Can a lawyer work as a 'risk management consultant' for an insurance broker, reviewing the broker's insureds and advising them, without violating the ethics rules?

Plain-English summary

A sole practitioner practicing through a professional services corporation wanted to provide "risk management consulting services" as an employee or independent contractor of an insurance broker. The work would involve examining the broker's insureds' records, verifying compliance with coverage conditions, notifying insureds of deficiencies, recommending additional coverage, and performing liability-exposure assessments followed by counseling on remedial measures. She asked whether this would violate RPC 5.4(c) or (d)(3) or any other rules. The committee said it may be ethically possible to perform the services, but the risk of running afoul of the RPCs is high.

The committee said a substantive-law question exists as to whether any professional legal services are provided in the three-party consulting arrangement, and that this question is outside its purview; it noted that "it is the nature and character of the service[s] performed" that determines whether services are professional legal services (citing State v. Hunt, quoting WSBA v. Great Western). To the extent no legal services are provided, certain rules may not apply, but the lawyer must completely separate her professional services corporation from her consulting activities (RPC 1.7, 1.8, 5.4, 5.5, 7.2), and her disclaimer should warn that information learned from the risk-management investigation will not be confidential and will be provided to the brokerage.

The committee added several constraints regardless of how the services are characterized: the lawyer may not use her professional knowledge under the direction of a nonlawyer to assist the nonlawyer in the practice of law (RPC 5.5); to the extent legal services are provided, RPC 2.1, 5.2, and 5.4 apply; she may not share professional fees with, or hold equity with, a nonlawyer in an entity that provides legal services (RPC 5.4); she may not use the consulting work to channel customers to her law practice or vice versa, because the lawyer's financial interest creates an inherent, non-waivable conflict (and a non-waivable conflict may also arise from recommending risk-avoidance measures to the broker's customers, citing Formal Op. 187 and Informal Op. 1926, RPC 1.7(b), 1.8(a)); she must protect confidences and secrets during and after a representation (RPC 1.6(a), 1.9(b)); and communications must be clear and not confuse consulting with legal services (citing Formal Op. 87, RPC 7.1(a)). Finally, providing legal services under the title "consultant," or any waiver or disclaimer, cannot be used as a liability shield where the services are substantively legal (RPC 1.8(h)).

Currency note

This opinion was issued in 2002, before the Washington State Bar Association's adoption of the 2006 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.

In practice

Under the Washington rules as they stood at the time of the opinion, the committee treated a lawyer's ancillary consulting business for an insurance broker as permissible only with complete separation from the law practice. The opinion conditions it on: disclaiming legal services and confidentiality to the insureds; not letting either business funnel clients to the other (an inherent, non-waivable conflict tied to the lawyer's financial interest); not sharing fees or holding equity with a nonlawyer in an entity providing legal services; protecting client confidences during and after any representation; keeping communications clear about which service is being offered; and not using the "consultant" label to shield what is substantively legal work. The committee left the threshold question of whether the work is the practice of law to substantive law.

Common questions

Q: Can a lawyer do non-legal consulting work for a nonlawyer business like an insurance broker?

A: The committee said it may be ethically possible, but the risk of running afoul of the rules is high, and the lawyer must completely separate her law practice from the consulting activities.

Q: Is reviewing insureds and advising them on liability the practice of law?

A: The committee said whether the work amounts to professional legal services is a substantive-law question outside its purview, and that "it is the nature and character of the service[s] performed" that determines the answer (citing State v. Hunt).

Q: Can the lawyer share fees or hold an ownership stake with the broker?

A: The committee said the lawyer may not share professional fees with, or hold equity with, a nonlawyer in an entity that provides legal services (RPC 5.4), and may not use her professional knowledge under a nonlawyer's direction to assist the nonlawyer in the practice of law (RPC 5.5).

Q: Can she use the consulting business to find law clients?

