the insurer-retained attorney in a position of potential or actual conflict while still bound to represent the insured-client zealously. On that basis, the opinion concluded that an attorney may not accept employment by an insurer on behalf of an insured subject to conditions limiting or directing the scope and extent of the representation in any manner, including pre-trial discovery.

Currency note

This opinion was issued in 1988, before Tennessee's adoption of the 2003 Rules of Professional Conduct, which replaced the former Code of Professional Responsibility. 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: Could an insurer limit how thoroughly its retained lawyer could pursue pre-trial discovery for the insured?

A: No. The opinion held that a lawyer may not accept employment from an insurer subject to conditions limiting or directing the scope and extent of the representation, including pre-trial discovery.

Q: Who was the lawyer's client when an insurer retained the lawyer to defend an insured?

A: The insured. The opinion reaffirmed that the insured-client relationship should be direct and that the lawyer's complete loyalty runs to the insured, not the insurer.

Q: When might the insured and insurer have differing interests under this opinion?

A: The opinion pointed to Opinion 85-F-100's example of a claim against the insured that exceeds the insurer's policy coverage, which puts the insurer-retained attorney in a position of potential or actual conflict.

Background and rules framework

The opinion applied Canon 5 and its Ethical Considerations (EC 5-1, EC 5-21 through EC 5-23) along with the mandatory Disciplinary Rules DR 5-107(B) (bar on third-party direction of a lawyer's professional judgment) and DR 5-105(A) and (B) (bar on representation adversely affecting independent judgment or involving differing interests) of the former Code of Professional Responsibility. The modern analogs are Model Rule 5.4(c) / Tennessee RPC 5.4(c) (a lawyer shall not permit a person who pays for legal services to direct or regulate the lawyer's professional judgment) and Model Rule 1.7 / Tennessee RPC 1.7 (conflicts of interest with current clients).

Citations and references

Rules of Professional Conduct (former Code):

• Canon 5, EC 5-1, EC 5-21, EC 5-22, EC 5-23 (independent professional judgment free of third-party influence)
• DR 5-107(B) (bar on a third-party payor directing or regulating a lawyer's professional judgment). Modern analog: Model Rule 5.4(c) / Tennessee RPC 5.4(c)
• DR 5-105(A), (B) (bar on representation adversely affecting independent judgment or involving differing interests). Modern analog: Model Rule 1.7 / Tennessee RPC 1.7

Other opinions cited:

• Tennessee Formal Ethics Opinion 85-F-100 (instances where an insured and insurer may have differing interests)
• Tennessee Formal Ethics Opinion 83-F-52
• ABA Informal Opinions 728 (1963), 822 (1965), and 783 (1965)
• ABA Formal Opinion 87-355 (1987) (lawyer participation in for-profit prepaid legal service plans that preserve independent professional judgment)

See also

• CA Bar Op. 1995-139: Insurance Defense Counsel's Duties to the Insured
• Oregon State Bar Op. 2005-121: Conflicts of Interest, Insurance Defense
• AL Ethics Op. 1994-08: Insurer-Retained Lawyer Represents the Insured for Rule 1.7 Purposes

Source

• Landing page: https://www.tbpr.org/ethic_opinions/88-F-113

Original opinion text

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

88-F-113 - Accepting Employment from Insurer

BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE

FORMAL ETHICS OPINION 88-F-113

Inquiry is made concerning the propriety of accepting employment by an insurer on behalf of an insured with conditions limiting or directing the scope and extent of pre-trial discovery.

It is well settled that when an insurer retains an attorney to represent an insured the insured is the attorney's client. The relationship between the insured-client and the attorney should be direct. The attorney should devote his complete loyalty to the insured-client and not allow the insurer, or anyone else, to regulate, direct, control or interfere with his professional judgment. See Tennessee Formal Ethics Opinions 85-F-100 and 83-F-52; and ABA Informal Opinions 728 (1963), 822 (1965) and 783 (1965). See also ABA Formal Opinion 87-355 (1987).1

The standards of professional conduct expected of lawyers are expressed in general terms in the Canons of the Code of Professional Responsibility. Canon 5 of the Code states that a lawyer should exercise independent professional judgment on behalf of a client. This is a basic and elementary element of the client-attorney relationship. The aspirational objectives toward which lawyers should strive are stated in the Ethical Considerations of the Code. These provide a body of principles upon which lawyers may rely for guidance. The Ethical Considerations material to the issue addressed in this opinion are as follows:

EC 5-1. The professional judgment of a lawyer should be exercised---solely for the benefit of his client and free of compromising influences and loyalties. Neither his personal interests, the interests of other clients, nor the desires of third persons should be permitted to dilute his loyalty to his client.

EC 5-21. The obligation of a lawyer to exercise professional judgment solely on behalf of his client requires that he disregard the desires of others that might impair his free judgment. The desires of a third person will seldom adversely affect a lawyer unless that person is in a position to exert strong economic, political or social pressures upon the lawyer. These influences are often subtle, and a lawyer must be alert to their existence ---

EC 5-22. Economic, political, or social pressures by third persons are less likely to impinge upon the independent judgment of a lawyer in a matter in which he is compensated directly by his client and his professional work is exclusively with his client. On the other hand, if a lawyer is compensated from a source other than his client, he may feel a sense of responsibility to someone other than his client.

EC 5-23. A person or organization that pays or furnishes lawyers to represent others possesses a potential power to exert strong pressures against the independent judgment of those lawyers. Some employers may be interested in furthering their own economic, political or social goals without regard to the professional responsibility of the lawyer to his individual client. --- an employer may seek, consciously or unconsciously, to further its own economic interests through the action of the lawyers employed by it. Since a lawyer must always be free to exercise his professional judgment without regard to the interests or motives of a third person, the lawyer who is employed by one to represent another must constantly guard against erosion of his professional freedom.

The aspirational objectives of the Ethical Considerations cited hereinabove become mandatory in character in Disciplinary Rule 5-107(B) of the Code, to-wit:

DR 5-107(B)

A lawyer shall not permit a person who recommends, employs, or pays him to render legal services for another to direct or regulate his professional judgment in rendering such legal services.

In addition, Disciplinary Rules 5-105(A) and (B) of the Code prohibit employment by a lawyer in instances wherein the exercise of his independent professional judgment in behalf of a client will be adversely affected or if it is likely to involve the lawyer in representing differing interests. The term "differing interests" is defined by the Code as:

---every interest that will adversely affect either the judgment or the loyalty of a lawyer to a client, whether it be a conflicting, inconsistent, diverse, or other interest.

Tennessee Formal Ethics Opinion 85-F-100 cites certain instances wherein the insured and insurer may have differing interests. One that is readily apparent and material to the issue herein is when the insured has been sued in excess of the coverage provided by the insurer. Opinion 85-F-100 states, in part;

In instances wherein an attorney is employed by an insurer to represent an insured the attorney is in the precarious position of having a potential, if not actual, conflict of interest. He is bound --- to represent the client-insured zealously ---.

An attorney may not accept employment by an insurer on behalf of an insured with conditionslimiting or directing the scope and extent off his representation of the insured in any manner, including pre-trial discovery.

This 2nd day of August, 1988.

ETHICS COMMITTEE:

Henry H. Hancock

Kitty G. Grubb

Thomas H. Rainey

APPROVED AND ADOPTED BY THE BOARD

1 ABA Formal Opinion 87-355 (1987) permits lawyers participating in for-profit prepaid legal service plans if the plan inter alia allows the lawyer to exercise independent professional judgment.