Inquiry is made concerning the ethical obligations of an attorney employed by an
insurer to defend the insured when a question arises under the insurance contract
as to the continuing obligation of the insurer to defend on behalf of the insured.
The matter under inquiry may arise when the insured has an automobile liability insurance policy
with minimum limits, a clear case of liability of the insured, and the probability of a judgment in
excess of the policy limits due to the serious nature and extent of the injuries and damages. The
policy of insurance provides that the insurer's duty to defend or settle on behalf of the insured
terminates when the policy limits have been exhausted. Further, due to the facts, circumstances
and potential liability the insurer wishes to simply tender the policy limits into Court and assert,
by means of petition for declaratory judgment or other means, that its duty to defend the insured
When an insurer retains an attorney to represent an insured, the insured is the attorney's client.
See ABA Informal Opinions 728 (1963), 822 (1965) and 783 (1965).
Tennessee Formal Ethics Opinion 83-F-52 states that an attorney is required to have a direct
attorney-client relationship in the delivery of his legal services, that he should devote his
complete loyalty to the client and not allow the person or entity who pays his fee, or anyone else,
to regulate, direct, control or interfere with his professional judgment.
Canon 5 of the Code requires an attorney to exercise independent professional judgment on
behalf of a client. The Ethical Considerations relating to Canon 5 which are material to this
inquiry 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 ---
85-F-100 Page 2
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
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
The aspirational objectives of the Ethical Considerations cited hereinabove become mandatory in
character in Disciplinary Rule 5-107(B) of the Code, to-wit:
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 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 by
Disciplinary Rule 7-101(A) to represent the client-insured zealously, and by DR 4-101 to
preserve the confidences and secrets of the client-insured. There should be a full and complete
disclosure of the possible effect of his representation on the exercise of his independent
professional judgment and the client-insured should be given an opportunity to evaluate the need
for representation free of any potential conflict and all doubts should be resolved against the
propriety of representation.
The attorneys continuing ethical obligations to the client-insured following the termination of the
attorney-client relationship are (i) to continue to preserve the confidences and secrets of the
former client; (ii) to abstain from attacking the resolution of the legal matter accomplished on
behalf of the former client; and (iii) to abstain from representing another in an action involving
the former client in a matter arising out of or closely related to the previous matter.
85-F-10 Page 3
Tennessee Formal Ethics Opinion 84-F-65 states that it is improper to represent several insureds
in a class action against an insurance company in a claim for policy benefits after having ten
years previously represented the parent insurance company in defense of a similar claim. The
opinion quoted Autry v. State, 430 S.W.2d 808, as follows:
It has long been firmly established, both in the Canons of
Professional Ethics and by judicial opinions, that attorneys cannot
represent conflicting interests or undertake to discharge
inconsistent duties. When an attorney has once been engaged and
receives the confidences of his client, he cannot enter the services
of those whose interests are adverse to that of his client or former
client. The rule is a rigid one, and it is well that it is so.
The attorney in this instance specifically inquires as follows:
1. Is it proper for the attorney, who has established contact with the insured on the basis
that the attorney would be representing the insured in the tort action against him, to then
represent or advise the insurance carrier in its efforts to tender the policy limits into Court and
obtain permission to terminate the defense of the tort action against the insured?
2. Should the attorney advise the insured, at the commencement of the tort action against
him, that the attorney's representation will cease in the event the insurance carrier pays its policy
limits into Court and ceases payment of the defense costs of the tort action?
3. Is it proper for the attorney to seek permission to withdraw from the representation of
the insured in the tort action in the event the insurance carrier has terminated its obligation to pay
for the defense of such tort action?
4. Should the attorney advise the insured that the insurance carrier is contemplating
paying the policy limits into court and ceasing payment of the defense costs if the attorney, due to
his relationship with the insurance carrier, is aware that such action is being considered by the
5. What is the attorney's obligation in relating to the insurance company discovery
information obtained, which might cause the insurance carrier to determine to terminate its
defense duty and exhaust the policy limits due to the information obtained by the attorney
relating to the potential liability and damages involved in the particular case?
The answer to inquiry No. 1 is, No. Further, the attorney is ethically prohibited from
representing or advising either the insured or insurer when a conflict arises between the insured
and insurer over the coverage or terms of the policy of insurance. In such instances the attorney
should advise either or both parties to seek independent legal advice and representation regarding
85-F-100 Page 4
The answer to inquiry No. 2 is, No. The attorney is ethically prohibited from taking an adversary
position or assume an adversary role with his client. This question relates to a legal
interpretation of the insurance contract and therefore involves a matter of law. The attorney
should not become involved in conflicts between the insured and insurer concerning
interpretations of the insurance contract or any matter of law and should advise either or both
parties to seek independent legal advice and representation.
The answer to inquiry No. 3 is, Yes. The attorney is not ethically obligated to continue an
attorney-client relationship when there are no provisions or assurances for the payment of a
reasonable attorney fee. The withdrawal from representation should be in complete compliance
with Disciplinary Rule 2-110(A)(1), (2) and (3). Further the attorney should advise the insured
to seek independent legal advice and representation concerning the legal obligation of the insurer
concerning the matter.
The answer to inquiry No. 4 is, Yes; and, the attorney should further advise the insured to seek
independent legal advice and representation concerning the matter.
The answer to inquiry No. 5 is, (i) there is no impropriety in the attorney relating discovery
information obtained regarding potential liability or damages; however, (ii) the attorney is
prohibited from relating any discovery information which would adversely affect the insureds
coverage of insurance when such information is subject to the attorney-client confidences and
This opinion is not intended to undertake or attempt to address any matters relating to the
interpretation of any policy or contract of insurance and not intended to address any factual or
legal issues. The opinion is only intended to address the ethical obligations of an attorney
employed by an insurer to defend an insured.
This 30th day of September , 1985.
W. J. Flippin
Edwin C. Townsend
APPROVED AND ADOPTED BY THE BOARD