A: No. The committee said using the consulting work to channel customers to her law practice (or vice versa) creates a conflict of interest that is inherent and non-waivable because of the lawyer's financial interest.

Q: Does calling herself a "consultant" limit her liability if the work is really legal?

A: No. The committee said providing legal services under the title "consultant," or any waiver or disclaimer, cannot be used as a liability or professional-responsibility shield where the services are substantively legal (RPC 1.8(h)).

Background and rules framework

The opinion canvasses a wide set of Washington rules in the context of a lawyer's ancillary, nonlawyer-employed consulting business: RPC 5.4 (professional independence; sharing fees and equity with nonlawyers), RPC 5.5 (unauthorized practice; assisting a nonlawyer in the practice of law), RPC 1.7 and 1.8 (conflicts of interest, including business transactions and limiting liability under 1.8(h)), RPC 1.6 and 1.9 (confidentiality during and after representation), RPC 2.1 (independent professional judgment), RPC 5.2 (responsibilities of a subordinate lawyer), and RPC 7.1 and 7.2 (communications and advertising), corresponding to the same-numbered Model Rules. It leaves the threshold practice-of-law question to substantive law (State v. Hunt; WSBA v. Great Western). The opinion reflects Washington's pre-2006 rule numbering.

Citations and references

Rules of Professional Conduct:

• Model Rule 5.4 / Washington RPC 5.4 (professional independence; fee sharing and equity with nonlawyers)
• Model Rule 5.5 / Washington RPC 5.5 (unauthorized practice; assisting a nonlawyer)
• Model Rule 1.7 / Washington RPC 1.7(b) (material-limitation conflicts)
• Model Rule 1.8 / Washington RPC 1.8(a), 1.8(h) (business transactions; limiting liability)
• Model Rule 1.6 / Washington RPC 1.6(a) (confidentiality)
• Model Rule 1.9 / Washington RPC 1.9(b) (duties to former clients)
• Model Rule 2.1 / Washington RPC 2.1 (independent professional judgment)
• Model Rule 5.2 / Washington RPC 5.2 (subordinate lawyer)
• Model Rule 7.1 / Washington RPC 7.1(a) (communications about a lawyer's services)
• Model Rule 7.2 / Washington RPC 7.2 (advertising)

Cases:

• State v. Hunt, 75 Wn. App. 795, 880 P.2d 96 (Wash. Ct. App. 1994), the nature and character of the services performed determines whether they are professional legal services.
• Washington State Bar Ass'n v. Great Western Union Fed. Sav. & Loan Ass'n, 91 Wn.2d 48, 586 P.2d 870 (Wash. 1978), quoted by Hunt on what constitutes the practice of law.

Other opinions cited:

• WSBA Formal Op. 187 (1990) and Informal Op. 1926 (2000): non-waivable conflicts arising from a lawyer's outside financial interest.
• WSBA Formal Op. 87 (1960): communications must not confuse legal and non-legal services.

See also

• WSBA Ethics Op. 1184: Lawyer-Business-Consultant Fee Sharing With a Corporation
• WSBA Ethics Op. 1488: Dual Professions, Law Practice and a Separate Business
• WSBA Ethics Op. 1630: Lawyer Who Is Also an Insurance Broker (Ancillary Business)
• WSBA Ethics Op. 1599: Dual Professions, Lawyer and Insurance Adjuster

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1238

Original opinion text

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

Advisory Opinion: 1991
Year Issued: 2002
RPC(s): RPC 5.4
Subject: lawyer employed as business consultant

The inquirer is a sole practitioner practicing through a professional services corporation. She wishes to provide services described as “risk management consulting services” to customers of an insurance broker, which would either employ her or hire her as an independent contractor. In this context, she specifically inquires whether: 1. The provision of these services would violate Rule 5.4(c) or (d)(3) of the Rules of Professional Conduct (“RPC”); and 2. Any other RPCs would be violated by their provision.

