Can a lawyer defend insurance-pool members when a corporate pool administrator pays the lawyer's fees?

Plain-English summary

The inquiring lawyer worked as litigation counsel in the legal department of a company that provided administrative services, including legal services, to public-entity insurance pools (covering schools, cities, and counties). He was assigned to defend claims against pool members, gave legal advice to members on issues that arose, and occasionally advised the corporate pool administrator about claims and coverage matters. He asked about the ethics of the arrangement.

The committee opined that being compensated by a third party (the corporate pool administrator) to defend pool members did not preclude the defense, but that third-party compensation triggered several obligations under RPC 1.8(f) and 5.4(c). First, as a condition of the representation, the lawyer had to advise pool members he was assigned to defend that he would be paid by the corporate pool administrator and obtain the member's consent. Second, he had to ensure there was no interference with his professional judgment or the attorney-client relationship by reason of the third-party compensation, and explain that obligation to the client. Third, he had to protect the secrets and confidences of the pool members as specified in RPC 1.6(a). The committee referred the lawyer to Formal Opinion 195 (1999).

Because the lawyer also provided legal services to pool administrators on claims issues and answered pool members' questions during defense, the committee said the possibility of conflicts arose. It noted the lawyer's statement that he did not provide coverage advice to administrators on claims assigned to him for defense, and said he should remain alert for other potential conflicts so they could be addressed as provided in RPC 1.7(a) and (b) and RPC 1.9.

Currency note

This opinion was issued in 2000, before the Washington State Bar Association's adoption of the 2006 revisions to the Rules of Professional Conduct. The conflict-of-interest and third-party-payment rules the opinion applies were restructured in that revision. 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 Treat this page as historical context, not current guidance.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: Does third-party payment bar a lawyer from defending the insured pool members?

A: No. The committee said compensation by the corporate pool administrator did not preclude defending pool members, but it triggered obligations under RPC 1.8(f) and 5.4(c).

Q: What three conditions did the committee attach to the third-party payment?

A: The lawyer had to (1) tell each pool member he was assigned to defend that the administrator would pay and obtain consent, (2) ensure the payment did not interfere with his professional judgment or the attorney-client relationship and explain that to the client, and (3) protect the members' confidences under RPC 1.6(a).

Q: What conflict did the dual role of advising administrators and defending members raise?

A: The committee said the possibility of conflicts arose because the lawyer also advised pool administrators on claims. It noted he did not give coverage advice to administrators on claims assigned to him for defense, and said he should stay alert for other conflicts to be addressed under RPC 1.7(a) and (b) and RPC 1.9.

Background and rules framework

The opinion applies several Washington rules that correspond to their Model Rule counterparts: RPC 1.8(f) (Model Rule 1.8(f), compensation from one other than the client), RPC 5.4(c) (Model Rule 5.4(c), preserving professional independence when a third party pays), RPC 1.6(a) (Model Rule 1.6, confidentiality), and RPC 1.7 and 1.9 (Model Rules 1.7 and 1.9, current- and former-client conflicts). The committee read the third-party-payment rules to permit the arrangement subject to disclosure, consent, independence, and confidentiality safeguards, and flagged the conflict rules for the lawyer's dual role.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.8 / Washington RPC 1.8(f) (compensation for representation from someone other than the client)
• Model Rule 5.4 / Washington RPC 5.4(c) (professional independence when a third party pays)
• Model Rule 1.6 / Washington RPC 1.6(a) (confidentiality of information)
• Model Rule 1.7 / Washington RPC 1.7(a), 1.7(b) (concurrent conflicts of interest)
• Model Rule 1.9 / Washington RPC 1.9 (duties to former clients)

Other opinions cited:

• WSBA Formal Opinion 195 (1999): referenced by the committee

See also

• WSBA Ethics Op. 1136: Insurer-Retained Counsel, Coverage Dispute
• WSBA Ethics Op. 1316: Insurance Defense and a Coverage Secret
• WSBA Ethics Op. 1214: Insurer Receiver and Insureds, No Consent

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1165

Original opinion text

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

Advisory Opinion: 1925
Year Issued: 2000
RPC(s): RPC 1.6(a); 1.7; 1.8(f); 5.4(c)
Subject: In-house counsel for company provides administrative services for a public entity insuring pools for schools, cities and counties wishes to also provide legal services.

[Editor's Note: Ethics inquiry #1925 concerns in-house counsel for company that provides administrative services for a public entity insuring pools for schools, cities and counties wishes to also provide legal services.]

The Committee has reviewed your inquiry and determined the following:

The inquiring lawyer works as litigation counsel in the legal department of a company that provides administrative services, including legal services, to public entity insurance pools. The inquirer states that he is assigned to defend claims against pool members and that he provides legal advice to members on issues that may arise. On occasion, he provides legal advice to corporate pool administrator about claims and insurance coverage matters. The committee opined as follows:

The fact that you are compensated for defending insurance pool members by a third party " a corporate pool administrator " does not preclude you from defending pool members against claims. However, compensation by a third party for representing a client triggers several ethical obligations. These are identified in RPC 1.8(f) and 5,4(c). first, as a condition of providing such representation, you must advise pool members that you are assigned to defend, that you will be paid by the corporate pool administrator, and obtain the pool member’s consent. Second, you must ensure that there is no interference with your professional judgment or the attorney-client relationship by reason of the third party compensation and you should explain this obligation to the client. Third, you must protect the secrets and confidences of the pool members, in the manner specified in RPC 1.6(a). In this respect, formal Opinion 195 (1999) may be interest to you.

Because you also provide legal services to corporate pool administrators on issues relating to claims and answer questions from pool members that may arise in the course of defense, the possibility of conflicts of interest arises. In this respect you stated that you do not provide coverage advice to pool administrators with respect to claims that have been assigned to you for defense. You also should remain alert for other potential conflicts of interest so that they may be addressed as provided in RPC 1.7(a) and (b) and RPC 1.9.