Can plaintiff's counsel deal directly with the insurance adjuster to settle a case, and can the defense lawyer consent to that?

Plain-English summary

The inquiry asked four questions about settlement negotiations after an answer has been filed. First, in a workmen's compensation suit, may plaintiff's counsel deal directly with the defendant's adjuster without the defense attorney's consent? Second, may the defense attorney consent to that? Third and fourth, the same two questions for a negligence suit defended by a liability insurer.

The Committee answered that plaintiff's counsel would violate Canon 9 by negotiating directly with the adjuster without consent, in both the compensation and the negligence settings (8-0 each). In the compensation case, the defense attorney may consent, assuming the defendant's management knows of and concurs in the procedure (8-0). For the negligence case, the Committee said the consent question could not be answered categorically. It first raised whether settlement negotiations by a non-attorney adjuster would be unauthorized practice of law, an issue beyond the Committee's functions, and said that if the adjuster's negotiations were unauthorized practice, the defense attorney's consent would violate Canon 43.

If no unauthorized practice was involved, the Committee said the situation still posed a possible conflict of interests under Canon 6: in the damage suit the defense attorney represents two clients, the insured and the insurer, to whom he owes equal duties (Opinion 179). Whether the claim exceeded the policy limits could be decisive. A settlement within policy limits, where the contract lets the insurer settle without the insured's consent, would not conflict with the duty to the insured; but failure to settle within limits when the plaintiff seeks more could create a conflict. The Committee was unanimous that, where excess liability is possible, the defense attorney violates his duty to the insured by letting the adjuster negotiate with the plaintiff (8-0). On whether the defense attorney may consent to such negotiations, two members would bar it regardless of amount, but the majority held consent is not unethical if the amount sought is within policy limits (6-2).

Currency note

This opinion was issued in 1965, under the former Texas Canons of Ethics, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. 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: Can plaintiff's lawyer negotiate directly with the defendant's insurance adjuster?

A: The Committee said no, not without the defense attorney's consent: doing so would violate Canon 9, in both the compensation and the negligence settings.

Q: Can the defense attorney consent to direct plaintiff-adjuster negotiations?

A: In a compensation case, yes, assuming the defendant's management knows of and concurs. In a negligence case, the majority said consent is not unethical if the claim is within policy limits, but it is improper where the claim exceeds the limits.

Q: Why do policy limits matter to the conflict?

A: The defense attorney owes equal duties to the insured and the insurer. A within-limits settlement the insurer may make alone does not conflict with the duty to the insured, but a refusal to settle within limits when the plaintiff seeks more can pit the insured's and insurer's interests against each other.

Q: Did the Committee decide whether the adjuster's negotiating was unauthorized practice?

A: No. It said whether a non-attorney adjuster's settlement negotiations constitute unauthorized practice of law was beyond its functions, and noted only that if they were, the defense attorney's consent would violate Canon 43.

Background and rules framework

The opinion interprets former Texas Canon 9 (negotiating with a party represented by counsel), Canon 6 (conflicting interests), and Canon 43 (aiding the unauthorized practice of law). The modern analogs are ABA Model Rule 4.2 (communication with a represented person), Model Rule 1.7 (concurrent conflicts of interest), and Model Rule 5.5 (unauthorized practice of law).

Citations and references

Rules of Professional Conduct:

• MR 4.2 (communication with a person represented by counsel), as the modern analog
• MR 1.7 (concurrent conflicts of interest), as the modern analog
• MR 5.5 (unauthorized practice of law), as the modern analog
• Texas Canons 6, 9, and 43 (former canons)

Statutes:

• State Bar Act, Article 320a-1, Vernon's Tex. Civ. Stats., cited on the unauthorized-practice question

Cases:

• Southern Traffic Bureau v. Thompson, 232 S.W.2d 742 (Tex. Civ. App. 1950), cited on unauthorized practice
• Grievance Committee v. Coryell, 190 S.W.2d 130 (Tex. Civ. App. 1945), cited on unauthorized practice

Other opinions cited:

• Texas Opinion 179 (June 1958): the defense attorney's equal duties to insured and insurer

See also

• TX Ethics Op. 298: Insurer's Attorney Defending the Insured While Suing Him on Coverage
• TX Ethics Op. 316: Gifts and Entertainment for Insurance Claims Adjusters
• TX Ethics Op. 308: Representing the Insured in a Stowers Case After Suing Him

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-297/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_297.pdf

Original opinion text

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

QUESTION PRESENTED

In a workmen's Compensation suit in which an answer has been filed by defendant's attorney, is it unethical for plaintiff's attorney to negotiate directly with defendant's adjuster for settlement of the suit without first obtaining the consent of defendant's attorney?
In such a suit, is it unethical for defendant's attorney to give his consent?
In a negligence damage suit which is being defended by a liability insurance company and in which answer has been filed for defendant by an attorney employed by the insurance company, is it unethical for plaintiff's attorney to negotiate directly with the insurance company's adjuster for settlement of the suit without first obtaining the consent of such defense attorney?
In such a suit, is it unethical for the defense attorney to give his consent?

18 Baylor L. Rev. 363 (1966)

NEGOTIATIONS WITH OPPOSITE PARTY - AIDING UNAUTHORIZED PRACTICE - CONFLICT OF INTERESTS
It is unethical for plaintiff's attorney to negotiate directly with insurance adjuster without defense attorney's consent. In a compensation case it is not unethical to give such consent. In a negligence case, it is unethical to give such consent if the case involves an amount in excess of the policy limits.

Yes, plaintiff's attorney would violate Canon 9. (8-0.)
No, assuming that defendant's management knows of and concurs in such procedure. (8-0.)
Yes, plaintiff's attorney would violate Canon 9. (8-0.)
This question cannot be answered categorically. It raises the issue of whether settlement negotiations by an adjuster (who is not an attorney) would constitute unauthorized practice of law, which is beyond the scope of this committee's functions. See Southern Traffic Bureau v. Thompson, 232 S. W. 2d 742 (Text Civ. App. 1950), Grievance Committee v. Coryell 190 S. W. 2d 130 (Text Civ. App. 1945); State Bar Act, Article 320a-1, Vernon's Tex. Civ. Stats. That issue might hinge on whether or not the amount involved exceeds the insurance policy limits.
If the adjuster's negotiations constitute unauthorized practice of law, the defense attorney's consent thereto would violate Canon 43.

If no unauthorized practice is involved, the question nevertheless presents a possible conflict of interests. See Canon 6. In the damage suit (as distinguished from the compensation case), the defense attorney represents two clients, the insured and the insurer, to whom he owes equal duties. Opinion 179 (June 1958). Here, again, whether the particular case involves an amount in excess of the policy limits could be decisive. Assuming that the insurance contract gives the insurer the legal right to settle within the policy limits without the consent of the insured, such a settlement would not involve a conflict with the defense attorney's duty to the insured; but failure to settle within such limits, when an amount in excess of such limits is sought by the plaintiff, could involve a conflict of interests.

The committee is unanimous in the opinion that, in a case involving possible excess liability, the defense attorney violates his duty to the insured defendant by permitting an insurance adjuster to negotiate for settlement with the plaintiff. (8-0.)

Although two members of the committee are of the opinion that it is unethical for the defense attorney to consent to such negotiations regardless of the amount involved, the majority of the committee are of the opinion that consent to such negotiations is not unethical if the amount sought by the plaintiff is within the policy limits. (6-2.)

Tex. Comm. On Professional Ethics, Op. 297 (1965)