The inquirer requests an opinion concerning the propriety under the RPCs of rendering services that she calls “risk management consulting services.” The inquirer describes the services to be provided by her as an employee or independent contractor of a non-lawyer as including the “auditing of employment records and documents, providing training, making recommendations about better employment practices like the use of dispute resolution, and doing ... risk management analysis for businesses within the context of preventing insurance claims and losses.”

The inquirer was telephonically contacted for further explanation regarding the nature of the services under inquiry. According to the inquirer, she would be primarily engaged by an insurance broker (“broker”) to examine the records of the broker’s insureds (“insureds”) and verify the insured’s compliance with conditions for coverage and/or their fulfillment of representations made in order to obtain coverage. This review would result in the Inquirer notifying the insureds of insurance deficiencies and in her making recommendations for additional or supplemental coverage. The inquirer would also perform risk management analysis. The inquirer described this service more or less as being a liability exposure assessment based on her acquired knowledge of the insured’s business practices, followed by counseling of the insured on recommended remedial measures.

It is the committee’s opinion that while it may be ethically possible to perform the requested consulting services, the risk of running afoul of the RPCs is high.

A substantive law question exists as to whether or not any professional legal services are provided by the inquirer in her three-party consulting arrangement with an insurance broker and its customers. The services in issue include assessing and advising on the liability exposure of the customers and advising them on measures to minimize liability. The answer to this substantive law question is outside the purview of the committee. The inquirer, however, should bear in mind that “it is the nature and character of the service[s] performed” that determines whether or not such services are professional legal services. See State v. Hunt, 75 Wn. App. 795, 880 P.2d 96 (1994) (quoting Washington State Bar Association v. Great Western Union Fed. Sav. and Loan Ass’n., 91 Wn.2d 48, 54, 586 P.2d 870 (1978)).

To the extent that no legal services are provided by the inquirer, certain RPCs may not be applicable to her provision of consulting services. However, the inquirer must completely separate her professional services corporation and her consulting activities. RPC 1.7; RPC 1.8; RPC 5.4; RPC 5.5; RPC 7.2. In addition to the disclaimer of provision of legal services to the insured (as proposed by the inquirer), the disclaimer should include a warning that any information learned from the risk management investigation will not be confidential and will be provided to the brokerage.

Regardless of the characterization given the services in issue, the Inquirer is prohibited from using her professional knowledge in conjunction with or under the direction of a non-attorney in order to assist or allow the non-attorney to engage in any activity that is considered within the practice of law. RPC 5.5 To the extent any legal services are provided, RPC 2.1, RPC 5.2, and RPC 5.4 must be observed. The inquirer is also prohibited from sharing professional fees with a non-attorney or the holding of any equity with a non-attorney in an entity that provides legal services. RPC 5.4

The inquirer may not use her consulting services to channel customers to her legal practice as clients or her legal practice to channel clients to consulting activities. The financial interest of the attorney in such a situation creates a conflict of interest which is inherent and, thus, non-waivable. A non-waivable conflict may also arise depending on the inquirer’s recommendation of risk-avoidance measures to the broker’s customers. See Washington State Bar Association Rules of Professional Conduct Committee Formal Op. 187 (1990); Washington State Bar Association Rules of Professional Conduct Committee Informal Op. 1926 (2000); RPC 1.7(b); RPC 1.8(a). Also, the attorney must protect confidences and secrets, both during and after a representation. RPC 1.6(a); RPC 1.9(b). Lastly, any communication regarding the inquirer’s professional services must be clear and not create confusion that consulting services are being offered as legal services or vice versa. See Washington State Bar Association Rules of Professional Conduct Committee Formal Op. 87 (1960); RPC 7.1(a).

The provision of any professional legal services by the inquirer under the title of “consultant” cannot be used as a liability or professional responsibility shield. RPC 1.8(h). Similarly, any waiver provision in a consulting agreement, oral disclaimer, or other contractual means cannot be used as a liability shield where the provided services are substantively legal in nature. RPC 1.8(h).